Some Useful Definitions
When one item of value is traded or exchanged for another item of value without any exchange of money (medium of exchange), we call that transaction barter. When a medium of exchange is used to make exchanges of items of value, we call such transactions buying and selling. The act of buying and selling also is barter, but it is indirect barter. In selling we exchange an item of value for a document (money or a credit certificate) that, if it is bona fide, is evidence of a claim for other goods or services. The document serves as a medium of exchange which we shall give in exchange for some other item of value. That is indirect barter. Indirect barter (buying and selling) is made convenient when a medium of exchange (money or a credit certificate) is used. Buying an item means that we obtain complete ownership of that item by paying money or a credit certificate for it.
TO BUY ON CREDIT
When we buy an item on credit, on partial payment, or on time payment, we usually obtain possession, but not ownership, of the item. The owner simply makes an agreement with us that we will obtain ownership at the time we complete the payments for the item.
If we do not make the payments according to our agreement, we then give up our possession of the item. We do not own the item until it is completely paid for. We have not really bought the item until we have paid for it in full. [p. 10]
BANK CREDIT OR BANK CREDIT MONEY
I shall try to explain bank credit by giving an illustration. A man borrowed $1000 from a bank. The bank opened for that man a checking account for $1000, gave him a checkbook, and told him that he can now write out checks for an amount up to $1000. The bank, for its part, wrote in its books a deposit of $1000 and a liability of $1000. When a loan is made in this manner, the bank has created $1000 worth of new bank credit (also called bank credit money). The bank did not give out any of its own money or any of its depositors money. But the bank credit money (checks that the borrower would write out) would buy goods and services in the same manner as would real money that someone had earned.
If the collateral security pledged for that loan were items that the borrower was about to sell, then that bank credit money was not inflationary, because goods were available to be claimed by it. However, if the collateral security were items such as his automobile or his house, which he did not intend to sell, then that bank credit money could be inflationary. Note: The bank credit money was not earned by anyone. It was not earned by the bank and it was not earned by any of the depositors; it was just a bookkeeping entry.
When the loan is paid back, the bank credit money will no longer exist. The banks books will show a decrease of deposits and liabilities of $1000 each. It also will show a profit of the amount of interest it received for the loan of its bank credit, or for its bookkeeping job. More than 90% of all the buying and selling in the United States is done with interest-bearing bank credit.
Cash such as coins and currency, is the most acceptable medium of exchange.
Bona fide means made in good faith, without fraud or deceit. A document or written statement is bona fide when [p. 11] the person is honest when he writes it. That is to say, he is telling the truth in his document.
In this book the term credit certificate means either a certificate of credit or a tax credit certificate, or both.
CERTIFICATE OF CREDIT
When the possessor of goods or services writes out a certificate of credit stating someone has credit for a certain amount of his goods or services, it means that that someone has a claim for that amount of those goods or services; that is, those goods or services will be given to the bearer of that certificate in the manner stated on that document. The certificate of credit is the physical evidence to prove that the possessor of the goods or services owes (is in debt to) the bearer for a certain amount of goods and/or services.
TAX CREDIT CERTIFICATE
A tax credit certificate is a document issued by a governmental body, which is used by that body to pay for goods and services it needed. It is redeemed by that governmental body when it is returned as payment for taxes. In order that the tax credit certificate be bona fide, the governmental body must levy a tax equal in amount to the face value of the tax credit certificate.
The word dividend, in finance means a share of profit distributed to the owners of an enterprise. The word dividend is made up from the word divide. When the profit of a company is divided among the owners or shareholders of a company, the part given to each partner or shareholder is called a dividend. Such payments are not called [p. 12] interest. In this book where the word interest is used, it is never used to mean a dividend.
Honesty is the virtue that is practiced by a person who expresses himself according to reality. A person is honest when he speaks or writes the truth.
We have heard the expression that we should have honest money or that we should have an honest money system. It does not seem appropriate to use the word honest when it is applied to anything other than a person. Only persons can be honest or dishonest; things cannot be honest or dishonest. Therefore, counterfeit money or inflationary money should not be labeled dishonest money. It should be referred to as money made or issued by a dishonest person. The same thing is true of a money system. A system is not a person. Therefore, a system cannot be honest or dishonest. So if we have a money system that will permit some persons to acquire an unjust gain and other persons to suffer an unjust loss as a result of the normal use of that system, we should say the system has the qualities of an enterprise established by
4 persons who were not honest.
We probably would be correct if we said that there are only two kinds of documents used as media of exchange: the one kind called bona fide, issued by persons who are honest, and the other kind, non-bona fide, issued by persons who are not honest. The important feature about a document is to have it issued by a person who is honest. Therefore, the most important requirement for a document which is to be used as a medium of exchange is the practice of honesty by the person who issues the document.
