Justin talks about what real money is and where the concept of money comes from. Is the dollar real money? Is the dollar safe? Tune in and find out. Read more for the full transcript.
What is Money?
This is Justin Mohr, and today I want to talk to you on the subject of money. Now we never really ask ourselves the question, “What is money?” but we use it every day. When you’re working at your job you receive dollars, you receive money in exchange for your labor. When you go to buy something from a store, you’re using money to get the goods and services that you want. But we never think about, “How does it really all work? Why do people accept dollars? Why do we accept dollars?” I guess the only people that really ask the questions are nerds like me!
If we look at the history, in 1933 FDR [Franklin Delano Roosevelt] confiscated gold and he made it illegal for the average American to own gold. Then in 1971 we had Richard Nixon, he actually closed the gold window entirely. That was used so that foreign countries were no longer able to settle up in gold with the United States for trading purposes.
So since 1971, we have not been on a gold standard, we’re on what is called a fiat currency. It’s a currency backed by faith and later on in this podcast you’ll realize that having a currency back by faith is unsustainable. If you look at where the name dollar comes, it came from the word Joachimstaler and they were used in Spain. Later it became called the abbreviated word thalers which then became dollars. So when the U.S. was founded, we shifted from the British pound and we started using the dollar. It’s actual kind of interesting because in the Coinage Act of 1792, the dollar was actually a specific weight of silver. It was 371.25 grains of silver. It was equivalent to the Spanish mill dollar. That law has never been repealed. So really, the dollar equals a specific weight in silver which is not enforced, obviously. So I guess that doesn’t really matter at all.
We have to start asking ourselves, “Why were gold and silver used as money for thousands and thousands of years.” Well, if you think about it, gold and silver, they are both very scarce, their supply is limited to 2-3% increases per year, and gold and silver cannot be created by the government. You can’t print gold and silver and it’s also its very durable. Gold and silver are virtually impossible to destroy. I guess you can but when compared to other things it is difficult to. It’s also portable and it’s divisible, it comes in one ounce, half ounce, and quarter ounce size coins. That’s what makes gold and silver very valuable and seen as money. It also can’t expire. If you look at other things that were used as money, in the Ancient Greece they used cattle as money. If you look at cattle, they can die, they get sick, and believe me I work on a feedlot and those cattle when they get sick seem like they want to die if you don’t catch it early. Also, in Colonial Virginia they used tobacco as money which can be seen as a better source of money. The West Indies, they used sugar as money. There are many other things that were used as money but time and time again, gold and silver were always seen as money in the end.
What makes something money, like gold and silver, is that it is the most marketable commodity out there. People demand it simply because it’s a medium of exchange. That is the major function of money; to exchange for other goods and services that you want. So back when I was in elementary school, I was in 3rd or 4th grade or something like that. I would think about it and be like, “You know what? I wish there wasn’t any money at all that way I could just buy any toy I ever wanted.” If I wanted a bunch of Lego’s or those cool RC cars that can do flips and go really fast, all that sort of stuff, all those sort of toys, I could just get as many as I wanted. Every new model that came out I could get. Unfortunately, I guess I should say fortunately, I grew up and I realized that’s actually impossible. But unfortunately, for our socialists and progressive friends, they seem to have not grown up at all. They still believe that we can get anything we want, any time we want, and at no costs. The proverbial free lunch if you will.
If you think about a world without money, there could be no real specialization. You hear the term specialization when you were in ECON 101. Specialization allowed the economy to advance because people could specialize in what they were good at and you could actually, in aggregate, create more goods and services. Which when you create more goods and services, you’re actually making the country wealthier, and that’s how Capitalism has made the United States go from 13 colonies to the richest country in the world. It’s because we embraced Capitalism and the free market and that self interest is a good thing. It allowed us to specialize and get really good at certain things because we knew in the end we could better ourselves and we could, in a sense, become wealthier and we have. So with specialization, someone is good at farming, the other person is good at sewing, you could trade some of your goods, some of your sweet corn or potatoes whatever you farmed, and you could exchange it for knitted clothing, quilts, things like that because if you expected everyone just to have a self-sustaining farm like they used to, well, you’re spending literally all of your time just to meet the needs of your family. There is no spare time to produce anymore goods and services or to even try to even think about how to make things better. And so with money, it allows us to do that, it allows us to move beyond the way the cavemen lived.
