The Federal Reserve Note (FRN), commonly referred to as the United States Dollar, is a debt issued by a private corporation (Federal Reserve) that has a monopoly in the geographic region of the United States as legal tender (currency) by decree of the Federal Reserve Act of 1913. In other words, unless you have Federal Reserve Notes, you will not be able to transact in any other currency for as long as you are in the United States. Other countries have similar currency controls for their respective currencies.
Unfortunately, as with any monopoly in any industry, whether it be electronics, oil or currency, the benefits of control lie with those in charge, while the public that is subjugated to this monopoly is at a disadvantage, and often times mercy of the party in control of the currency.
Please keep in mind that no where do we suggest or argue that the individuals or entities in control of currency have malintent. However, sadly, history only remembers actions and their consequences rather than the intent or ideals. Therefore, even the most noble deeds may prove to be nothing but misfortune – regardless of intent.
While it may be news to many that the Federal Reserve System is in fact a private corporation and not a government entity, it would be futile to argue for a government controlled central bank opposed to a privately operated central bank. In reality, either privately or publicly operated, monopolistic control of currency, or any industry, which is only possible by decree of law, leads to less choice for the constituents, and thus greater potential for misfortune.
If you do not believe this statement, then answer a question for yourself – do you prefer to have a choice in what you purchase when you go to the grocery store, or would you rather have only one variety of the product you seek to purchase, at one fixed price. The only difference in a publicly and privately controlled monopoly is whether you are taxed/charged on the front end or the back end. Make no mistake that regardless, you and only you, regardless of your income, wealth or status in society are paying the cost. In fact the the most disadvantaged economic cohorts are most afflicted by these issues.
History Of Money
Historically, paper currencies are bank receipts for an asset (money) that is stored at the bank. This receipt would state the liability that the bank owes to you, for example, 1 dollar, 5 dollars, 10 dollars, 20 dollars. You would then be able to transact with this receipt in society and any bearer (owner) of the receipt would be entitled to withdraw the asset (money) that is accounted for by the receipt from the bank. However, the receipt is not money itself, it is merely a liability of the bank, which stores the money on your behalf:
The notes have no value for themselves, but for what they will buy. In another sense, because they are legal tender, Federal Reserve notes are “backed” by all the goods and services in the economy.
However what happens if no asset is stored at the bank, yet the receipt still circulates and functions as currency in society? The primary way this is possible for a significant duration of time is by decree of law, whereby a currency is allowed monopolistic control of a certain geographic region – these currencies are known as fiat currency. This is also possible as part of investment manias. Like with all manias that arise either as a result of law or purely from speculation, the speculation leads the value of the investment in both extremes, up and down. The lower extreme is a value of zero should the demand for investment decrease to zero.
What is interesting to point out is that the coins (Penny, Nickel, Dime, Quarter) issued by the United States Treasury, a government organization, are in fact money. The coins are created from a commodity (metal) that has value. The problem lies in the fact that the value of the metal content of the commodities used in these coins is less than the nominal amount printed on the surface of the coin. In other words, a quarter is actually worth less than the 25 cents. If you were to melt the coin and sell the metal content, you would receive less than 25 cents in return. Additionally, it is difficult to purchase something of tangible value using solely these coins, therefore Federal Reserve Notes have a competitive advantage in that regard to the currently minted coins.
The question that arises is why is world history riddled with the continuous battle between fiat currencies and money?
What’s Better – Currency or Money?
It is important to understand who benefits most and as a result, who prefers money or currency. Currency, because it has no industrial value and no industrial supply and demand constraints, thereby purely relies on investment supply and demand which is much easier to control both the supply and demand side of the equation, specifically by decree of law.
Therefore, as mentioned earlier, those who control the creation of currency, stand to benefit from this monopolistic power.
Once again it is critical to note that, no where are we arguing for mal intent or presupposing any moral grievances with the individuals at control. All we are examining are the facts and the fundamental challenges and problems created as a result of such monopolistic power.
As a result, because there are less variables to manage (i.e, only investment supply and demand) it has been the preference of those who are nearest to the center of control for currency to be in favor of possessing such control and to decree by law the issuance and use of “fiat currency”, which does not have any industrial value, whereby supply is controlled by those in charge, and demand can be engineered, though not indefinitely.
Naturally, if a currency is proclaimed by law to possess monopolistic control over a geographic region, then demand from the population of said region is almost guaranteed. While behavior may be engineered and influenced by those in charge of the currency, this cannot be done indefinitely if the supply side of the currency continues to be mismanaged which results in ultimate wealth destruction for those who possess this currency – in other words, you.