These are always entertaining exchanges.  It’s like watching the lord of fiat money battle with the lord of metallic money.  In today’s Congressional Testimony Ron Paul lectured Ben Bernanke on the ways of the world and the economy.  He made some very interesting points along the lines that I generally make. The most important point was that the government should have focused on households rather than banks during the recovery process. Clearly, Ron Paul is right in this regards although I don’t believe I’ve ever seen him openly discuss the fact that this is a balance sheet recession (though I could certainly be wrong).

But his most interesting question was with regards to gold.  He asked:

“Do you think gold is money?”

To which Ben Bernanke replied:

“No, it’s a precious metal.  Well, it’s an asset.  Would you say treasury bills are money?  I don’t think they’re money either.”

Both men are wrong in a strict legal sense. What Ben Bernanke should have said is:

“Money is a subjective term.  It means different things to different people.  What matters to you and I is whether we can use gold to pay our taxes.  So, in this very strict definition as it pertains to what the U.S. government deems to be “money”, gold does not qualify whereas U.S. Treasuries do.”*

So naturally, it appears as though both men have a rather skewed perception of the reality of our fiat currency system.

Full video attached:






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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • haris07

    Right or wrong, gold is soaring against almost all fiat currencies. Bubble Ben will print (create electronically) until he achieves (he thinks he achieves, he actually doesn’t!) what he wants. I have long said, QE to infinity.

  • Peter D

    I don’t think you can pay US taxes with US treasuries, so, in this sense US Treasuries are no different from gold in them being an asset.
    The best paper on what is money I read is Randall Wray’s “Money in Finance”:

  • Cullen Roche

    write=right. Oy.

  • Cullen Roche

    Technically, you could pay your taxes in Treasuries:

    (b) Acceptable in payment of taxes. The Secretary of the Treasury, in his discretion, when inviting tenders for Treasury bills, may provide that Treasury bills of any series will be acceptable at maturity value, whether at or before maturity, under such rules and regulations as he shall prescribe or approve, in payment of income taxes payable under the provisions of the Internal Revenue Code. Treasury bills which by the terms of their issue are acceptable in payment of income taxes may be surrendered to any Federal Reserve Bank or Branch, acting as fiscal agent of the United States, or to the Bureau of the Public Debt, Washington, DC 20226, 15 days or less before the date on which the taxes become due.

  • rfr

    You can pay your taxes with U.S. treasuries?

  • The Dork of Cork

    Its more like a episode of the Honeymooners

  • Adam2

    Isn’t money a medium of exchange? Gold is definitely not a medium of exchange so how can it be money.

  • El Viejo

    Current Money is a worthless piece of paper. (basically a ticket to ride)
    It of course can be debased by external forces who have a mandate to not let that happen if that creates inflation. Right now money is being hoarded to some degree by everyone that saves.(the value of what they’re hoarding is variable)
    If gold becomes money it will be hoarded by pretty much anyone that can get their hands on it also, but there is a limited supply. (the value on it will definitely increase as more come to the party)
    So in one case there is a fear of debasement, whereas in the other case there is a known limit on availability (kinda like peak oil). There is no way gold will make it all the way to universal money because too many powerful entities are already late to the party. Also, convenience always wins out. Paper is convenient. Paperless money is even more convenient. With convenience comes the peril of quick loss. Next stop: the economic system of the final one world dictator with ultimate control over you and your money.

  • first

    If you do not pay there taxes they will take anything you have including your Gold and house.But yes they will convert it in to money. If your T bills are selling at a discount they will ask for more obviously.

  • Peter D

    Interesting, thanks! Even so, I don’t think we should be making the means of payment of taxes as the definition for “money” (in UK, IIRC, they can pay taxes even with art and antiques!) Rather, we need to follow Randy Wray (as per linked paper above) in that there is “money unit of account” and then there are “money things” – which are any financial obligations denominated in the unit of account. Those money things differ by they liquidity and acceptance.

  • Craig Austin

    He could of said gold is a speculative asset that has no intrinsic value but derives value based upon the subjective desires of the people that value it. Or he could of also said treasuries and money are essentially the same thing. All monetary operations are derived in government liabilities. All liabilities by the issuer create a corresponding asset for the currency user as a matter of accounting. When users acquire dollars they can either trade them for items in the marketplace or choose to save them as banknotes, deposits, or treasuries. The more users choose to save the more government “debt” the issuer will take on.

    Once you go down in the engine room and trouble shoot a bit it becomes painfully obvious that the existing mechanics nor the policy makers have a clue as to what actually runs this ship of our. Can I get an amen people?

  • Cullen Roche

    I didn’t say that gold is not “money”. I said you can’t pay your taxes with it. From the government’s perspective it’s an incredibly important distinction. You might claim that gold is money (not saying you do), but the IRS most certainly does not. And that’s what matters to us in the USA as we conduct business. Gold might count as “money” in some other sense (depending on your definition), but in payment of taxes it does not.

  • REN

    Money is that thing that allows us humans to trade our output. If I give you a chicken, then you are in debt to me by one chicken. The giver is the Creditor, and the receiver is the Debtor. If you hand me the chicken back, then our credit and debt are wiped out. In other words Credit and Debt are inverses of each other.

    Money is that thing that gets between Credit and Debt and allows them to extinguish each other. If money is a store of value, and it is not manipulated, then Credit and Debt can extinguish efficiently and immediately. If on the other hand, money extracts a fee for its right to exist, then it usually takes a slice of the chicken.

    Since all of our money comes into existence based on debt, in effect a toll is in place on our money. Hence our money, especially horizontal bank money, is called credit money. But whether we call it credit or debt money, it has usury or a toll that rides along with it, taking a slice of the production. Every transaction that uses credit-money, has a tax or cost associated. That cost vectors to benefit issuers of the money, a rent seeking privilege.

    Another way to look at money is as infrastructure. It is a man made idea, like mathematics, that allows transactions (debt and credit cancelation) to happen immediately. In ye olden English days, Tallys would be settled at great fairs, which mean that they were not money in the sense that we know of today. The fair happened at some time delay from the original transaction, yet the Tallys were accepted for taxes.

    Without money we cannot allow goods to be priced fairly, we cannot allow our output to be stored, and we cannot specialize. Money is necessary to modern society. Well functioning money systems are critical to Capitalism, or said Capitalism breaks down due to improper pricing signaling. The breakdown will eventually lead to Statism, so the subject is seriously non-trivial.

  • Cullen Roche

    I’ll do a very in-depth post on what money is someday. But the point I am making here is quite simple. You said:

    “Money is that thing that gets between Credit and Debt and allows them to extinguish each other.”

    Right! And as the US govt deems, the only thing you can extinguish your govt liabilities with is the thing that they deem to be payable. So, from the state’s perspective, money is that which is used to pay taxes. You might think gold is money (and maybe it is to you and your friends), but it is not money to the US govt.

  • Dimm

    “Current Money is a worthless piece of paper.”
    Then if you do not mind, can you please send me all your worthless pieces of paper? I’ll take them and pay for shipping.

  • Dimm

    That classification will exclude foreign currency as money which obviously is not true.
    Also, paying taxes is a tiny part of all the financial transactions that go on. Every single one of them is important.

  • FDO15

    This was a classic exchange. Bernanke is much closer to getting it than you give him credit for Cullen. I’ll bet if you sat down with him for a few hours he’d agree with you on MMT.

  • El Viejo

    How long before bitcoins become money to the US govt?

  • Windchasers

    I always get a chuckle out of statements like “money is a worthless piece of paper”. No matter how many times I hear people say it, I’ve never met someone who actually acted like they believed it.

    C’mon, people, if those dollars are worthless, how come you keep accepting them as payment for work?

  • El Viejo

    If you understood the principal of ‘intrinsic’ value you might understand.
    Later I said: ‘the value of what they’re hoarding is variable’

    The blogosphere is limited on time and space, but next time I will try to spell it out for you in greater detail.

  • FDO15

    My favorite irony is how all of these companies selling gold are all scrambling to collect dollars. I just clicked on an ad on this page which is all gold now. There is a page asking to see the prices for gold. They are all denominated in dollars! Ha.

  • REN

    It disturbs me that both Ron Paul and the Bernanke don’t know what money is; both of them are preaching false doctrines that are not verified by monetary history.

    My above description is why money is a fiat of the law. Since money is an abstract concept, then only Law can control it. By allowing private money masters, or even gold men, to control the issuance of credit, then that thing we need to trade our output will be perverted for their benefit. This is why the revolving door of Wall Street and Politics is so damaging to the people. It has become a Den of thieves, who use the flaws in our credit money system to fund our dispossession. As John Adams said, a republic is only suited to moral people. The founding fathers left it up to us to figure out how to create and manage a proper money system. Even back then they were playing rent-seeking games, especially Hamilton’s shenanigans with the first bank.

    Real money then is FIAT (faith) and law based, and it is used to pay taxes. Real money does not have a lot of usury riding along with it. The usury that does ride should vector back to the producers (who save), and not to those who have issuing authority. In this way, the population can better specialize and store their output. They can trade amongst each other and become wealthy using money as their tool. A financial plutocracy will not arise if bankers are denied issuance authority. That we have a structure that vectors our output to banking rent-seekers is a structural flaw that needs correcting. Our entire world view is colored by the credit money thief who issues credit to stand in for real money.

    I will always argue for the stabilization for credit, as it is the real problem. The argument between Paul and Bernanke is a side show. Either they are both ignorant, or both are complicit in disinformation.

  • Gordo

    gold is more than money – its a shiny paper weight to keep USD bills in a neat stack :)

  • Andrew

    This argument is very weak – dollars have value because that’s the thing we use to pay taxes. It may be part of the answer, but it’s a VERY small part of the answer. Just to assert this over and over again doesn’t make it so. It’s a chicken and egg explanation anyway, as are all such explanation of the value of money.

    If you asked 1000 people why they value dollars, I’d bet you that NONE of them would provide this explanation – and that is the real measure, isn’t it? Dollars are valued because you can buy stuff with them. One doesn’t need another reason (a root cause).

    The real worry is that people see the dollar as worthless because they can’t buy things that they want/need with them. If gross income shrinks (people lose their jobs or wages fall) without a commensurate fall in prices, things may get ugly. At some point both sellers and buyers will decide that the system doesn’t work well for them — what then?

