This image is the creation of my imagination and Civitai.com
"Price is what you pay; value is what you get." - Warren Buffett
"Value is… nothing inherent in goods, no property of them, nor an independent thing existing by itself. It is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being." - Carl Menger
First, A Word Of Thanks
Before I write, I want to think those of you who have commented to me publicly and privately about what I am writing. I also have had an uptick in subscriptions which is also much appreciated.
Now that the health scares have been dealt with for now, I can move onward, outward and upward with writing. Length of time between writings should be narrowed now.
Second, A Word Of Clarification
I got this comment from Bronco, and I think it is an important one.
“Excellent facts; well researched with attributions. Thank you. However, the pic doesn't do your article justice. Bitcoin is, of course, invisible. Furthermore, in my 50 years of experience with livestock, the representation of bovine excrement is simply wrong. I do not wish to be overly critical, but when both aspects of the image are inaccurate, reduces the credibility of the whole - pictures being worth a thousand words, as they say.”
The reason I created that image is the very purpose of discussing money, currency, and value in this article today. In the time before say 1930, our economy was based on physical labor and physical goods. Even the most seemingly insignificant things, like cow manure, a.k.a. bullshit, was calculated in the value of farmland and was relatable to the creation of goods and the selling of goods in the economy. Though it was not priced separately in a farmland transaction, as I mentioned before, but the number of cows per acre was used in trying to estimate farmland fertility, a critical component to future farm crop yields. Bitcoin is indeed code and not a physical thing at all. That is the crux of this article and this series. Even cow manure has physical and economic value because that value is marketable to others for something else of value (like a bushel of grapes) as is shown in today’s image. How can a logger trade a small enough quantity of his lumber to purchase a bushel of grapes from a farmer? You cannot subdivide lumber into a small enough quantity, save by the use of more labor to MAKE that small quantity. The reason for that is it may not be economically feasible, and still make a profit, to trade for that bushel of grapes.
Bitcoin, based one of its pricing metric, the US dollar, HAS NO VALUE, period. The U.S. Dollar is not backed by anything, other than some shining statement about “backed by the faith in and credit of the United States of America”. Before the era of electronic banking, when money was backed by a commodity specie of some kind), there was only trading of a currency ( a division of monetary value which based based on a VALUED commodity), or one bartered “mano y mano” for one’s good in exchange for the other participants goods. In the pre-Revolutionary period and post-Revolutionary period, even “bullshit” had a tangible value. A token, however, would have been an entirely different story. In pre-1930 times, you would probably have a physical altercation over the trade of tokens for lumber.
I may be writing the summary of the post before writing the body, so let’s get on with the main topics.
What Is Money?
I am by nature, by study, and probably by default of those two activities, an Austrian economist at heart. I believe in a pretty hard set of values from which I measure investments and investment value.
To quote Frank Shostak from the Mises Wire:
“No definition of money can be established by means of a correlation. The purpose of a definition is to present the essence of its subject. To establish the definition of money, one must first ascertain how a money-using economy came about. Money emerged because barter could not support the market economy. A butcher who wanted to exchange his meat for fruit might have difficulties finding a fruit farmer who wanted his meat, while the fruit farmer who wanted to exchange his fruit for shoes might not be able to find a shoemaker who wanted his fruit.”
To be succinct as Murray Rothbard wrote in his essay “What Has The Government Done With Our Money?”:
“Just as in nature there is a great variety of skills and resources, so there is a variety in the marketability of goods. Some goods are more widely demanded than others, some are more divisible into smaller units without loss of value, some more durable over long periods of time, some more transportable over large distances. All of these advantages make for greater marketability. . . . Eventually, one or two commodities are used as general media—in almost all exchanges—and these are called money.”
The key concepts one must take away from that statement are that:
1. Money is divisible into smaller quantities without a loss in value
Money is a physical commodity. Gold is a physical commodity, silver is a physical commodity, wheat or a basket of other commodities are physical commodity. It is something of real tangible value.
The other constant is that the physical commodity used is considered to be limited in quantity so that the value at some point can be divisible and still result in stable value in the smaller quantities used to back it.
Is the U.S. Dollar backed by any physical commodity? The answer is NO. Was it ever?
Yes it was. The Coinage Act of 1792 established that the U.S. Dollar was worth 1.6038 grams of pure gold. Given the fact that there are 28.3495 grams in one ounce of gold, and that the spot price of gold this evening 2668.80 per ounce, your dollar if brought to 1792 purchasing power then would be $150.98 or basically $151.
Save for a few times as during the American Civil War and The Great Depression, you could exchange your money for gold up until August 15, 1971, when President Richard Nixon removed the gold standard from the U.S. Dollar, initiating the era of fiat currency.
What in the hell happened? The government over time, through insane printing and overt dilution of gold content in the U.S. Dollar, destroyed it’s value completely. Dilution of monetary value makes everyone poorer.
What Is Currency Then?
By extension, Mises, defines currency is essentially viewed as a form of money, which is defined by Ludwig von Mises as "the general medium of exchange." It is by definition the subdivided medium of exchange that all market participants can use to exchange goods as a result of their sale of goods to other market participants. This means it is the thing for which all other goods and services are traded, serving as the final payment in transactions on the market. In the example of the logger and the grape farmer, once the logger gets paid in that divisible medium of exchange, the the logger can buy grapes from the farmer. The farmer then would have more currency to buy supplies and then grow more grapes and receive a valuable commodity, a specie or commodity-backed currency, to sell more grapes and buy other goods to sustain himself and his family.
Mises and other Austrian economists emphasize that money, and by extension currency, should ideally be a commodity money, like gold or silver, that has evolved from the most marketable commodity. This contrasts with fiat money, which they argue can have disastrous economic and social consequences due to its susceptibility to inflation and manipulation by governments.
The key point that even pointy head academics fail to make is that money, and thus currency should be a VALUABLE PROXY FOR LABOR AND MATERIALS USED IN MARKETING A PRODUCT. A person’s lifeblood and energy are stored in the goods he produces, so his labors must be accounted for along with the materials. Otherwise, his or her effort is wasted completely.
Does fiat currency really do that? If you have lived in the United States these last five years, you would very easily conclude that it does not. Central banks and politicians have tried to separate commodity value from money and currency for eons. In the process, it allows banks to charge fees for the use of money and to benefit from holding and investing that increased money supply (created by devaluation of currency and the printing of valueless paper or coinage).
We need a deeper discussion of what constitutes real value and how it is stolen constantly. I will also get into the entire concept of what Bitcoin is, and why, with forking code, Bitcoin is not what it was originally intended to be, and how that process is actually the reverse of what happened in the stock market from the late 1970s until today.
In the beginning, your currency, the U.S. Dollar was truly VALUABLE. Now it is merely a token to be passed and aggregated by intermediaries for a fee, and those fees, whether at your bank or through your custodial wallets, ARE INCREASING and not decreasing.
I will write more frequently and more briefly but with strict focus on definitions, and hopefully, clarity going forth. Stay tuned. It will all come together shortly. Americans need to understand what real value is and then fight to restore it from the criminals in Washington D.C. in the central and regional banks, and in the corporate boardrooms who want to steal value from you and make you poor and dependent. More soon!
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