So it’s the development of money in the free market and Capitalism which is how we’ve grown into the system today. And so with money, now that you think about it, it allows people to compare their market worth and also the tradeoff for every good in the economy. There’s a term for it the economists use. It’s called opportunity cost. If you decide to go to college, then you are foregoing getting a job right away. Or instead of going to college, maybe the money you would have spent going to college, you could have invested and could have started a small business. There’s many other ways that you could go about it.
Having money allows you to make choices between goods. What do you value more? Here’s the key thing that the socialists and progressives really don’t understand. They seem to think that value is objective, that there is a set value to all the goods in the economy. But really that’s not true because value is subjective. It depends on your value for goods and services. We all have different values and we all have different value scales. I value getting say like a pickup or something else because of where I live compared to someone who lives in the city that maybe doesn’t really need a vehicle at all but can instead use the Metro. We all have different value scales, and we’re at different points in our lives. People are going to value different things based on if they’re single and unmarried compared to someone who is married and has 3 kids or compared to someone who is retired and has a lot of spare money and a lot of spare time. So in the end, you can’t compare apples and oranges, and that’s really what socialists and progressives try to do. They try to always make everything one size fits all which does not work.
Money allows us to achieve and attain the things that we want in exchange for our labor. And our labor is what gives us the money. Also, money allows resources to be allocated to the most productive uses and that’s really critical to a growing economy because that’s what makes it more efficient. And so in the whole scheme of things, money must be a commodity in the end. It must have some value that it was given in the free market. And see right now, you have the government declaring the dollar as money and it’s a fiat standard. So it’s like creating a price control. The government imposes like, “Oh, we don’t want rent to go up”, or like in New York City they have rent control or Chicago. So they think it actually makes it better so that they can afford the rent but in reality, it actually makes it worse off and it makes a black market for rent. A lot more discrimination takes place and it makes it more expensive. Also, it limits the supply of rental property because of the rent control. The free market price is actually higher then what the government has dictated. This same thing goes with money that’s used today. It’s a government price control saying, this is money. They created a monopoly and that is that. You can’t use anything else as money.
Also with the disaster that a fiat currency has created, it’s made it tough for someone who’s running a business. The value of the dollar is changing every day. Can you imagine someone, like a carpenter, who’s building a house and the size of a foot, you know right now its 12 inches obviously, but what if that changed every day? What if a foot from day to day went from 8 inches and then it went to 18 inches and then 24 inches and it was always changing? How can the carpenter make plans that someone else can understand? Or how can he understand his own plans? Is it the inflation adjusted foot from a month ago or 2 weeks ago or a year ago? When it’s always changing, it’s hard to really see the value of something. And another good example would be if the time on a clock, 60 seconds a minute, well what if 45 seconds was a minute in the future? Or say 100 seconds became a minute? How could you ever tell someone, “Hey meet me for an appointment at 3 o’clock.” Well is that based on the inflation adjusted minutes of two minutes ago or? (Laugh) You know, a year ago? I mean there’s no way to really make judgments about things. It makes it tough to make decision and that’s how we are in the economy today with the fiat currency.
It’s tough for businesses to evaluate how to use your money. Pull out a dollar bill, and I want you to look at what it says on the front where it’s got the picture of Washington on it. And if you look on the top left part of the bill it says, “This note is legal tender for all debts public and private.” Now that’s the legal tender law. This is how the government makes these bills we use today as money. Because of a government edict, they force it onto us. If it was a free market, these bills would not be seen as money. It’s only the government law that’s keeping these to be used as a medium of exchange. And it’s actually against the law to use gold and silver as money because of the legal tender laws. These bills are seen as legal tender for debts public and private. But this system that we have today can really only last as long as people have faith in the system and see that’s the scary part. Because once you lose that faith in the currency, and people start not trusting it when they actually start buying gold and silver and being fearful of what’s happening in the economy. We have the Federal Reserve printing 4 trillion dollars worth of money into the system, and that’s chasing the same amount of goods and services in the economy.