  • Cullen Roche

    I didn’t say the USD has VALUE because you pay your taxes with it. Very important distinction. You’re creating a strawman argument by putting words in my mouth and misinterpreting my position. You might review my primer as I discuss this point specifically.

  • prescient11

    Gold is, and always has been, money.

    The better question is, what is money?

  • El Viejo

    So is oil for a while longer at least.

  • REN

    Cullen, 100% reserve people like myself disike specie money in the extreme. Any review of history shows that credit always rides of top of specie. Please don’t conflate 100% reserve concepts with Specie. I don’t do MMT that injustice, so please reciprocate. We are very close in our ideology, only I’m harder on credit issuance and focus on that as being the main problem.

    Yes, I agree wholeheartedly that real money is used to pay taxes, and it isn’t Gold.

  • Crake


    This is an extremely succinct definition that covers the major points – it would be good to put on comments related mainstream news posts.

  • Cullen Roche

    I was not disagreeing with you. Just clarifying my point as it pertains to what the US govt deems to be money.

  • prescient11


    Your contributions are most welcomed.

    At the end of the day, the reason that gold is valued is that it is incorruptible. Unlike the men that run the system.

    That is why a just money system should have some relation or reference to gold, not a gold standard which I reject. But some reference point would allow the populace to know when their fiat money was being devalued.

    As if gold’s current action didn’t tell us though. But that has been pent up for 10 years waiting for recognition.

  • Peter D

    All I am saying is that one has to define what money is and then apply the definition consistently. Your definition seems to be “that which is acceptable as a payment of taxes”, if I understood you correctly, and it is not a bad definition.
    I however, prefer the unit of account definition because it really highlights the MMT tenet of money being just a score-keeping device, with intrinsic value of it being the unit of accounting for payment of taxes. Even if tomorrow the Tsy decided to accept the payment of taxes in Gold, you’d still pay at the current going price of oz of gold in USD. Actually, this already happens today, since most of the taxes are paid with bank deposits, which are horizontal money things denominated in the money unit of account (which is USD.)

  • MMTer

    Money is different things to different people. We are better off being more specific as the term money is a really vague concept.

  • El Viejo

    Ha Ha Ha Ha Ha Ha Ha !

    I suppose if you were on a desert island the temperature was dropping and you only had a gold bar, a few dollar bills and pieces of dried wood those dollar bills would be worth a lot more than that gold bar. (provided you knew how to rub two sticks together)

  • Cullen Roche

    I agree. I am not nearly doing this topic justice with such a brief discussion. “money” serves many purposes. As Scott likes to say, it’s best to avoid the term altogether. A more in-depth discussion is certainly necessary. Randy’s paper is excellent though.

  • REN

    Since money is our media of exchange and our store of wealth then it should have these properties.

    1. They are to be paid into circulation.
    2. They are to be redeemable for goods or services or as payment for taxes.
    3. When demand deposits are used as media of exchange, they are to have 100% cash reserves on deposit in the bank.
    4. All are to be issued in good faith.

    Vertical money should be paid into circulation, not borrowed and spent. There is no reason why a sovereign issuer of currency should have to borrow its own credit. The money spent into circulation ends up becoming savings if it is not completely taxed away.

    Demand Deposits should be backed by something real, not counterparties and leverage. Sorry Minsky… It is hard to control credit, so just chuck it on the trash pile. But, I’ll give MMT folks kudos for trying!

    Fiat is faith, which gets it’s “faith” from the law. Ultimately the legal system settles debts and obligations, so money at its root is a legal concept.

  • first

    Government imposes its fiat money.
    Gold could and has been money and I think that Ron Paul despite being a honest politician is wrong on contemplating an asset back currency.

    But lets face it he does ask BB a lot of interesting questions and it a much better and more interesting than the previous platitudes of the past Greenspan unquestioned messianic prophecies.

  • Dimm

    Close to the Canadian border Walmart accepts Canadian Dollars without any issues.
    In Europe you can pay with whatever you want including dollars in the stores. I bought souvenirs Prague with US dollars and the exchange rate was better than what you can get in a bank. Same thing in Greece and any other place I’ve been to.
    No one merchant cared what they had to pay their taxes with. As long as they can convert it to whatever currency they need without significant risk and cost they will take any currency.
    I understand your argument though.

  • Rharaz

    Hi Cullen,

    Would the fed government accept US gold eagles (based on their $ face value, not the $ spot price of gold) as payment for taxes?

  • Cullen Roche

    If you went to the IRS with gold coins they would ask you to first exchange them into USD.

  • Don Levit

    “Money is that thing that gets between credit and debt and allows them to extinguish each other.”
    A couple of comments.
    What happens if the creditor and the debtor are part of the same overall unit?
    For example, the Treasury owes the Social Security trust fund about $2.6 trillion.
    In government accounting, that is a liability to the Treasury and an asset to the SS trust fund, so it is a wash – neither an asset nor a liability.
    Second comment.
    Bruce Webb at Angry Bear thought that Treasury securities were more valuable than cash, because Treasuries pay interest.
    He was referring to Treasuries in the SS trust fund.
    However, if cash can be liquidated and Treasuries in the SS trust fund can only be liquidated by added revenues or added debt held by the public, isn’t cash more valuable than Treasurues?
    Don Levit

  • Andrew

    I agree I put words into your mouth. Sorry for that. But you do say that “We tax in order to create demand for the currency.” I don’t understand why this is so. We tax because we HAD a fixed currency regime and haven’t woken up to the fact that we no longer have such a regime. We may need to continue to tax in order to control the amount or distribution of dollars in circulation, but to say that we tax to create a demand for money is a solution looking for a problem.

    Why would no tax collection lead to a lack of demand for currency if there was still good productivity and regulation? If the government went away, would people use dollars as long as there was some mechanism to prevent people from creating dollars “unfairly”? I think so, though perhaps that mechanism of enforcement IS a government. Still, this doesn’t involve taxation at all.

  • Craig Austin

    Brotha if wants some more i got it to share?

    Money functions as a medium of exchange and a store of value. When users acquire dollars they can either trade them, known as spending, for items in the marketplace or choose to save them. The more users choose to save the more government “debt” the issuer will take on. In other words, China saves in our currency. The US government as a currency issuer does not borrow from China. This is not a theory this is a matter of double-entry accounting. Savings by currency users, domestic or foreign, is a straightforward concept on an individual level but becomes counter intuitive on a macro level.
    (This where you bust out Say’s Law and Keynes “paradox of thrift”)

    Both Says’ and Keynes’ oversight is that both their models presume an issuer acting within the system and fail to mention how. The confusion with monetary policy is wrapped up in both “laws”. MMT fills in that blank.

    Hang tight I document coming down the pipe that summaries this stuff – as Borat would say “E’s nice”

  • Cullen Roche

    If the govt went away there would be no need for govt spending or taxes so it’s a moot point. But that’s not our reality. We created this govt for a very specific reason and that reason is going to continue to exist as long as you and I are alive. The anarcho capitalist dream just doesn’t fit into the reality of our world. We are not solitary animals. The anarcho capitalist dream shows a massive misunderstanding of human evolution and biology.

    Back to taxes – taxes drain the system. If we didn’t tax we would cause hyperinflation. Again, taxes serve to regulate aggregate demand. This doesn’t mean that taxes necessarily give money “value”.

  • F. Beard

    Vertical money should be paid into circulation, not borrowed and spent. There is no reason why a sovereign issuer of currency should have to borrow its own credit. The money spent into circulation ends up becoming savings if it is not completely taxed away. REN

    Amen, amen! Further, vertical money should not be lent into existence either. Government should only spend and tax its fiat, nothing else.

    Sorry Minsky… It is hard to control credit, so just chuck it on the trash pile REN

    At the very least, all government backing for credit creation such as a lender of last resort should be abolished.

  • first

    the Treasury owes the Social Security trust fund about $2.6 trillion.
    In government accounting, that is a liability to the Treasury and an asset to the SS trust fund, so it is a wash. A growing assets against IOU’s based on 2.6 trillion of future issued new money.

  • http://deleted Don Levit

    And the future issued money has a cost versus an investment that can be liquidated for cash, or cash itself?
    The cash or liquid investment has been prefunded; the future issued new money is unfunded.
    Don Levit

  • Craig Austin

    Taxes “draining” non-government financial assets always through me for a loop. The trick is to recognize taxes destroy money so government can display that money by spending. Simple? No because now the concept of savings adds another dimension to fiscal policy. Why?

    In order to offset spending with tax revenues, government must destroy money through taxes before it creates money to spend in the marketplace. Recognizing that some users choose not to spend, government deficits must correspond to the users savings rate in order to maintain price stability for any given level of output. The challenge of the issuer is to spend enough money to displace the saving rate but not enough to exceed it.

  • Different Chris

    Story of the day?

  • Geoff

    If Treasuries can be used to pay taxes, should we call them Mosler bonds?

  • REN

    Don, If I have a chicken in my right hand and I give it to my left hand, is my left hand in debt to my right hand? (from your question – what happens if the creditor and debtor are the same unit?)

    MMT calls this the husband and wife principle. Your left and right hand are still you, therefore there was no credit and debt creation. You still own your chicken.

    Our complicated money system plays semantic games with itself. MMT helps to cut through a lot of the BS. I’ve described what money is, in about as few words as possible. Everything else is just fluff and smoke and mirros; complexity is put into the system to confuse us. The complexity allows a “priesthood” to rent seek and siphon our wealth. Because our financial priesthood drives fancy cars and wears expensive suits, is no reason to be impressed.

  • Leverage

    I think an invariable definition of money is “Money is a deficit” or a “Debt” or in the end: “A promise”. What backs up this promise of wealth is a productive society (in the end) and confidence on the issuer of money ((be them governments or private institutions).

  • REN

    Did David Graeber study the Greenback period, or perhaps Massachusets Bills? Or how about Salons reforms in Greece. Did he study Aristotle’s concepts? There is no reason for money to be debt, history has proven that repeatedly. But, that knowledge gets lost, usually as the priesthood moves in to rent seek. A recent example is 1974 when the money masters moved in to buy the Canadian national bank. Of course the politicians sold the idea to make money for themselves. I’ll read the link, but I’m wary of all concepts that like to cherry pick history to make their case. If a concept cannot stand up to all inquiry and all of history then it needs to be circular filed.

