Redemption -- A Matter of Justice

Not so very long ago our paper currency was like a hat check. You could take it to the issuer and get something for it: a hat, in the case of the hat check, or money, in the case of a bank note. Even today, you can redeem your hat with a hat check: no one would accept a piece of paper labeled "One Fedora" in lieu of his topper. Oddly enough, however, everyone accepts a piece of paper labeled "One Dollar" for the money it once represented, although the injustice is much greater. Few people, after all, wear hats; but everyone uses money, or what they take for money.

In other words, our money was precious metal coin, either gold or silver, or both. The paper currency was not money, obviously, since there's no more paper in a "big" bill than a single. But it was a convenient proxy for the money itself, which rested safely in the bank. Eventually, people came to speak of the gold and silver as "backing" for the paper, which, in turn, they came to speak of as the money. In other words, they thought of our "money" as backed by gold and silver. Understandable, but dreadfully wrong. The paper was never the money, and gold and silver were not "backing" for anything. They were money in and of themselves--useful commodities employed for a variety of purposes, including barter.

It was obvious that the "money" (i.e., the bank notes) seemed to function perfectly well without the "backing," which was gradually withdrawn. The accumulated metallic wealth of the public was turned over to the banking/state axis, which replaced it with nicely engraved bits of paper which entitled the holder to nothing whatever of the bankers or the state. The convenience of the paper, or checks, had made the use of the heavy metal coins rare, and people forgot about them. This meant, however, that the supply of bank notes or credit could be increased enormously over time, with no worry of redemption. Runs on the bank became obsolete because there was nothing to run to. The injustice was, and is, that the originators of the notes get them for nothing; the rest of us have to spend our lives to get them. Those which we put away as savings declined in purchasing power (the only way to measure their "value") as their number increased, meaning that the years we expended to accumulate them were being steadily diminished in worth for the profit of the fiat-creators.

A few people worried about this, and asked what was backing the new currency. A common answer was that it was backed by the national product. The goods and services of the American people backed their currency! Gosh, what a beautiful thought!

Except that a large percentage of that backing was consumed. The gasoline in my automobile was a part of the backing for that scrip in my wallet--but I burnt up the gas! Some of my backed notes are backed by food--and I eat the food!

Perhaps a more sophisticated answer was that the currency is backed by the "full faith and credit of the United States." Not as laughable as it appears, when we realize how discreetly the government uses words. You will be able to get something for your dollar bills (and for some of us, that is all that is required of them) because Uncle is prepared to use force to accomplish it. The scrip has been declared a "legal tender," and that means that you cannot refuse it if offered, unless you are prepared to do without even the scrip for payment. Take it or leave it. To date, everybody takes it, so Uncle doesn't have to show the iron fist in his silken glove. Obviously, however, he would derive no benefit whatever from the issuance of this paper if people didn't use it, so he is undoubtedly prepared to use legal force, at least, to insure its acceptance.

Ultimately, the very concept of "backing" must be challenged. A Monetary Realist does not want money that is "backed." If it is actual money, it does not need backing; and if it is not, backing is a sham.

Consider the trading stamps that were in vogue a few decades ago. Pink, green, and other colors, they were given by merchants as a kind of thank-you for shopping with them. When you had saved enough of them, you took them to a redemption center, and exchanged them for a toaster, or a TV, or an umbrella, or whatever you wanted from the store's selection of merchandise. They were a kind of discount, but from the merchant's point of view, better, because a great many of them were probably lost or discarded, which meant that they would not be redeemed. Trading stamps were very popular, and many people saved them conscientiously.

Now suppose a person took his trading stamps to the redemption center and found it padlocked. "What's going on?" he asked the guard. "There's no more redemption; you can't get anything from this store for your stamps," he was told. Then why is the store still filled with merchandise? "Oh, that's the backing for the stamps. You wouldn't collect stamps that weren't backed, would you?" No, of course not; and you wouldn't continue to save stamps for which the "backing" was unobtainable. You could, if you were unscrupulous, offer them to someone else for his goods, pointing out that they were backed by all those beautiful products at the "redemption" store. Shame on you!

But we continue to work, to give our lives, at the rate of forty hours per week, to obtain and save receipts for money which does not exist.To say that it is backed by other people's goods (the national product) is disingenuous. Since when can a person issue a note backed by someone else's property? Uncle Sam's full faith and credit makes a dubious backing also; should even a minority of people decide they wanted something tangible for their labors, Uncle couldn't do much about it, despite his huffing and puffing. What if his lawyers demanded something better than his promises for their payment? A delicious, if unlikely, thought.

Money doesn't need backing, but neither do bank notes. They need redeemability, on demand, in full. Anything less is a con game, even with government's full faith and credit behind it.