And so just look at consumer prices today. Go in to the supermarket. Go try to buy a rib eye steak. You’ll see the price has gone way up for that. Or if you’re buying a bag of chips, there’s actually less chips in the bag. Look at the ounces on it. Look at the ounces on the box of cereal that you buy. The boxes, they make them so they look about the same in size but in actuality, they are actually skinnier and there’s less ounces. Or I’ve noticed with deodorant, they’ve shrunk the number of ounces in one deodorant. So with all these different things, these companies are actually trying to hide the inflation by decreasing the amount in the products that we’re buying and, and so right now we’re experiencing that inflation.
And for anyone that’s holding money in the bank right now what’s happening is negative interest rates which means the money that’s in the bank right now, you’re actually losing thanks to inflation. Even under the government’s own stated inflation, they’re saying it’s 2% which it’s way higher than 2%. But let’s take the government for its word. Ok, so we have inflation at 2% and if you’re only making a half percent in interest from the bank, well then you’re losing 1.5% from your savings every year but inflation is actually much higher than that. And so during times of negative real interest rates, that’s actually when times when gold and silver thrive in price which we’ve actually seen. The gold bull markets started in 2001 and has for basically every year except 2013, the price of gold has gone up. And why is that? Well it’s because we’re destroying the value of the dollar. If you look at since the creation of the Federal Reserve in 1913, the dollar has lost 97% of its value. That’s crazy. It’s criminal what’s happening. And see that’s why politicians will continue to use inflation and that’s why they actually hate gold as money because inflation is actually a hidden tax on people’s wealth and that’s a key thing that most people don’t understand. But if you can understand that, you can actually benefit and you can thrive to what’s gonna happen to this county. And actually I’m gonna have future podcasts talking about how to prepare, get more involved with the understanding of the workings of the gold standard, how inflation works, and everyday political issues. We’re gonna get into all this stuff so we can understand and you can benefit and at least preserve your purchasing power compared to your friends around you.
Let me just give you one quick example. Back in the day when my grandpa was growing up, you could actually buy a gallon of gas for 25 cents, 2 bits. 2 bits equaled 25 cents. Today, you can still buy a gallon of gas for 25 cents. Well, you ask how? Well it’s simple. Go back and the value of actually coins minted 1964 and older, actually had 90% silver in them. Today there’s no silver in them whatsoever. But up till 1964, they had 90% silver in them. So if you look at a quarter that has 90% silver in it, that’s 1964 and older, it’s actually worth about $3.70. What’s the price of gasoline? Around here in Billings Montana, it’s around $3.59 so really you can still buy a gallon of gas for 25 cents. And you see that’s why it’s important and it’s very valuable to own gold and silver because you’re actually preserving your purchasing power at the very least and what I believe to be true is you’ll come way ahead of the inflation that’s to come. It’ll actually be a way to profit.
And so, understanding money is a great way to help protect yourself, your family, preserve your purchasing power, and your wealth that you currently have. And it’s gonna destroy the wealth of the savers, and people who are on fixed incomes which unfortunately the people who will get hit the hardest are the elderly. The ones that if they get completely wiped out, they have no way of making that money back because their body can’t function like it used to. They can’t just go and get a job. It’s not that simple for them. But at least for kids my age, if I lost everything, I could start over and I could get a job, I could make it back. But that’s the important thing that most people don’t understand. They don’t understand what inflation is. And once they do, once a lot of people actually figure it out, well it could be too late. You, your savings, could be wiped out by then or worse. I mean it’s gonna be, it’s gonna be tough in the future and I’ll get into that as I said in the future.
And so I would like to thank you for listening to this podcast and, uh, please subscribe and listen and I will be sure to help fill you full of information and, and things to help you prepare for what’s to come and allow you to profit from it. So thank you, this is Justin Mohr, signing off.