    Benjamin Franklin’s State Bank worked because he limited the borrowing to 10 year increments. The usury then was paid by the State back into the private sector. In this way it approached real money, and the usury never got into the exponential part of the rate curve. The rentiers gave up their rent-seeking ways, and went back to being merchants and traders. Money started flowing in the economy, people could trade their output, and wealth was created.

    If our deficit went away, the government would simply issue money by Law, and spnd it into the economy. We would debate on how much was to be spent into existence every year. Yes, it is a little bit off the cognitive map, but there it is. Money doesn’t need to be debt, it is a lie of history that is periodically overturned. Personally, I think spending by head count into the States would rebuld State power and revert us back to being a republic. Let the people decide what to do with money that is spent into existence. They know best, because it is their money and their tool.

  • Different Chris

    I’d like to think I had something to do with that….. although its unlikely.

  • Cullen Roche

    Pragcap is a democracy. You voted and won. Yours was the only vote tallied. :-)

  • Andrew

    OK, now I’m confused.

    You said in your primer that we “tax in order to create demand for the currency,”

    But in the last response, you say:

    “taxes serve to regulate aggregate demand.”

    But these are two different statements about taxes. Aggregate demand isn’t the same thing as creating demand for the currency, is it? It isn’t to me.

    Perhaps you aren’t in agreement with Mosler, Wray and others, but they have written quite clearly that the reason that they think that people want dollars is because they need dollars to pay taxes. Perhaps you are saying something different, but I’m not sure how “taxes create demand for the currency” is saying anything different. Stephanie Kelton trotted out James Tobin and his Nobel as if his saying it made it logical.

    When you say “What matters to you and I is whether we can use gold to pay our taxes,” I think you overstep. The reason that the government wants the dollars is because it thinks it needs dollars to pay it’s bills (at least that’s they way everyone talks). Its demand for dollars is no different than the demand for dollars that you or I have. True, the government is mistaken on this point, since it can create dollars at will, but that doesn’t change anything.

    If we change our perspective, we can see that the government should be using taxes to regulate aggregate demand. It doesn’t need to tax if it is trying to increase aggregate demand, it has to create money (or transfer it from those who aren’t spending to those who will). The currency users then see that dollars are the points in the game we call the economy and the government is simply the ref, who gets to give and take points from time to time to keep the game going. We use the dollars because we want to play the game.

  • Scott Fullwiler

    Haven’t read the whole thing, so perhaps it’s already been said, but this came up several times in what I did read.

    MMT’ers argue the following regarding a medium of exchange:

    1. The state can name “that which is necessary to pay taxes” (twintopt) and it is then so.
    2. The state’s money will then generally be accepted as a means of payment among the non-govt sector, at least in a non-trivial sense.
    3. There is nothing in MMT to ever suggest that ONLY the state’s money will then circulate as a medium of exchange to settle transactions in the non-govt sector.

    There are a lot of other technicalities that I will leave aside for nwo regarding liaibilities denominated in terms of twintopt–which given 1 above has become a unit of account–such as reserve balances vs. bank deposits vs. accounts at, say, a clearing system like CHIPS, and then those that are not such as other currencies or whatever wants to use in settling private transactions.

  • Cullen Roche

    Thanks for chiming in Scott. We’re always asking for trouble when we use the word money. It’s way too vague and I have done the topic an injustice by not being more thorough. Perhaps one day when I have some time….

  • Different Chris


  • Scott Fullwiler

    Yeah, noticed I broke that rule myself in #2 and #3 where I said “money” instead of “twintopt”.

  • El Viejo

    I hope I beat Boatman to this: (wait for it) I’m starting to feel holy.

    Interesting parallel between ‘Store of value’ and ‘Store of energy':

    Oil and coal stored energy from the coniferous period. Dollars are a store of value, but are also called petro-dollars. Some out there are trying to do away with petro-dollars. Hydrogen is an energy carrier. It is created by electrolysis. Are we entering a new age?? (Scary choice of words: ‘New Age’)

  • El Viejo

    Uh, that’s carboniferous period.

  • Derek Blair

    In your comment regarding what Bernanke sould have said, you stated: What matters to you and I…. Surely you mean ‘you and me’ as in ‘what matters to me’, not ‘I’.

  • Walter

    What money should be, and what it in reality *is*, are 2 different things. Money used to be a store of value, which is why gold used to be money. Today, money is a representation of debt, which in short, is why we’re in the mess we’re in. (And why creating more of it, will not fix things.)

    Useful videos to watch to get some education about the real nature of money and our monatary system as we have it now:

    Money as Debt:
    The Money Masters pt. 1:
    The Money Masters pt. 2:
    Money as Debt 2 – Promises Unleashed:
    The Secret of Oz:

    Hope that helps. :)

  • Different Chris

    Couldn’t we just use ‘the state’s money’ as a synonym for twintopt? rolls of the tongue and fingers a little better.

    Neverheard of twintopt before, love it.

  • Different Chris

    Addendum: at least for fiat currencies, possibly just for soverignly issued currencies in a floating exchange rate system?

  • Leverage

    Hi REN, yes I know all the cases you mention and a few more (i.e. do you know the case of the Wörlg demourrage currency, the WIR, or the current Chimgauer?). But David talks about dominant forms of money (and the battle of money, for example the demonetization of silver and other metals against gold) and in all the cases you mention these where not the dominant systems (unfortunately), he mixes it with an analysis of ethics, dominant moral system, politics and in the end power and enslavement.

    He’s not making a case for current monetary system (or bullion-based one), he’s an anarchist, but writing a narrative on the history of money and debt, and how societies evolve to absorb conflicts caused by them. I haven’t read the book yet, but is going to be interesting, here’s a summary:

  • fred

    I gave my neice a 20 franc swiss gold piece a few years back. She traveled alot around the world. I told her no matter where you are it will get you out of a jam. It did- in the middle of no where. Gold is money- I can always convert it to fiat to pay my friggin taxes…anywhere anytime.

  • JH

    Gold is what governments own to give their fiat currency legitimacy.
    Even though there is no more gold standard, gold is still an asset used to instill confidence in the paper money.
    If it is in fact the ultimate money, it is universally recognized and accepted worldwide.
    The fact that you cannot pay taxes with it is irrelevant.

  • Cullen Roche

    Lots of things fit that definition of the medium exchange in various places around the world. Tell your niece to go to the IRS with the gold piece. They’ll show her the door. As pertains to the US monetary system, gold is not money. It might be a medium of exchange and a fine store of value in some private or global markets, but it is not money in the same sense that a US Dollar is. And that’s according to the IRS.

  • Cullen Roche

    Tell that to the millions of people in this country who acquire USD’s to pay their taxes. Better yet, good luck convincing the IRS that gold is money.

    Do me a favor this year and transact ENTIRELY in gold. Let me know if you change your mind about that when the year is over. I think you’ll find that life is pretty difficult when you try to use gold as your only form of “money”.

  • Buzz

    I could be off on my definitions here, but it seems a differentiation between “money” and “currency” might help clear things up. Many, many things can be called ‘currency.’ Tulips, puka shells, gold, silver, etc. Hell, from a barter standpoint, anything could count. However, ‘money’ seems (from this conversation) to have a few traits – can be used to pay taxes, is considered “legal tender” by some ruling government (doesn’t have to be universally legal, just legal somewhere, and is issued by some ruling government. “Money” is a governmental and legal term – not simply applicable to anything that can be used to “buy” something else. Well, that’s my two cents (heh, heh) worth on the topic. It was too interesting not to jump in on. Thanks for letting me play.

  • Kevin Beck

    There is a difference between legal tender and money.

    Money is durable, divisible, scarce, portable, and has intrinsic value; legal tender is a concept imposed by the State. But legal tender does not equal money.

    Now, it doesn’t surprise me that Benny doesn’t know the difference. After all, he’s just a government hack. And living proof that intelligence is not a requirement when you are at the highest levels of government.

  • Martin

    I do not think Gold is a currency. At the moment, it is used as a storage of value due to uncertainties. Yes, it does have some great physical elements.
    Cullen’s got a valid point in relation to the inapropriate use of Gold in relation to paying today your taxes.
    But so far, the definition of money as yet to be addressed.
    I’ll leave it to Cullen to open up this very interesting subject about the definition of Money.

  • Walter

    I forgot to include:

    The Creature from Jekyll Island:

  • Cullen Roche

    It needs to be addressed in MUCH more detail as it is a much more in-depth debate. I am not saying that Ron Paul or Bernanke are necessarily wrong. I am merely pointing out that they are wrong in the most important sense. Much more detail to come in a future post….

  • Nils

    I know of people who settled a debt with giving up their iPhone. Are iPhones Money?

  • Walter

    Another satirical look at the Fed:

  • F. Beard

    Money is durable, divisible, scarce, portable, and has intrinsic value Kevin Beck

    Commodity money, if used as a commodity is not money and vice versa. So much for intrinsic value.

  • Nils

    What is the intrinsic value of gold? It’s shiny and nice to look at…

  • JH

    You are confusing currency with money.

  • PG

    Let me point to which seems to be the key to understanding the nature of money, by repeating a comment I made in another blog?

    May I suggest that the expression “fiat/trust money” or simply “trust money” be used instead of “fiat money”?

    The reason for such change is twofold: pedagogical and framing the debate in more precise terms.

    At root, the nature of fiat money is trust money:
    – Without trust it has no value.
    – Fiat is an operational aspect; it cannot be fiat without being trust.
    – It could be trust without being fiat.

    Actually, the expression trust money is redundant. It could not be money without trust. For example, taking gold for money amounts to taking a merchandise as a substitute for money; or to confuse barter with monetary transactions. Kind of using cigarettes in a prison or concentration camp as “the most liquid merchandise” and calling them money. Using cigarettes or gold as a substitute for money always happens – and only happens – at the social level when trust does not exist or has been abused.

    The concept of the nature of money as trust is not easy. Yet, there appears not to exist other explanation for why someone would surrender something directly valuable to others in exchange for a IOU. If that someone would not trust the IOU, then s/he would require that the “something directly valuable to others” be exchanged for “something directly valuable to her/im”. In a word, s/he would only engage in barter rather than in a monetary transaction.

    Because the concept is not easy, care, stress and perseverance should be exercised to make it clear.

  • JH

    Money is the actual wealth vehicle, currency represents that wealth.
    There was a time (gold and silver coins) when they were the same thing.