Justice is the virtue we practice when we give to each person that which is his due. It also means that we are to allow each person to keep what belongs to him. [p. 13]
When we say we are to give to a person what is his due, we mean we are to give him what he has earned. When we say that we are to allow each person to keep whatever belongs to him, we mean that each person can keep whatever he has rightly acquired.
When the government passes a law which declares that certain documents such as notes, bills, certificates, and coins are legal tender, it means that a person must accept these items as payment for any money obligations due him or run the risk of not being paid. He must accept them, even if they are not redeemable in goods or services. He must accept them, even if they are an inflationary medium of exchange. The government has the power to make such a law, but not the right to do so. The government has no right to force an injustice on anyone.
(A great injustice was done to many people in Germany in 1923, when they had to accept inflationary money with little value as payment for debts contracted previously when the money had much more value.)
It would not be necessary for the government to make bona fide credit certificates into legal tender because they would be self-evident claims for goods or services, just as the gold certificates used to be self-evident claims for gold.
The word money is frequently applied to anything that is used as a medium of exchange. Many items have served as media of exchange, such as gold, silver, cattle, grain, salt, notes, checks, certificates of credit, postage stamps, etc.
The Constitution of the United States gives the Congress (not banks) the power to coin money. Therefore it is appropriate that the word money be applied only to the [p. 14] media of exchange authorized to be issued by the United States Constitution.
MONEYLESS, CASHLESS, CHECKLESS SYSTEM
Before the year of about 1925 in the rural areas of Michigan, and probably in other states also, it was the custom for the township highway superintendent to tell the owner of each farm the amount of highway taxes required of him for the year. The farmer could pay those taxes with money or he could earn an equal amount of money for his taxes by working on the road. He was allowed $2 per day for his work with his own shovel or $4 per day if he worked with his shovel and his team of horses and a wagon equipped for hauling gravel.
Let us say a certain farmer owed $20 for his highway taxes. The town highway superintendent informed him that he would have to work three days with his team, wagon, and shovel, and four days with only
5 the shovel. He did just that and thus earned the required $20.
The highway superintendent recorded in his books that the farmer had paid (earned) his taxes. The farmer did not receive any money, cash, or checks for his work. The town did not receive any money, cash, or checks for the payment of those taxes. Nevertheless, the taxes were paid just as much as they would have been if cash or checks had been used.
In relation to money matters, a note is a document giving evidence of a debt and a promise of payment with money.
(Since the terms United States notes and Federal Reserve notes are frequently used in this book the reader will benefit by looking over his five dollar bills until he finds a United States note, so he will know the difference between a United States note and a Federal Reserve note. There are not many United [p. 15] States notes in circulation, but occasionally a person will receive one in the ordinary course of his business. You may be able to get one from a bank if you ask for one.)
The word usury is generally used nowadays in reference to exceedingly high interest charges. While it is appropriate to use the term usury when referring to very high interest rates, we must also remember that demanding low interest rates may be usury as well. Interest rates are unjust, even when low, if it is physically impossible for the borrower to pay them. Interest rates are also unjust if the lender loans counterfeit or inflationary money.
Therefore, it seems that the word usury should be applied to an unjust interest charge, whether it is high or low.
We generally classify all material possessions and resources as wealth. This definition may be too general. We could more accurately consider wealth as all items that are produced by people, and are wanted, at least by some persons. Wealth is that which is produced when human labor with the aid of tools and knowledge is applied to some natural resource. With this viewpoint, natural resources are not wealth. A natural resource, such as land, is not wealth. In its natural state it cannot be used to maintain life or give comfort and pleasure to man.
In order to obtain food, fuel, or minerals from the land, a person must first labor with tools to produce such items (wealth) that are useful to the human person. Natural resources are not produced by man; they are given to man by the Creator. Wealth is produced by man, every day. Man creates wealth by his work. Money is not wealth. A bona fide credit certificate is a claim for wealth. Bona fide money or any other bona fide medium of exchange serves, [p. 16] with justice, as a convenient means to share ones wealth with other possessors of wealth.
Work, in general, means the expenditure of energy. We shall limit our definition to productive work. When we expend out energy with tools and knowledge upon some natural resource, we can produce goods that are useful to man.
In general, we can say that man must acquire knowledge and tools before he can produce goods and services. It is by means of productive work that we acquire (earn) the goods and services or the medium of exchange with which to buy the goods and services we need or desire. If we wish more goods (wealth) and services, we should try to become more productive by making more efficient tools.
6 A person or a nation can become wealthy, that is acquiring an abundance of goods, by productive work using knowledge and efficient tools. Work, the expenditure of energy, by itself does not produce goods or services. A man may work hard to break open a safe to acquire its contents; but even if he succeeded in obtaining the contents, he did not produce any goods or services. His work was unproductive. He stole the goods that another man obtained by productive work.
Productive work is the necessary method by which we can obtain the goods and services we desire. If we acquire goods or services without productive work, it means someone else performed productive work to produce those goods or services but he did not receive them. [p. 17]