Perry Glasser

A Brief History of Ca$h

In Business, Economics, Politics on September 20, 2008 at 11:40 am

 

Imagine an economy free of money. We’d be pushing around wheelbarrows carrying bread and milk and diapers and beer, cuckoo clocks and wine bottles, ready at a moment’s notice to engage in barter transactions. “I’ve got this really neat bird cage here; will you swap for a side of bacon?”

This becomes unwieldy when you want to strike a deal to buy a house, unless you have an army of bearers, as did Cleopatra. She showed up with leopards and warehouses of grain to bribe Julius Caesar not to make war on Egypt. To close the deal, she threw herself in as part of the bargain. This has ever been the cost of peace.

So money is an agreed exchange standard for the purchase of goods, services, and contractual consideration.

Intrinsic Value

Money itself used to be the object of value; think of gold coins. We’d want a medium of exchange that was handy, small enough to fit in a purse, valuable enough to be able to buy more than a jar of honey.

The problem (and appeal) of such a monetary system is that when an economy needs to grow, the need for cash will outstrip the amount of money in circulation.

At about the time of the Renaissance, the great banking houses rose up and began producing paper and coins that had no intrinsic value, but were backed by the issuing institution. In theory, any note-holder could appear at the bank’s front door and ask for the commodity that actually had intrinsic value—usually gold.

Enter the politicians. They figured out that the same bit of gold lying in the vault could be promised to dozens of people, provided there was little chance of all of them showing up at the same time.

Instead of calling this fraud they called it leverage.

By and large, the system worked. Lost of cash; lots of growth; no wheelbarrows.

Stop yawning; this is where it gets interesting.

US Money

During the American Revolution, the Continental Congress printed money backed by bupkis. The odds on independence were long. Soldiers at Valley Forge muttered “It’s not worth a Continental,” meaning something was crap, worth less than the crap paper currency George Washington was paying them.

Ha! O ye of little faith! We won.

The new government started issuing currency backed by gold. We hoarded our national treasure at Fort Knox.

But the country grew faster than its gold supply. William Jennings Bryan ran for President three times on a platform of Free Silver, a slogan that meant all the wealth that had accrued in the pockets of the rich could be shaken loose if only the little guy could have a shot at capital. Bryan asked, “Shall man be crucified on a Cross of Gold?”

Well, Bryan lost, but he was right. Being correct has never gotten anyone elected. Not in America, anyway.

Gold and silver coins had always been in circulation, but the full faith and credit of US currency was backed exclusively by gold, and even the value of silver was pegged to gold. Gold, by the way was “fixed.” Thirty-two dollars to the Troy ounce.  And the value of silver was pegged to gold.

But came the Depression of the 1930s, and things looked grim. We damn near went back to a system of barter—people were selling apples on the street, and more than a few women employed Cleopatra’s strategy to pay the rent.

With one third of American unemployed, Roosevelt needed to avoid a revolution. Armies of vagrants had marched on Washington. To push more money into circulation, we started printing silver certificates.

It worked—sort of.

Modern Times

The monetary strategy of printing our way out of trouble proved salutary and painless. It carries little or no tax consequences and does not require reduced spending on anything else. All it does is make money worth less, what economists call inflation. You know, like blowing up a balloon. The trick is not to go too far or else it explodes in your face.

In 1964, Lyndon Johnson wanted to keep voters happily prosperous; he also was eager to prosecute a war based on a fraud. There was no Tonkin Gulf incident, but when did accuracy and truth have anything to do with US foreign policy?

The justification for the war was how we had to maintain the US’s credibility in terms of living up to our ant-communist commitments. At any moment, if we did nothing, surely Vietnamese in black pajamas would looting the streets of San Francisco, raping children, and preaching godlessness.

All right, so as it turned out, after having won that war, Vietnam is now our trading partner, but at that time, we had to make sure no dominoes fell. Our stalwart allies who were systematically torturing and imprisoning their own populations in such bastions of democracy as Iran, Chile, and most of the rest of South America needed reassurance: Would the United States come to their aid if their populations rose up to demand justice and freedom? We equipped armies all over the world to defend governments fearful of their own people.

All right, so the populations rose up anyway. And, yeah, they did so with deep anti-American sentiment. And yeah, now they have all those weapons and they are pointing them at us. Just forget that distracting stuff; supporting shahs and banana dictators seemed really important at the time. The Shah had oil; Batista in Cuba had sugar; all over South America there was coffee and fruit. Look, freedom and justice always take a back seat to what we like to call, American interests, and, for readers rhetorically challenged, that means guarding the fortunes of the corporate rich, and “guarding” means up to and including sending American youth into harm’s way.

Wanting to deliver “guns and butter,” in 1964 Johnson moved us to the Federal Reserve Note, a kind of currency backed by the full faith and credit of the Federal Reserve. Once again, for the rhetorically challenged, this translates to: We don’t need no stinkin’ gold or silver, You got our word!

As good as cash
As good as cash

 

Monopoly Money

Well, actually, this system, too, can work fairly well. You may have noticed that the nickels and dimes in your pockets no longer contain and silver. Gold coins are collector’s items. So are Silver Certificates. If we wanted, we could declare Monopoly money to be the coin of the realm. 
We print all the currency we want or need to pay interest on the national debt, shell the living shit out of shepherds in Afghanistan, or to spend a trillion or so hunting down the man who tweaked the nose of Georgie Bush’s daddy. True, we cannot find dime #1  for universal healthcare, getting kids out of crumbling schools, investing in alternative fuels, or building out a mass transit infrastructure that might free us from oil dependency, but like all clear thinking Americans, I say, “Thank God we’ve got our priorities straight!”   

 

Which is what we saw last week.
Faith and credit…uuhhhmmmm, maybe not. Isn’t this paper the same as Monopoly?
The world is awash in American notes and the suspicion that we may not be able to pay what we owe. Global markets are suffering night sweats.
Geez-Louise, if we get closed out of global credit markets, how are we going to wage wars?  Holy Geez! Suppose we had to pay for wars up front!!!!  We’d have to have the support of the American people!!!
Never mind we won’t be able to pay our own elderly their Social Security income in a few years; we need to reassure the governments of Korea, Dubai and China that the hundreds of billion we owe them will be forthcoming.

Our note holders want that full faith and credit guarantee. They are demanding it now. We’ll print the necessary currency, keep making war on shepherds with swarthy skin tones everywhere (New Zealand’s shepherds are safe), keep buying oil, and most important of all we will continue to move American treasure anywhere but to Americans. This will be called a bailout.

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