  • prescient11

    But this is a strawman argument.

    Yes, take gold to the IRS and they will tell you to get dollars.

    Well, walk down the damn street and you can convert an ounce of gold to dollars in two seconds.

    Try the same thing with an ounce of notebook paper and see what happens…

    Therein lies the difference. Gold is, and always has been, money. In all countries, to pretty much all people as best as I have read.

  • http://deleted Don Levit

    You make some great points about money should be a store of value.
    We seem to get all caught up in this mystique of unlimited debt, but not seem too concerned about what that debt represents.
    I have a feeling no one responded to you, because you tied their tongues behind their necks.
    And, Ren, husband and wife debt has no business being part of the government.
    If the government needs to borrow, let it do so from a willing outside buyer.
    What part of the Constitution allows one government agency to borrow from another?
    Don Levit

  • Craig Austin

    “Money?” I like the dollar kind

    Currency issuers do not “borrow” money, they create it. Creating money creates a government liability. The proper way to think of it is that issuers create the money that users either save or spend. Savings comes in the form of banknotes, deposits, or treasuries. Spending involves trading money for items in the marketplace. In other words, China does not lend to the US, they save in the money the US produces. This is not a theory this is double entry accounting.

    Hope that helps. Hate to cut and run but I got to do some laundry back at the Dollar Monopoly casa

  • Cullen Roche

    As I said, tell the IRS that you want to pay them in gold. They’ll tell you what they perceive money to be. And it is USDs.

  • Craig Austin

    @Walter you need some wise Dollar Monopoly – all that conspiracy stuff is clouding your mind and your reasoning.

  • F. Beard

    If the government needs to borrow, let it do so from a willing outside buyer. Don Levit

    But government has no need to borrow what it can create for itself debt-free.

    So government debt is actually a favour that government has (so far) extended to those who desire a risk-free return.

    But the fleas have forgotten their place and now think they are the dog.

  • Paul M

    Why does everyone forget what the US Constitution says about ‘money’ Money of the account of the United States shall be gold or silver coins. How more clear can that be?

  • F. Beard

    Money of the account of the United States shall be gold or silver coins. Paul M

    Just where does it say that in the US Constitution? I think you err.

  • F. Beard

    I searched the US Constitution for “gold” and only found this:

    “Section. 10.

    No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

  • Paul Skinner

    The ONLY person who has a skewed view of the monetary system is YOU.

  • Anton

    After Bernanke replied that gold is not money didn’t Ron Paul then ask him something like, “If it is not money then why do central banks hold so much of it?” I think it is not a bad question. Either central bankers are absolutely clueless and they still think the gold standard is on, or Corrente was right in his post today about reflexivity and how even though MMT may be the right theory, interpretation of reality, if the authorities want you to believe something else, you will..

  • F. Beard

    The rich rules over the poor, and the borrower becomes the lender’s slave. Proverbs 22:7

    So. Shall the US Government be the servant of creditors that it has no need of in the first place? I think not. But let the fleas bite till the dog shakes them off.

  • Different Chris

    In the same scenario:

    Can you use the gold to ‘buy’ anything?

  • Anonymous

    to Anton’s point:

    exactly right! why was the ECB partly capitalized with member’s gold contributions?
    its a relatively new creation, yet it still followed tradition.

  • first

    That would be: “The diamond-water paradox”

  • Tony


    Your microscopic techno-analysis is driving you off a cliff, buddy. You need to take a hard look at what happens in the business world when institutions let the bean counters out of the back room, and start calling the shots. Same thing with your analysis.

    Your comment that a lack of taxation causes hyperinflation is ludicrous. There’s no other way to describe it. First, many of your posts refer directly, as well as by strong inference to the IRS’ collection of direct capitation taxes. There have been ZERO historical incidence of hyperinflation caused by a lack of direct capitation, or by any vacuum of taxation for that matter.

    If I’m wrong, please explain to me how it was avoided in the US before the early 20th century, when the constitutional prohibition on direct capitation was amended to allow it. Further, how was hyperinflation of government notes avoided before our final decoupling from the gold standard in the 30’s, and the final decoupling from the silver standard during the Nixon administration?

    One can’t inflate anything without first filling it with something; ergo monetization of debt with the printing presses. That’s the only way.

    One does not have to be a biologist, acquiesce to the extremely abundant faith required to espouse a belief in an evolved origin of life, nor be an anarchist in order to take a view that our government wasn’t created in order to tax and regulate currency values.

    Finally, I’m 47 YOA. Assuming I live out the actuarial age for males in the US, I fully expect to live to see the US government long gone.

  • first

    Ha Ha Ha…. Its that thing that is wort a little less than yesterday.

  • Different Chris

    What exactly IS your point other than that people who challenge your view are therefore wrong?

  • Rocketman

    Is gold money? What a question! If you handed someone from say 5000 years ago a gold coin they would have recognized it as such, while handing them a fiat $100 dollar bill and then trying to make off with the horse that they were trying to sell would have only have gotten you thrown into what would have been a prison or dead. Fiat currency has only been recognized as such for a tiny amount of that time say 3 or 400 years. Yes the dollar can purchase goods now but what about the future? My guess is that in a hundred years we are going back to what a person of 5000 years ago thought of it.

  • Different Chris


    Respectfully, I think you are completely misinterpreting Cullen’s arguemnt.

    Taxes create demand for the currency while making demand for other forms of currency 0 (we could end up in fight over what currency is, but we’re talking about what the currency of the US is). The demand is created because you could go out exchange shiny pieces of metal for good & services but you would still have to exchange that ‘currency’ for USDs to pay taxes, pretty simple.

    Comparing what happens in corporations (currency user) to how the government (currency issuer) monetarily operates is apples and oranges.

    Taxes & hyperinflation…. hyperinflation is a psychological rejection of the currency. No taxes specifically in USDs means you can transact in any ‘currency’ you want in the US and then USDs can then be rejected…..

    “Please explain to me how it was avoided in the US before the early 20th century” You mean when the US was not the monopoly supplier of its currency in a floating exchange rate system? Do you have anything points/data/statistics that affect or speak to the US’s monetary system as it is now instead of how it was 100 years ago, or 40 years ago?

    I’m 25 and work in one of the most historically risk averse industries there is. If you don’t think the US will be around by the time you pass on, I will kindly take any and all USDs you therefore think will eventually be worthless off your hands.

  • Different Chris

    Well noted.

    Can we not use examples of ‘being trapped on desert islands’ when discussing monetary policy of a nation? I don’t see any useful comparison between the two.

  • Adam

    China was using paper money as early as 800 AD…

    Second, if there is no economy a gold coin is as worthless as paper. Money of any kind only has value so long as there is economic output. Money is nothing more than an IOU on future (or stored) output no mater what its made of.

  • Different Chris


    Interesting facts, but I have to point out that if you think paper-fiat currency won’t be around in the future, than you specifically think the sovereignty of currency issuers will collapse and they will before forced back onto, at the very least, a commodity back paper (such as the gold standard). Is this correct?



  • first

    “it cannot be fiat without being trust.
    – It could be trust without being fiat.”


  • F. Beard

    The only trust that fiat requires is that government can enforce tax collection in it.

  • Cullen Roche

    The collapse of the tax system is actually exactly what causes most hyperinflations. For more perspective you might review the paper I wrote on this:

  • Cullen Roche

    We don’t live 5,000 years ago. We live in the USA where the US govt has deemed what “money” is. That is all that matters in the here and now.

  • F. Beard

    It’s pretty clear what government money is. However, the private sector should be allowed to define what private money is ELSE there will be an unending battle over what a one-size-fits-all government/private sector money supply shall consist of.

    Government money is backed by force but private money could be backed by:

    1) commodities
    2) equity
    3) products
    4) future production
    5) labor
    6) who knows what else

  • beowulf

    “will be acceptable at maturity value, whether at or before maturity”

    Actually this federal regulation says if Secretary elects to (I don’t believe he currently does) accept T-bills for taxes, they are accepted at par. Yet another reason Tsy should stop sell anything longer than T-bills.

    Anytime the Fed had some crazy notion to let interest rates go up, corporate tax departments could drive them back down by buying up discounted T-bills to enjoy a slight discount on the $1.7 trillion in annual tax withholdings (big employers have to forward taxes as often as daily). Even with rate near zero, the psychic benefits from sticking it to The Man would be immense. :o)

  • first

    “The rich rules over the poor, and the borrower becomes the lender’s slave”

    That is a bizarre statement. Almost every rich person I know made money doing exactly the opposite by borrowing.
    Long term Inflation always favors the borrowers.Borrow now at reduced rates,pay back in 10/15/20 years in devaluated dollars.

    What went wrong recently is the exception, In a common sense world we are not suppose to borrow 110% with no payment for the first year or so.

    Put down 25% borrow 75% = The loan 25% devalues over time and the asset 75% retain its value or appreciate over time. Fiat money is a borrowers friend.

    In normal times Banks have a free ride since they have there horizontal 9X magic money creation machine, if that is what you mean I agree but I dont think that was invented when Proverbs 22:7 was posted .

  • beowulf

    Like that Mickey Spillane novel, “I, the Jury”. :O)

  • Leverage

    Australia and New Zealand are pretty close to the system you want (not exactlly the same, because banking can extend credit nominated in national currency, but close): there is a big deal of monetary freedom there (only you have to pay taxes is the legal tender).

    However it looks like that is the government money the monopoly there. So much for private money, gold, or whatever (and it was Australia the country which had one of the more developed free banking systems too).

    I’m not against private currencies (I own some bitcoins, but I see them mroe as gambling than anything else right now, I also have paper gold), indeed I’m very close to your position, but the theory of state money looks like has the strongest empirical support right now. And money was borne in debt (not in gold, as goldbugs pretend) and credit backed by states, and since then looks like that essentially staid the same with periods of bullion dominance.

  • F. Beard

    The capital gains tax on everything but FRNs is just one advantage over potential money competitors that FRNs have.

    Why should people be forced one way or another to use FRNs for private debts? The effect is to allow the stealth inflation tax to operate which infuriates many people. It is the main motivator for the hard money folks. They are serious about abolishing it by limiting government money creation to the mining rate of gold.

  • prescient11

    I do not understand this comment. I just said you can take gold and go to a jewelry store or whatever, sell it on a street corner, to pay the IRS man in his currency.

    That is why gold is money.

