Government's monetary word games

By Marilyn Barnewall

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My friend, Jim Ewart, author of the book, “Money,” has written an overview of some of the popular misconceptions about. what else? Money.

Ewart says most misconceptions and myths about modern cash are “vulgarisms.” He uses the term “vulgarisms,” not because it is "vulgar" to discuss money (in some circles), but because vulgarisms are "often heard, incorrect word usage, improper phraseology, and illogical compounding." Ewart is a very topic-specific, focused kind of guy.

He reminds us that for 2,400 years, money has been (and still is) coins of gold or silver made in a mint to be media of exchange. Money substitutes are widely acceptable in trade as long as owners of the substitutes are (or can be) given immediate access to an agreed upon, fixed weight of gold or silver. Until about 1978, U.S. dollar bills were immediately redeemable in fixed weights of gold or silver.

Referring to paper currency, Ewart says “paper money” is a "dangerous colloquial term." It is a vulgarism. It is dangerous because it promotes public acceptance of government deficit spending. It is a vulgarism because any paper currency not directly tied to gold or silver is not a legitimate money-substitute.

As long as our paper currency was directly tied to a fixed weight of gold, government could not print more paper bills than the gold the country had available for payment of the paper bills.

"Radical extremist talk," you say? Think again.

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.”

That sounds pretty radical. Those words come from an article written by none other than Federal Reserve Chairman Alan Greenspan.

Herbert Hoover said [unbacked] paper currency helps politicians by making it possible for government to take "the savings of the people by manipulation of inflation and deflation. We have gold," Hoover said, "because we cannot trust government."

With gold as the base of a currency, government spending is limited. When on the Gold Standard, government could print only as many dollar bills as it could back with gold. Using the “Dollar” Standard rather than the Gold Standard allows government to print as much irredeemable currency as it has ink.

For the 20-year period before August 15, 1971 – while currencies were redeemable in gold or silver – the central banks around the world increased their reserves by only 55 percent. Since the Gold Standard was replaced by the “Dollar Standard,” central banks increased their reserves by 2,000 percent.

Why are costs increasing so quickly? The lost value of “the dollar” is the biggest reason. When our currency is worth less today than it was yesterday, more of it is required to purchase anything. Government bought a lot of ink and printed a lot of bogus paper currency. Increased costs are the result of the declining value of the “dollar,” not the increase of product costs.

Ewart says, "Newcomers to the money issue may innocently repeat this vulgarism: 'Gold is money, all else is credit.' It is better stated: 'Gold coins and silver coins are money; all else is credit.' Please recall that only coins of gold or silver, manufactured in a mint to be a media of exchange, are money."

Ewart also says that today there are no real Federal Reserve Notes in general circulation. "They began disappearing in 1963," he says. "Today's pieces of paper bearing the words "Federal Reserve Note" are not promissory notes. The paper currency in your pocket that says "Federal Reserve Note" on it doesn’t promise to pay you anything.

The law says a promissory note must identify a maker, a payee, a dollar amount, and a due date. Today's U.S. paper currency, because it fails to identify a payee and a due date, might best be called 'Federal Reserve Tokens.'"

Is a modern $5.00 bill a promissory note, or is it just - paper currency? When a transaction is credit-based (and all financial transactions that do not involve minted gold or silver coins involve credit), it involves a promissory note.

Some of our old paper currency said, "This Note is A Legal Tender For Ten Dollars." It also said something like, "The United States will pay to bearer." Ewart says the words “Legal Tender” must be preceded by “a” or “an” to have legal standing. Does it say that on the paper bills in your wallet?

Jim Ewart, one of the nation's experts on money, says today's paper currency is bogus. It makes no promise to pay anyone anything.

When I write articles about today’s modern paper currency not being legal tender, I always get this response: "My banker disagrees with you that what we have today is not legal tender. How should I answer him?"

This is a difficult thing to explain in few words and so I asked Ewart what his response would be. It follows.

"Here’s a good response... a short story that may reduce the confusion most people have with this topic.

"Suppose you loan your best friend five donuts. Your friend, Bill, gives you a promissory note, promising to pay you back five donuts on your demand. His note says, 'Bill Smith will pay to the bearer, on his or her demand, five donuts.'

"This 'five donut bill' also says, 'This note is a legal offer for five donuts.' A few weeks later, Bill asks you for his note back, just for a second, so he can take another look at it. You comply. He takes it into his office for a few minutes, and then comes back to you. He hands you the “note,” says 'Thanks,' and walks away, smiling.

"You now see that the 'note' is changed. It now says, 'Bill Smith' and 'Five donuts.' It also now says, 'This note is legal offer for all debts, public and private.'

"Your friend Bill’s 'note' is no longer a financial instrument. It no longer promises anything to anyone.

This fictional story parallels the bizarre wording changes made on U.S. paper currency. I hope this story helps you understand the significance of the monetary "word games" played by what appears to be just a tiny handful of government officials.

Marilyn Barnewall, in 1978, was the first female to be named vice president in charge of a major loan and deposit portfolio at Denver’s largest bank. She started the nation’s first private bank, resigned to start her own firm and consulted for banks of all sizes in America and other countries. In June 1992, Forbes dubbed Barnewall “the dean of American private banking.” Author of several banking texts, she has written extensively for the American Banker, Bank Marketing Magazine, and was U.S. consulting editor for Private Banker International (Lafferty Publications, London/Dublin). Article originally appeared in the Grand Junction Free Press. Marilyn can be reached at [email protected].