From the available information it seems that a document was first used as a medium of exchange when the goldsmith accepted gold for the purpose of storing it in his safe (strongbox) for safekeeping. He would issue a note, a certificate of credit, on which he wrote that he promised to pay, on demand, to the bearer of that note or certificate of credit, the gold which he received at the time he issued his promise to pay. The note or certificate was written evidence of a just claim for the gold he held in his possession. That certificate of credit was a bona fide medium of exchange.
We have a right to assume that he charged a fee for the safekeeping of the gold until it was demanded by the bearer of the note. That was a just charge for the service of safekeeping the gold. It was not an interest charge for the use of his note.
The next step in the development of the use of a note or certificate of credit in our money system came when the goldsmith gave to those who wished to borrow gold from him his certificate of credit. On it were written words stating that he promised to pay, on demand, to the bearer of the certificate, a certain amount of his gold. He had the gold in his safe (strongbox). He was keeping it for the bearer of the certificate. He had a right, with justice, to charge a fee for the safekeeping of that gold. He had a right to charge a fee according to the amount of gold that he was safekeeping and for the length of time he had to keep it. That might have been the basis for the interest charges, a development which came later. But such safekeeping charges would have been just because they were not interest charges paid for the use of the note or certificate, but were fees paid for the safekeeping of the gold for [p. 119] which the certificate was evidence of a claim. That certificate of credit could also serve as a bona fide medium of exchange because it was evidence of a just claim for gold the goldsmith had in his possession.
The goldsmith learned from experience that his certificates kept circulating as a medium of exchange. Seldom did anyone bring those certificates back to him in order to demand the gold. So he had loaned out certificates in an amount equal in value to the value of all the gold he had in his possession.
The next step probably was as follows: A good man came to him to borrow some of his certificates for a good purpose. The goldsmith had plenty of gold in his safe but claims, certificates of credit, for all of it were in circulation and could be brought in at anytime to claim all the gold he had. However, through some years of experience he learned that such a thing never happened. He reasoned that he could write out his certificates stating that he promised to pay, on demand, an amount of gold beyond what he had in his possession. So he did it.
He decided that he would charge the same fee for this non-bona fide certificate or note that he charged for the safekeeping of the gold for which he issued his previous bona fide certificates. Such a fee was an unjust (interest) charge for the use of the non-bona fide certificate. The non-bona fide certificate appeared the same, had the same words and the same signature written on it as the previous bona fide certificates. The interest charge was an amount equal to the amount of the fee he charged for the safekeeping of the gold for which he issued his bona fide certificates. The interest charge was unjust because the goldsmith charged a fee for the safekeeping of gold, when there was no gold for him to safekeep, so to speak. He was not honest when he issued this certificate; therefore, the certificate was a non-bona fide medium of exchange.
But what happened? It worked just the way the goldsmith had expected. His non-bona fide certificate was used as a medium of exchange just as well as his bona fide certificates. The people could not tell the difference between the two. The goldsmith was considered a great [p. 120] benefactor in the community because of the abundance of his certificates which served as media of exchange. The people prospered. The people prospered because there was a good supply of the media of exchange in circulation, not because the media of exchange was non-bona fide. The people believed that all the certificates were bona fide. But the goldsmith was worried. He knew that his dishonest act might be exposed if too many people demanded their gold at one time. So what did he do? He decided to try to make his dishonest acts legal and respectable.
He went to the government officials and explained to them the great service that he was performing by his issuing so much of the media of exchange which gave the prosperity to the community .The government officials probably did not know that some of his notes or certificates were non-bona fide. All they knew was that they were having prosperity and the notes were redeemed with gold whenever anyone would demand his gold. The fact that the people were going more and more in debt was not considered important. It looked like going in debt was a good thing for the people in general.
In order to make his act of issuing non-bona fide notes legal, the goldsmith got the government to grant to him a charter to start a bank. He persuaded the government to set rules so that he could loan out, with interest, let us say, his notes in an amount up to ten times in value of the amount of the gold he possessed. If he then got caught with a shortage of gold, he could claim that what he had done was legal. The goldsmith, who now became the banker, explained that when he had in his bank $1000 in gold and then loaned out $10,000 worth of his notes which he said he would redeem with gold, he was loaning $10,000 worth of bank credit with a 10% gold reserve.
(Note: The non-bona fide notes, which were promises to pay gold that he did not possess, were now called bank credit.)
The above is a brief description of some of the probable [p. 121] background events that have led us to our present banking and money system. The people, including government officials, should study the whole system.
At the present time, 1969, more than ninety percent of all the business in the United States is carried out with bank credit serving as the medium of exchange. All bank credit is issued as a loan, and some
58 person, corporation, or governmental body must go in debt to get it. Those debts cannot be paid off unless the people and/or governmental bodies issue bona fide media of exchange.
If and when we learn what bona fide media of exchange are and start issuing and using them, they will gradually replace the present non-bona fide media of exchange. They will do it without any disruption in our economic system. There will be no tampering with the money system. No new laws will have to be passed regarding the banking system. The people will freely choose to use either a bona fide or a non-bona fide medium of exchange. Both will be available. If the people choose to use only the bona fide media of exchange, all debts resulting from the borrowing of the media of exchange will gradually be reduced in time to zero. All people, including banks, who loan out non-bona fide money will be, as their notes and bonds mature, repaid in full with a bona fide medium of exchange.
Debts which people made or will make when buying a house, farm, or an automobile will be the same as they are now. Such debts will be made and paid off in the same manner as is now done. Governmental bodies will gradually be able to pay off their interest-bearing debts.