    Tell me, aside from silver, what other material you can readily and easily exchange for IRS man his money.

    And guess what, I can do it in the UK, Zambia, China, India, and anywhere else.

    That is why gold is the true universal money/store of value.

  • first


    I am no Gold bug but throughout history economies have collapse but not all at once and people would travel with there Gold. In Europe Gold moved from country to country during world war 1 and 2 and a lot moved in to Switzerland. As far as understand they all protected there wealth this way as compare to all the various funny currencies.

    Its a fact that fiat money history is one of abuse and miscalculation.

  • F. Beard

    It might complicate tax collection a bit but separate government and private money supplies would avoid a lot of arguments about spending levels and the true inflation rate. It would allow government to spend at will without damaging the private sector. Furthermore, it is a principled approach to money creation.

  • AmericaFadingFast

    Bernanke is hairy-lipped lying tool of the IMF and BIS who could NOT find his way out of a wet paper bag even with map and compass. The economy is a controlled train- wreck, designed to fail, with pretense they actually care, all to enter their satanic one world currency and total control for their master. They care NOTHING about regular Americans who have supported them through hard-earned taxes. Best to face the hard reality now.

  • F. Beard

    Whether private currencies were used much would depend on how well government managed its money supply. And the fact that people could use private currencies if need be would act to ensure that government managed its money supply well.

  • pebird

    Let’s not confuse the general category of money with the fiat currency – a specific type of money. Fiat currency (or state money) will circulate if it is the only means by which the public’s obligations to the state (primarily taxes) can be extinguished.

    Money can be anything (and a great deal of anything has been used as money). But modern money (that dreaded term “fiat currency”) circulates because the state has imposed obligations on the public that are met by paying the state in the state’s money.

    With regard to the function of taxation in relation to the currency – taxation gives birth to state money by anchoring a demand – no one will sell anything to the state for fiat currency unless they have a need for it. Taxation – an obligation from the public to the state – creates that base need for state money.

    As taxation creates demand for currency (nominal values), taxation also regulates demand for goods/services (real values). Generally speaking, as taxation increases or decreases, it has the opposite effect on demand.

    Money has three functions: 1) unit of account (the measuring stick), 2) means of exchange (low friction trade intermediation), 3) store of value (maintain purchasing power).

    These 3 functions are not necessarily in harmony. So, we create all kinds of different forms of money (or more accurately, financial instruments) to address different circumstances, all of which revolve around time.

    Aren’t financial crises fun – we get to discuss things we should have known 25 years ago.

  • Cullen Roche

    I can sell lots of things on a street corner in exchange for USDs. Does that make them all “money”? In a very vague sense, yes. So, in that sense, there is nothing that unique about gold as a medium of exchange.

  • Cullen Roche

    pebird, this is an excellent comment. Thanks.

  • pebird

    If you went to pay your taxes in US gold coins, the IRS clerk (if there still are such positions left in the government), would first say “are you sure you want to do this?”, and if you said yes, your tax liability would be credited with the face value of the US coins you paid.

    Once you left the building, the IRS clerk, having learned something from the financial crisis, would swap your coins with good old Federal Reserve notes and go buy a drink after a hard day of work.

  • JWG

    Why do central banks hold so much gold despite the abandonment of the gold standard? Because gold is an insurance policy for nations and individuals against a panic and catastrophic loss of confidence in fiat currency; it allows the possibility of a reset of the monetary system, albeit a primitive one. If instability and risk keep increasing in complex economic systems, gold as a prudent insurance policy (rather than sneering at it as the “fear trade”) is going to become increasingly popular as an investment allocation; it’s only about 1% of portfolios now. When Putin is calling Bernanke a “hooligan” and Ron Paul’s ideas are gaining traction, it’s time to pause and reflect.

  • livefree1200cc

    Gold has been a store of wealth – therefore ‘Money’ for over 5000 years. How long has the Federal Reserve Note been used for the same purpose? Answer – not very long. Just look how our debt has gone parabolic since we left the Gold standard. When the F.R.N. fails (and it will), Gold will still be a store of wealth with the new fiat currency that replaces the almighty dollar. Gold ‘WAS’ a way of keeping the politicians in check with their spending. Now there is no limit in sight. Since the Federal Reserve was created in 1913 it has devalued the dollar between 95-98% depending on what you use for comparison. How long till we run out of other peoples wealth to spend with our current socialist system? Ron Paul is right about one thing for sure – End the FED. Take the chains off the American people.

  • james

    i think ron paul’s whole point was that ben bernanke has no conception of what markets are saying.

    it waqs quite interesting ben bernanke saying the price of gold was rising due to factors other than federal reserve policies. especially on a day where the fed announced more possible stimulus and at the same time gold was soaring.

  • pebird

    Now, there’s an example of hyperinflation – what is an original iPhone (not uncirculated) worth now?

  • pebird

    “Money is durable, divisible, scarce, portable, and has intrinsic value”

    Federal Reserve notes have all of those qualities:

    Durable – better than durable, if it wears out you can get a new one for free
    Divisible – yep
    Scarce – from my perspective, yes – if you have too many, PayPal me some
    Portable – physical (paper and metal), electronic – sounds good
    Intrinsic Value – I live in a modern state, it has and will forever have taxes – I will have to pay them (reluctantly). If you live somewhere else and have a open, free spot, email me.

  • Cullen Roche

    Right James. If his point was to prove that Bernanke is out of touch then he certainly did it!

  • Cullen Roche

    Agree with the end the Fed talk. But let’s be clear about the whole gold debate. The fact that it’s been a form of money for 5000 years is rather meaningless. First of all, none of us live 5000 years or care about anyone that did. Second, that doesn’t mean it will be a money in 5000 years. Thirdly, 10,000 years ago no one though gold was money. Does that mean it is not?

  • pebird

    This period of the past 30 years or so where the state actually regulated financial institutions is an exception to US history and I believe is coming to an end. In the past, financial panics/crisis were a regular part of life in the US.

    This recent financial crisis “exception” may become the rule. I think the game of put down 25% and watch your asset grow isn’t going to work anymore. A two-year deflationary period can easily wipe out the gains of 10 years of hard work. When you have crises every 8 years, you have to get lucky to get ahead.

    (BTW, a great free e-book is Money and Banking Illustrated by American History by Horace White).

  • pebird

    Bernanke should have said “Gold is too heavy to hoist with helicopters”.

  • Freestate

    the conversation is a lot simpler if you just substitute the word “currency” for “money.” There are assets and there is currency. Gold is an asset but it is not currency. This is very simple. The confusion stems from the term “money” which is really a useless term. Some people would like to see currency tied directly to gold. Feel free to debate that issue but please end all the nonsensical discussion of “money.” And what you can pay your taxes with is really irrelevant to the discussion. Maybe the government will accept assets, maybe not. But the issue is currency and, yes, we have a fiat currency system. And, no, that does not mean there is some great government conspiracy just because we have a fiat currency system. We don’t tie our currency to a hard asset like gold because the effect is fundamentally deflationary. This is not difficult economics.

  • Cullen Roche

    Right. But Ron Paul didn’t ask BB if he thought gold was currency. He used the exact term “money”. Hence, the discussion revolves around the rather vague term….And the USA does not consider “gold” to be money. Just as BB said. Although he got the UST part dead wrong…..

  • cswake

    money =^ legal tender

    Cullen, you’re just saying that gold isn’t accepted by the government for payment of financial obligation, and under that definition you’re describing legal tender.

    Money is a whole ‘nother issue.

  • Cullen Roche

    Right. Money is a vague term and I’ve not done this discussion justice by being so brief with it. It requires a much more in-depth discussion.

  • pebird

    Private money could be backed by force “hey Guido, ready to break some legs”.

    Private money could be backed by corrupting the government, but that sounds too much like a conspiracy theory, so it can’t be right.

    Private money could be backed by points that you get if you are loyal to a particular business. Maybe you could redeem the points for goods like TVs and flights and hotel rooms. You think that idea might catch on?

    Private money could be backed by promises on little pieces of paper you get in your newspaper that allows you to buy something for less than the list price?

    The problem isn’t that we don’t have private money – there is more than enough out there – it’s that everyone who wants to establish a private money wants to make it universal – that is PUBLIC. If it’s public then it should be controlled by the public. Unfortunately, right now that means our government.

  • Jose

    Why all this fuss about gold, considering that a gold standard is not even a guarantee against inflation?

    Let’s say one ounce of gold is officially worth $35 under a gold standard (the pre-1971 value). Suppose new gold mines are discovered in South America – then the real value of gold in terms of the goods and services it can buy will necessarily go down.

    And if the government keeps the official gold standard rate at $35 the overall price index will have to go up.

    The inflation genie would be out of the bottle again – even under gold.

  • pebird

    I disagree with the End The Fed movement. The Fed is a compromise institution between powerful interests in a powerful nation. It is not just about bankers meeting in Jekyll Island.

    Yes, there is corruption (a lot of it) and it should be cleaned up, not just in the Fed but in banks, investment firms, hedge funds. There is corruption in Congress but I am not yet ready to End The Congress (not quite yet).

    We have a very good monetary operational apparatus in the US (of which the Fed is one part) that has been taken over by powerful interests. I don’t want to focus on the apparatus when the problem lies in people.

    There is no perfect system out there that cannot be corrupted – let’s not be fooled into destroying something that could work extremely well if we just had honorable, honest leadership.

  • james

    no, fewer dollars in circulation would increase the value of the dollar.

    there have been gold discoveries. has that caused the price of gold to drop?

  • Jose

    Same dollars in circulation, more gold – if the dollar value of gold is kept at the previous level (because the government is ready to exchange every ounce of gold fotr dollars at the old, official rate) the general price index has to go up.

    More supply of gold will mean a drop in its real price, via the “law” of supply and demand.

    And 18th Century Brazilian gold did cause an increase in the general price level in Europe.

  • first

    Gold is a nice and attractive metal so is silver there has been more demand than production even if production is up. The question his this demand rational ?

    Gold use to be an inflation hedge in the 70’s but now it is associated with economic fear or eventual hyperinflation.

    The price is completely out of proportion with eventual inflation and the extraordinary demand of the last few years is not related to industrial usage.
    The elastic is stretching more and more until………..

  • Anonymous

    If the news hit the papers in the morning that Ft Knox was empty, you would find out very quickly what money is. You could use $20’s for toilet paper.

  • Cullen Roche

    The USA has been reducing its gold holdings for 50 years. Big deal.

  • james

    the dollar has lost @95% of it value over the last hundred years.

    and gold?

  • Robert Rice

    It seems to me Scott has got this right. If an object is accepted for tax remuneration and used as a medium of exchange, then it is money.

    Interesting is the question of whether an object should be considered money if it is only used as a medium of exchange (supposing there were no taxes).

    Ron Paul is using the word money too broadly to refer to gold as money. It could be money, it has been money, it isn’t anymore (who uses gold as a medium of exchange or for tax payments?). It seems to me Bernanke is correct, neither gold nor treasury bills are money. Neither is used as a medium of exchange, and while they may (or may not, it doesn’t matter) be used to pay taxes, tax remuneration isn’t a sufficient condition for an object to be considered money.

    I do not understand Paul’s fascination with the gold standard. We’re going to have to refer to him as the Lord of the Yellow Metal Cult, meant with love of course.

  • Robert Rice

    I think if we choose to focus on necessary and sufficient conditions with respect to the properties of money, we can clarify quite quickly and easily what money is. Above I believe Scott has defined money correctly. There are three necessary conditions for an object to be considered money:

    1. The object is valued.
    2. The object is used for tax payments.
    3. The object is used as a universal medium of exchange.

    While 1. is a necessary condition for an object to be money, suggesting it is a sufficient condition is too broad. Everything valued could be considered money. This isn’t a useful definition.

    It seems to me this is the problem with considering gold money. It is not used as a universal medium of exchange. Theoretically it could be (it certainly has been in the past) but it isn’t. That’s all that matters.

  • Cullen Roche


    That’s a misleading comment. Using a pure price index that doesn’t account for wage and productivity increases is a sure way to lead people to think that the dollar has collapsed. But the truth is that wages have kept pace with productivity over the last 100 years. In fact, they’re very tightly correlated. This implies that there has been very little to no destruction in the American standard of living over the last 100 years. This should be obvious to anyone who has looked at our enormous wealth, but the facts help….

  • Wasabi

    Sorry, but one small point: What matters to you and I… —> What matters to you and me…

  • prescient11

    Cullen, I respect your work and thoughts very much, but this seems to me like a bit of semantics.

    I fully concede the point that I could sell a boombox at a pawn shop and then pay the IRS, so are boom boxes money? But gold and silver have a special place in the “store of value” category. Last I checked there was no boom box exchange. But take oil, for example, whose price is set in dollars. Again, the unique thing about gold and silver is its portability.

    I think the issue is really one of semantics. Dollars are currency, as well as money. Gold is just plain money.

    This tried and true fact takes nothing away from MMT, and for one to deny gold’s place in the idea of money seems to me to seriously undercut the gravity of one’s argument.

  • Cullen Roche

    Yes, my grammar is piss poor. I get reminded of it almost daily :-)

  • prescient11


    I could not agree more. This whole idea that the Fed has “devalued” the dollar all by itself is hilarious and so distorted I don’t know where to start. Number one, the “devaluation” has occurred via our trading partners. Number two, the reason for that is due to our out of control congress and spending habits.

    I want to start my own campaign that would read “Stop blaming the Fed for every f’ing thing in the world”. Look in the mirror and look at our “elected” aristrocracy.

  • jrbarch

    If you watch kids play, there’s always an ‘accounting’ going on: when all ‘credits and debits’ are settled to everybody’s satisfaction, then the accounting is over. That’s money to me: it’s a human thing. Representing it numerically or physically is just an attempt to freeze something that is forever dynamic. Paying taxes with the numbers is a social plug-in that is rule based. Which issues in the Law. All under the auspices of Venus, according to the astrologers?? Sex, Money and the Legal System – strange bed-fellows. Human beings, human values and the skin of the earth and it’s resources are real – the monetary system could be anything! There are no excuses …

  • livefree1200cc

    10,000 year ago we resembled apes – how is that relevant? And yes – gold will always be money in one way or another.

  • MustReadNow!

    It amazes me that both the question and the subject matter have been ignored by the article and many of the comments herein. The question almost certainly pertained to the fact that the US Constitution specifies(ied) that gold and silver were to be the “money” of the land at a specified ratio of 16:1. What Ron Paul was asking was whether or not the Fed Chairman believed in the US Constitution with regards to the definition of money, exclusive of any real or perceived changes since the US Constitution was originally written — it is still the law of the land, the foundation of our legal system, and must sworn to be withheld by elected officials. Since the Fed Chairman is an employee rather than an elected official, the question begs the fact that perhaps the most powerful person in the country probably did not have to swear to uphold the US Constitution and therefore either did not understand it or has chosen to completely ignore it.

    Personally, I have evolved to the point where PM have withstood the test of time and as such have held value for 5-6,000 years and I really do not expect any paper or electronic substitutes to do the same, unless they are somehow backed by the PM that do hold value. As to what one pays bills or taxes with, that is a simple matter of semantics since one assumes they can continue to exchange one for the other. In the event that PM are not legally allowed to be utilized, then other real, useful things will be substituted as long as the official paper money is being systematically devalued. Since an ounce of anything real PM or whatever is still an ounce now as it was then, it begs the question how to value what. Since paper is constantly increased and manipulated against all other values, should one not question how much paper an ounce can buy, rather than how many ounces so much paper will purchase?

    I visited a local coin shop awhile back and was taken back by the fact that the proprietor was only buying and did not want to accept paper money — they did eventually, but it served as a premonition to a future time when perhaps all businesses might begin to refuse to accept something paper that is devaluing at an increasing rate, which could easily happen if enough of the stuff is created. What bothers me is that with all of the increase in paper money creation, there has been very little velocity with regards to Main Street. So where has all this stimulus gone to? My guess is that most of it has gone to shore up the Euro via the multi-national banking system at the huge expense of our very own nation who much now suffer for not only paying the piper but also for nothing to show for it by way of jobs creation or real economic foundational growth.

    Meanwhile, at the expense of extremely high unemployment (real rate is somewhere around 22-25%), anticipated extremely high inflation (again the real rate is at least 12-15% and set to go much higher), and now they indicate that interest rates will start going up to accommodate hoodwinked investors who are still investing in paper despite the fact that the Fed’s actions speak louder than their words. Can’t really believe that that many people still think that everything is business as usual. I think that a very wrong turn was taken back in 2008 and now that that route has been chosen, we are committed to further QE ad-infinitum III, IV, V, etc., until the economy either recovers or becomes fatigued into worthlessness, or worse yet we achieve a state of anarchy.

  • F. Beard

    Almost every rich person I know made money doing exactly the opposite by borrowing. first

    I don’t doubt it. However, the modern day application of Proverbs 22:7 is of the banks ruling over the rest of us.

    In the day when Proverbs 22:7 was written, savers and the banks had the advantage. Today borrowers and the banks have the advantage. The constant is that banks always have the advantage.

  • F. Beard

    The problem isn’t that we don’t have private money – there is more than enough out there – pebird

    Not really. The capital gains tax is measured in FRNs which means that if a private currency maintained its purchasing power but FRNs lost purchasing power then the owner of the private currency would register a capital gain when in real terms he had gained nothing.

  • F. Beard

    If it’s public then it should be controlled by the public. Unfortunately, right now that means our government. pebird

    Government should be in charge of its money. Whoever else? But government money should not be required for private debts.

    And it’s not just my opinion. It is strongly implied in Matthew 22:16-22 (“Render to Caesar …”).

  • El Viejo

    If you had someone with you on the island you culd buy a closer spot to the fire or you could pay him to collect fire wood. It takes two to tango economically.

  • Alex


    Economics is not about currency; it’s about improving standards of living. Currency is merely just a tool to enable the market to function efficiently and allow for high standards of living. That’s it. Who cares what a dollar was worth a century ago? The important fact is that living standards have increased dramatically.

  • El Viejo

    Gold as money transcends nations and sometimes it’s good to get back to the nuts and bolts to check our definitions of things. Comparisons are good also, like: Currency as a convenient store of value and Oil as a convenient store of energy. Coal is less convenient than Oil. (Oil is more fluid) But they pretty much are the same until the time that they are not(like when environment concerns come to play) Gold is less convenient than paper, but gold has always had a demand from affinity and usefulness. Small pieces of paper are not very useful, but there are rare stamps that are worth a lot of gold. Such are the times we live in.

    As far as monetary policy is concerned, I have always operated under the belief that before the gold standard was abolished there were wild swings in the market. Does anyone have anything on this???

  • El Viejo

    The scary question is where are we headed with this money thing. I do not believe we will go back to the gold standard. Will it be a one world currency and done electronically? That is very scary to me. Like having your bank tell you that they are not going to send you cancelled checks anymore.

  • Adam

    Gold as a commodity is fine to attempt to store your wealth in. But it still is only extractable if there is something to trade for.

    Anyhow, fiat currencies are easier to specifically abuse because they have fewer systemic constraints. That said if you have a government intent on being bad it doesn’t matter what the monetary system is, they will find the means. Peter the Great ran out of money to buy brass for his cannons. He confiscated church bells to end that problem.

  • pkinvst

    As long as people buy and sell gold with $, it is a hunk of metal.

    When the US Govt starts paying of tresuries in some other token, the tresuries stop being money.

    Paul and Benanke, two grown men acting as the biggest fools.

  • Scott Fullwiler

    Seems to me this whole discussion has demonstrated why nobody should ever use the word “money” except in a very vague sense, since that’s all it can be. Economists have done the world a huge disfavor by not understanding this, as they have been at the front of the line in terms of promoting very poor understanding of the concept of “money.”

    The questions are the following:

    1. Are you talking about that which settles tax liabilities? Then name it. In the US, this is reserve balances.

    2. Are you talking about what settles payments in the monetary system? Then name the liabilities (i.e., whose?) or at least specifically say this is what you are talking about. In the US, this is currency, deposits, reserve balances, and a host of other liabilities denominated in $US. Some cities have designed there own currencies that are used.

    3. Are talking about anything that might be used in settlement of a private transaction in the US? Then specifically say so. In the US, this can be virtually anything your counterparty will accept in payment.

    4. Are you talking about anything that can be used to obtain $US? Then specifically say so.

    5. Are you talking about anything that might be held as a store of wealth? Then say so.

    6. Are you talking about anything that might be held as a store of wealth but can be liquidated very easily? Then say so.