Inflation and deflation will no longer exist. The banks will loan out only bona fide media of exchange. There will not be any balance of payments deficits or surpluses. Gold will not be used to interfere with the normal buying and selling of goods and services; gold will be given its rightful place as a useful commodity. People who then buy gold will have a use for it as a commodity, not as something with which to speculate or with which to exert pressure on or destroy an economic system or even a governmental administration. [p. 122]
For those persons who might enjoy using some type of test to determine what is a bona fide medium of exchange, the following suggestions are made:
First, we must remember that all the media of exchange now used in the United States are documents. To be bona fide the document which is used as a medium of exchange should do the following:
1. It must be able to be introduced into circulation in a country which has no media of exchange of any kind.
2. It must be able to be introduced into a country at a time when non-bona fide money (medium of exchange) is being used in that country.
3. It must be such that it can be introduced in a community even if there is no organized government in existence. Certificates of credit can be issued without a government participating in the process.
4. It must also be able to be issued by a governmental body without requiring the participation of any private persons or corporations. Tax credit certificates will fulfill that requisite.
5. When tax credit certificates are issued, they must be paid (not loaned) into circulation and a tax levied in an equal amount at the time they are issued. They also must be destroyed (at least in effect) when the issuing governmental body redeems them as payment for taxes.
6. When a certificate of credit is issued by a private person or corporation it may be sold, paid, or traded, but not loaned to persons, corporations or governmental bodies.
7. A bona fide medium of exchange must be evidence of a just claim for some goods or services for which it will be redeemed.
8. It must be issued by the possessor of the goods or services for which it will be redeemed.
Now, let us see if any of the media of exchange now used in the United States will fulfill the requirements of those tests.
Our coins are sold into circulation, no tax is levied when they are issued, and they are not redeemed when [p. 123] used as payment for taxes. That is enough to make them non-bona fide.
The United States notes were paid into circulation but no tax was levied for which they would be redeemed. Thus, they are not bona fide tax credit certificates.
The Federal Reserve notes are all loaned into circulation. They are not issued as a claim for goods or services for which they would be redeemed. They, therefore, do not fulfill the requirements of bona fide certificates of credit.
Bank credit or bank credit money is also loaned into circulation and is not issued as a claim for goods or services for which it will be redeemed. It too, does not fulfill the requirements of bona fide certificates of credit.
Does that not appear as though all of our media of exchange are non-bona fide? It is not surprising then, if a top official of the Federal Reserve banking system says that the United States is in a serious money crisis. What else can we expect, when all of our media of exchange are non-bona fide.
As we analyze the documents which serve as bona fide media of exchange, we conclude there are only two groups of documents which fulfill all the requirements of bona fide media of exchange: in the one group we have tax credit certificates, and in the other group we have certificates of credit.
These two groups of media of exchange will serve, with justice, in any country in the world (where people can read), all the needs of buying and selling. Countries that are poor can issue them just as easily as the more wealthy countries. Poor countries as well as rich countries do not have to borrow their media of exchange. They can issue and introduce bona fide media of exchange at any time. In the United States, United States notes and coins can, if done right, be issued as tax credit certificates because that is what they are supposed to be. We can call them notes or coins but they have their present value only because they must be and they are accepted in payment for federal taxes. [p. 124]
WHAT CAN WE DO?
What can we do to have bona fide media of exchange? The first thing we can do is to fully inform ourselves so that we know what a bona fide medium of exchange is. The next thing to do is to inform others, so that a large number of people will also understand what a bona fide medium of exchange is. When a large number of people know what bona fide money and other bona fide media of exchange are and that the medium of exchange need not be borrowed, and when they know who in justice has the right to issue it, then we will have a good start on the road to using bona fide media of exchange.
One thing that all of us can do is to use as few Federal Reserve notes as is practical. When cashing a check at a bank, instead of accepting Federal Reserve notes, ask for United States notes and coins. Most of the time you may not be able to get many United States notes because there are not many in circulation, but you can almost always get coins. The treasury department is authorized to mint as many coins as are necessary. No new law is necessary. The government also makes a big profit on all the coins made and sold.
(An AP report given in the Sheboygan (Wisconsin) Press of July 16, 1968, said the government made the following profit from the issuing of the U.S. coins:
The more profit the government makes on selling coins, the fewer taxes it will have to levy. Also, the fewer Federal Reserve notes that are used, the fewer taxes the government will have to levy for the purpose of paying the interest for the use of those Federal Reserve notes.
The coins, as they are now issued, are not bona fide money, but they are the next best thing we have to being bona fide money. So we should use them, because we do not have to borrow them. It is possible that if a large [p. 125] number of coins were used, some government officials might decide to make the coins and issue them in such a manner that they will be bona fide money.
When you use coins to pay your bills, it is not necessary for you to count out the coins as individual coins. When you cash a check for $100, just ask for $50 in quarters and $50 in dimes. The banker will give you five rolls ($10 in each roll) of quarters and ten ($5 in each roll) rolls of dimes. When you go to the grocery store to buy $8 worth of groceries, you may give the clerk a $10 roll of quarters in place of a $10 bill. She will give you $2 in change. If you go to a gasoline station to buy $4 worth of gasoline, you may give the attendant a $5 roll of dimes. He will give you the $1 change. That is the idea we can use when we pay all of our expenses.
The above is what all of us can do, but some of us can do more. Those of us who are producing or selling goods can issue certificates of credit and use them in the same manner that we would use borrowed money. Those of us who hold positions on a governmental body can, if our governmental body is in need of money and is considering borrowing it, advise it not to borrow, but to issue tax credit certificates. These tax credit certificates, if issued as given in Chapters 2 and 10, will serve the same purpose as borrowed money. They will be a bona fide medium of exchange and no interest will have to be paid for their use.
One final thing which all of us can do is to cooperate with those who issue bona fide money, tax credit certificates, and certificates of credit. Use them gladly. Tell others of the advantages of using bona fide media of exchange.