    And so forth (i.e., there can be many more questions depending on how far one wants to go). If one is not specific when one says “money,” then everyone ends up talking past one another, just as Paul and Bernanke demonstrated, and as many of the 170+ comments have demonstrated here.

  • Scott Fullwiler

    And I didn’t even mention the unit of account yet. Obviously, in the US, this is “the $US,” though it is in a sense more vague since it doesn’t refer to a specific liability. That is, you don’t hold X ounces of gold worth of bank liabilities in your savings account, you hold $X worth of bank liabilities. We don’t denominate prices of goods and services in terms of ounces of ounces of gold, we denominate them in terms of $US. Clearly gold is not currently a unit of account.

  • Adam

    Sure Scott, take all the fun out of it! No, really great post!

  • Cullen Roche

    Which should tell you that we’re evolving and moving away from trading rocks back and forth….

  • REN

    A 100% reserve perspective on Scotts comments:

    1. Are you talking about that which settles tax liabilities? Then name it. In the US, this is reserve balances.

    “Taxes are paid in vertical money already spent into the economy. The spending amount is based on the law, and has legal penalties if the interest rate climbs outside of a window.”

    2. Are you talking about what settles payments in the monetary system? Then name the liabilities (i.e., whose?) or at least specifically say this is what you are talking about. In the US, this is currency, deposits, reserve balances, and a host of other liabilities denominated in $US. Some cities have designed there own currencies that are used.

    “In 100% reserve, only state money circulates. There is no horizontal debt money. The liabilities are already monetized with 100% reserves in advance. Therefore there are no credit bubbles or collapses”

    3. Are talking about anything that might be used in settlement of a private transaction in the US? Then specifically say so. In the US, this can be virtually anything your counterparty will accept in payment.

    “Yes, people can still barter and make marks. But, if they trust the money, because it is lawful, then they will transact using it.”

    4. Are you talking about anything that can be used to obtain $US? Then specifically say so. “I agree.”

    5. Are you talking about anything that might be held as a store of wealth? Then say so.
    “If money (or the circulating medium) doesn’t circulate back to labor, and if doesn’t serve as a store of wealth, then you will get widening class divisions. The idea is that the law, politics and money are closely related. Money is used to settle debts and contracts, and therefore should be stable and lawful. We will need a fourth branch of government to control the money power.”
    6. Are you talking about anything that might be held as a store of wealth but can be liquidated very easily? Then say so.

    “If money comes under control, then this point is moot. Real lawful money does both.”

    The points I made much earlier about what a ciruclating medium should be are succint, and describe how the system comes under control.

    Yes, this is a complex subject, so everybody piles on. TWINTOPT and other definitions are a good idea.

  • Cullen Roche

    Well, that settles that. :-)

  • JohnZ

    Mug argument, money is anything that people accept as a ‘universal’ medium of exchange, that is anything that everybody will accept for exchange of goods/services.

    Gold used to work well because it was rare and easy to distinguish, fiat works perfectly for numerous reasons (many core to MMT principles). I tend to hope humanity has moved on from gold now, obviously there are some old schoolers who disagree, but its never coming back so why bother even arguing it Ron?

  • Walter

    I’m not really sure whether you meant that tongue in the cheek or not, but in case you were entirely serious and are implying that the links I’ve posted consist entirely of paranoid conspiracy theorist speculation, I need to disagree and submit that it’s a vast overreach to simply dismiss all of that with a wave of the hand as all being “conspiracy theory stuff”. On the contrary I submit there a heck of a lot of information there that is essentially facts and that beyond question and are not just supposition and speculation. As for the the more speculative opninions, well YMMV, I don’t mean to deliver any argument for or against.

    I’ve briefly read the link you posted but offhand there’s on element that caught my eye that I have a problem with: “…every asset has a corresponding liability…” — this is an accountancy principle, not a law of the universe that is true everywhere for everyone, which is what that page make it sound like. There is no fundamental law that states that in general, outside of accounting, or indeed in monetary systems, that “…every [financial] asset has to have a corresponding liability…”. We as humans can choose to set things up that way but that’s a choice, not a law of the universe. It does seem to me that it is precisely this choice that makes the existing monetary system such a problem, because despite protestations to the contrary, every dollar borrowed by the state (government debt), currently has to be paid back again, with our tax payers money, and with interest. Which to my mind means there’s functionally very little difference between household debt and government debt, when all’s said and done. That said I’ll have more careful look at the site — if it does suggest a meaningful alternative to the current systems then I may even support it. (The Bank of North Dakota model comes to mind.)

  • JohnZ

    Oh and I can’t read through the previous 200 comments, but regarding the treasuries as payment as taxes.. Does that mean you could purchase treasuries when trading at a discount then pay taxes at their full face value saving a couple % of tax?

  • Different Chris

    El Viejo,

    I’m not sure I follow you on “Gold as money transcends nations.” Would you be willing to elaborate?

    I think small peices of paper (or 1s and 0s in a bank’s computer) are very useful when they are the *only* thing that can extinguish tax liabilities.



  • Leverage

    I think THIS is the most proper definition of money: the unit of account used to incur and settle debts (between private entities or between private and public entities). This looks like to be a consistent fact along the history of “money”.

  • first

    The US govt has deemed what money is and as long as people can trust it as the official medium to exchange goods and services it will remain this way. But even with the power of the law if the medium was to deteriorate rapidly money will be anything that people will agree to accept as a universal medium of exchange.
    Even the toughest tyrant would not be able to coerce people to work for valueless money. Autocratic or even dictatorship governments have never been able to prevent this and freedom will always win in the end.

  • El Viejo

    It was a response to your “monetary policy of a nation”. Gold and other things have been universal money that didn’t respect borders of a nation.

    The title of the article is ‘Is Gold Money’ I didn’t think I was limited to US monetary policy.

    Hopefully we do not go back to some sort of gold standard though. I ‘think’ it would be a backwards move that would remove some of the flexibility of the system. I have no hard data, but I have read where someone even older than myself said that the gold standard caused sudden erratic moves in the markets. I suspect that it is similar to High Freq Trading where the moves are almost instantaneous big jumps. People have talked about limiting HFT as well.

  • Andrew


    You and Cullen keep using a tautology to try to make your point. You present no evidence. The fact that you say that taxes are necessary to make a fiat currency work does not make it so.

    The accounting arguments that make up MMT are logical – you don’t have to believe anything in order to have MMT make sense. Your take on the necessity of taxation to give demand to a fiat currency is not based on logic, but on a desire to justify taxation in a fiat currency world with no inflation. You really haven’t provided any evidence why the explanation of desire for dollars that I provide is incorrect (I’ll admin that I’m unsure, but you seem to be unwilling to do so).

    MMT people seem to have problem with explanations that aren’t logical and causative, but many processes (including our economy) are evolutionary, and the root cause of their functions can’t be easily determined.

    Why are you so convinced? It concerns me because this is the same kind of stubbornness that pervades the “we’re going to go bankrupt” crowd.


  • Scott Fullwiler

    Yes, that’s a necessary first step, but not sufficient. You still have to specify WHOSE liabilities denominated in that unit of account settle payments. Legal tender laws set specific liabilities denominated in $US as legally enforceable media of exchange, for instance. Banks settle federal tax liabilities by delivering reserve balanced, Fed liabilities. And so on. But there can be others whose liabilities denominated in $US are accepted in payment.

  • Different Chris

    El Viejo,

    I don’t personally think that because any money/currency was at one time accepted by close to, if not everyone, on the plannet has great bearing here. Furthermore, “Gold and other things have been universal money that didn’t respect borders of a nation” I can agree wtih that, but that was true because of human pyschology, not something intrinsic about gold. Fiat issuers requiring tax liabilities be extinguished in their specific currency drastically alters and influences that pyschology, would you agree?

    The article is titled “Ron Paul: Is Gold Money” and is specifically about a discussion between a US Congressman and the US Federal Reserve Bank Chairman in front of other members of the US Congress- I therefore assumed they specifically talking about what is money in the US. That is my opinion, I understand you may disagree and respect that. And again, I also recgonize many of the comments & threads of comments here have gotten into the debate of ‘what is money’ on a more philosophical level than just what it is in the US. I hope I’m not cherry picking comments or points here, I made my last post yesterday and have only glanced over the discussion this morning.

    I hope this comment and my previous one was not take to be critical or an attack, I ejoy your comments and find them very insightful.



  • http://deleted Don Levit

    F. Beard wrote in 2 separate comments:
    1. Government money is backed by force (while private money is backed by stocks, land, etc)
    2.But Government has no need to borrow what it can create for itself debt-free.
    For a fellow who seems to know a lot of Bible verses, it does seem that you are assigning powers to the Government that only God has, supposedly.
    The power to create money out of thin air, the power to create debt that is debt free, the power to force its agenda throuigh its omnipotent will.
    Can’t you see how harmful it is for the Government to have such power, even if it was true?
    It’s like having blind faith versus faith based on evidence.
    I see evidence of God all around me.
    What evidence, other than force, do we have that the Government has earned the right to have such power?
    For only if the people believe the Government has earned the right, will it maintain these extraordinary abilities.
    Don Levit

  • El Viejo

    ‘Vague’ AND changing as one thing becomes more convenient over another for money. Convenience is the greese of the economy, but it can get you into trouble. Computer networks are convenient also, but can get you a bad virus. And you always have to take the intrinsic value of the thing used for money into account.
    The food store chain ALDI only takes debit cards and cash. They have found it to be more efficient than bad checks and phony credit cards. However, I heard of a recent news story down in the Southwest where a merchant refused to take dollars.
    One size obviously does not fit all.

  • Cullen Roche

    Show me a working fiat currency that doesn’t have a tax system. This isn’t tautology. It is flat out common sense.

  • Leverage

    Ok, agreed, but which is the unit of account of the reserves used to settle tax liabilities (and the denomination of these taxes)? US dollars, is not other unit (let’s say: ‘reserve units’ or ‘gold ounces’) (maybe I’m missing something).

    In essence it’s the same unit of account in a given territory, but it’s not exclusive off course. The unit of account usually is the one ‘supported’ by the authorities (accepted to pay taxes; or issued by them). Let’s say that authorities in a country accepted dollars, euros, and ‘ounces of gold’ to settle tax payments, then probably these would be three different forms of money in the same territory. But it’s not exclusive, if two parties agreed to accept a private bank-note to settle payments, and it was allowed by law (and supported by tribunals, probably, in case of liquidation), it could be an other form of money.

    Yes, it’s a complicated matter, but for a starting point I think the above in not a bad one, we may add that it’s acceptance it’s a matter of law (but I think this ex-post).

  • Leverage

    There are serious limitations to the abuse of these ‘powers’ (specially in democracies):
    – Inflation.
    – Abusive taxes. (this what force and coercion means in this context, this is nothing new anyway so…).
    – Other laws (for example, property laws).

    Also there is a serious misunderstanding of some of the non-issues, like creating money free-of-debt, why should it be bad? Actually governments do this already, when they spend, the only ‘problem’ here is they issue bonds afterwards, which is totally unnecessary steep (because physical reality says that the money to pay these will have to be borrowed-into-existence by the private sector from banks, or created anyway by the government, so it’s actually inflationary: 14 trillion USD of money that will have to be spend-into-existence or unsaved from private sector, in both cases is a very harmful monetary policy: extremely inflationary or deflationary).

    Also F.Beard says that people should be free to create its own money and use it. So if you didn’t want to use government fiat, you could use other private money if you want to (the same way, you can save in other hard asset right now, buying gold for example). This whole non-issue of money and its problems, is a complete misunderstanding of the issues (mostly created artificially) of it, product of a dysfunctional system which cannot explain its users how it runs.

  • El Viejo

    Not so sure it is as much philosophical as a result of everyone questioning the value of the dollar lately. Suddenly there is a realization that there are many alternative moneys out there. Currency traders certainly know it, but the average citizen in the US has for a long time only been exposed to the dollar and the English language. Petro dollars have contributed to this preference for the dollar. Maybe the IRS only takes dollars, but that is similar to having an official national language. When someone leaves the IRS building they may return to speaking their language of choice.
    Whenever there is fear people tend to take a look backwards and think about going back there. Ron Paul wants to end the FED and go back to the gold standard, but we’ve tried that before in this country. There are graphs on this site showing that it didn’t work out so well.
    Great talking to you too! I tend to incite with seemingly rash statements to draw into a discussion about details. I do it out of frustration. I want to know. It’s how I learn.

  • Different Chris

    Not so sure it is as much philosophical as a result of everyone questioning the value of the dollar lately. Suddenly there is a realization that there are many alternative moneys out there. Currency traders certainly know it, but the average citizen in the US has for a long time only been exposed to the dollar and the English language. Petro dollars have contributed to this preference for the dollar. Maybe the IRS only takes dollars, but that is similar to having an official national language. When someone leaves the IRS building they may return to speaking their language of choice.
    Whenever there is fear people tend to take a look backwards and think about going back there. Ron Paul wants to end the FED and go back to the gold standard, but we’ve tried that before in this country. There are graphs on this site showing that it didn’t work out so well.
    Great talking to you too! I tend to incite with seemingly rash statements to draw into a discussion about details. I do it out of frustration. I want to know. It’s how I learn.

    We might be at a “Agree to disagree” (I hate that saying but it applies) kind of impasse here.
    Isn’t the questioning of the value of the dollar a physchological thing? (And I’d have to disagree that *everyone* is questioning it) Its not backed by anything other than the faith and sovereignty of the US Governemnt, and therefore its value is what it can be exchanged for, the underlying good or service. Maybe we’re talking in circles.

    I don’t really follow the ‘new exposure’ line of reasoning. I disagree that people don’t know other currencies are ‘out there’ but regardless of what you want to define money/currency as (paper money, precious rocks, commodities, anything that can be exchanged for good or services), US citizens and corporations are forced to pay taxes in USDs, which means operating in another currency (regardless of definition) inherently carries greater risk (exchange rate risk) than operating in the USD.

    Citizens & Corporations in the US are not going to start operating in Euros, Swiss Francs, gold coins (unless minted by the US as currency) or barrels of crude oil when doing so creates a tax liability that is required to be extinquished at a later date in a different currency that will be set at a currently unknown exchange rate.

    We agree on Ron Paul/Gold Standard.

  • Scott Fullwiler

    “but for a starting point I think the above in not a bad one”

    As I said, it’s an absolutely necessary starting point, and the one MMT’ers use.

    The $US is the “money of account” in the US.

    But if we’re going to talk of a medium of exchange, the $US often isn’t specific enough, so you have to then name whose liabilities denominated in the money of account (the government? banks? clearing institutions? etc.).

    Or it can go in reverse, as I did above, where the transactions of interest are named (settling taxes, paying rent, etc.) and the relevant liabilities denominated in the money of account can be said to be media of exchange.

    Hope that helps.

  • prescient11

    With that caveat, we are agreed wholeheartedly. Great topic.

  • F. Beard

    I am not arguing that government is good but only that so long as we have it, that government should not favor private interests such as by borrowing money from the rich or banks and paying them interest on it.

  • pebird

    Government money is not required for all private debts. Depends on how we write the contract and how we want it enforced. We can contract for payment in a specific tender (say in foreign currency or gold or whatever). If the contract needs to be enforced in a US court, then I understand the courts have some discretion in how they interpret the contract terms.

  • pebird


    There are a couple of ways to look at this. One is historical research, which has a number of examples to support the state theory of money. Another is logic:

    The state has a problem when it wants to issue its fiat currency. First of all, how does it get the currency out into the public?

    We can go through all of the options, but it boils down to the state issuing the notes through spending – that is, purchasing goods and services using that currency.

    Now there is a different problem – who would sell goods and services to the state in return for this currency, since as fiat currency it has no value? Somehow a demand must be created for this currency.

    If we rule out physical force as a method, the only options the government has are: 1) the law (legal tender laws), 2) taxation (which, while not as objectionable as physical force, still isn’t very pleasant).

    Now, once we have the cycle going, the questions are: 1) is taxation still needed to maintain the status of fiat currency, 2) if so, what is the appropriate level of taxation needed.

    I don’t know that there is a clear answer to that – it may very well be that we could continue without any taxation, but note in that case we would lose public participation in regulating demand.

    However, I do think we could live in a world with MUCH less levels of taxation and still retain a stable fiat currency – but not with the current cast of characters and corruption that pervades our institutions.

    I am convinced about this because I have spent the last few years reading a lot of stuff and changing my mind. If I can’t change my own mind, I don’t have much right to ask anyone else to change theirs.

  • http://deleted Don Levit

    Leverage and F. Beard:
    If you would ask me is it better to issue debt interest free or with interest, i would answer “Interest free!”
    However, debt requires interest due to the time value of money.
    It also requires 2 distinct entities, not one.
    To do otherwise violates all principles of accounting as well as common sense.
    It also provides a useful regulatory tool for an out of control government.
    Don Levit

  • F. Beard

    It also provides a useful regulatory tool for an out of control government. Don Levit

    There is no need at all to control government spending. What is needed is genuine alternative private currencies so that IF government overspent relative to taxation then ONLY government and its payees would suffer. In fact, the private sector would benefit from government overspending since some taxes would be easier to pay with the cheaper fiat.

    What is required is that we be PRINCIPLED with regard to money creation. Government money is meant to pay taxes and fees with. That’s all. If people are also forced to use government money for private debts then government has overstepped its bounds.

  • F. Beard

    However, debt requires interest due to the time value of money. Don Levit

    Moses disagrees with you: Deuteronomy 23:19-20.

    Also, usury is mathematically unsustainable since the debt normally compounds at a faster rate than the real economy.

  • Leverage

    Well here is where you are wrong: government buys products and “sells” purchasing power (aka fiat money), it’s not a debt from the government when it does. The money of the government is actually not a debt of the government, when you get money what you are getting is a unit of account backed by the infrastructure of the state and public institutions (specially law) in which you can settle debts in if you want to, and use to pay taxes with. Off course if private sector chooses to use public money and use it, there will be interests if money is lend (because money is not ‘free’ for anyone else, other than the producer of it, the government), set up by the own private sector. But the issuer of the currency having to pay interests over something it produces at will is just non-sensical (and inflationary), is basically free income to these which hoard money.

    This could be troublesome, if you’re forced to use it (and indeed for example in middle age France it was, when french kings or feudal lords tried to abuse their own fiat using inflation) and it’s abused, but most people is fine with it as long as it’s not extremely mismanaged and produces public good. But if you’ve the option to use other money (or currency) to settle your own debts, then it would be even less problematic and there would be a balance of power between the public and the private (which is a good situation for everyone who does not form part of the elites actually).

  • Sigi

    Go check out this anecdote by Barry Ritholtz:

  • F. Beard

    Government money is not required for all private debts. pebird

    Perhaps not but FRNs are so privileged by government that they are a virtual monopoly for private debts too. For example, capital gains are measured in FRNS. If I used a private currency that merely kept its purchasing power but FRNS lost purchasing power then my private currency would register a capital gain even though in real terms I had gained nothing.

  • Dennis

    This is a really important point. Often people say they have a lot of “money”, but they don’t actually have much fiat currency because of investments that they can swap for fiat currency and then buy something else. No wonder Ron Paul is confusing. Do you have money or do you keep fiat currency under the mattress with your gold bars? As I understand it, MMT is trying to explain how Uncle Sam’s “fiat currency” works in the world and these same MMTers call this money…how can we get this straight?

  • pebird

    No, wealth is material goods – consumption and the ability to command material goods (capital). True, money is the universal representation of that wealth across all different types of material goods/services.

    Gold is confusing because it once was both money and – being a material good – part of the material wealth it represented (which give rise to an interesting recursion, if you think about it).

    Gold is not money because we do not represent value in terms of gold – we don’t say this house is worth X grams of gold and that car is Y grams. We use the “dollar” as the measuring stick.

    Of course we can convert gold to dollars, but we can do that with any commodity, but we still measure relative values in dollars.

  • cpl

    A lot of people don’t pay taxes, well income taxes. So they don’t need money? This writer is obviously hung up on taxes, and I can understand that. But…
    Most people need money to buy things: food, clothing, drinks, traveling, homes, consumer durables etc. It is very difficult to use gold or treasuries to purchase these. For most people most of the time money is just a medium of exchange; gold is a storage of value.
    Gold could be money and was money and may be money in the future but it isn’t now; it is that which retains value (and its value may appear to fluctuate), together with silver and other precious items.