Thursday, January 22, 2015



It was clear that Kitson set out to disprove Gresham's Law, which unfortunately cannot be disproved because it is based on the laws of nature. Commonly stated as, "Bad money drives out good," it is better understood as “cheap money drives out the more expensive,” and Kitson does eventually admit that this is the case. The value judgement; good vs. bad is rendered merely a matter of personal tastes, not the actual economic law. It was this that Kitson wished to attack as his assault was mounted against the reigning prejudice of his day, the “gold backed” dollar. Again, we admonish that the “gold bug” superstition that was in force back then did not solve any serious economic problems and we would certainly NOT be better served by returning to it in any form whatsoever. If you still think so, you are an idiot! Likewise should you insist that governments are the only people who should be issuing money, you are an idiot! Getting emotional about being identified as an idiot? That certainly wont help you. If you no longer wish to be considered an idiot, you are advised and admonished to get an education; a real one, not the kind you'll get in your average college or university. If you don't know, one way or another, and want to learn, then stay tuned to this blog, read more widely here and in the links provided and if you apply your own mind to these ideas, eventually you will get an education worth having.

If evidence be required to demonstrate the unscientific thought that controls our monetary science, we find abundant proof in the importance given to what is known as the Gresham Law by statesmen, financiers and economists, during the past two centuries. No theory in economic science is more frequently quoted, or more often appealed to, and yet its existence is entirely due to that fallacy which I have endeavoured to expose in the previous chapter, that money is a commodity. The Gresham Law contains about as much truth as the astronomical theories of the Rev. Mr. Jasper, or the economics of Governor McKinley, and no more. Sir Thomas Gresham, the founder of the Royal Exchange, in the sixteenth century, observed that new coins rapidly disappeared from circulation, especially when the bulk of the coinage in circulation was light in weight. He discovered that in exporting the precious metals, money changers invariably selected the new full weight coins; hence the light weight ones remained in circulation. The persistence with which this occurred led Sir Thomas to formulate what has ever since been known as Gresham's Law, viz., "Bad money drives out good money, but good money cannot drive out bad money.” Consideration of this law makes one wonder whether monetary science is a branch of knowledge which the fundamental principle of philosophy, viz., the survival of the fittest, has failed to cover. 

Well, we doubt the reasonableness of all this, because we see Gresham's Law as a real observation of nature that proves more concerning money than Kitson assumes here, even though he does see it our way.

Let us consider the subject closely. If we analyse a coin we shall find it composed of a certain quantity of metal, moulded into a certain form and stamped with an inscription on each side. As a piece of metal (silver or gold) it is merely a commodity. The inscription gives it the credit of the government. Wherein does the money consist? In the nation's credit or in the metal contained in it? What causes it to be generally received, to circulate throughout the community?

If I take a hammer, and, avoiding the loss of any of the metal, I deface the inscription so that it is unrecognisable, the coin will not circulate. No one will receive it on the same terms as before the inscription was defaced, notwithstanding that as a piece of metal it remains of precisely the same value. I am compelled to send it to the mint and have the inscription renewed, or sell it to a gold or silver merchant as a commodity. The effacement of the inscription has reduced the coin to a mere commodity. The money is destroyed. This is a more important observation than it may seem at first glance. What this proves is that money is not a commodity even when it is represented as tokens made of a particular commodity. Let this observation sink in and it becomes clear that all commodities based money, the tokens the silver and gold bugs wish would circulate, as well as all the national currencies, which are themselves commodities, do not function as money due to their commodity basis in some intrinsic value, but because they are recognized as “legitimate” money that they can receive and in turn spend in trade.

Does anyone doubt this fact? If so, let him take a piece of gold of the same quantity and quality as a gold dollar, and of the same shape, and omitting the inscription, let him try to use it as money. He may put even more gold into it than is in the dollar. No one but a gold merchant will accept it, and then only as a commodity. (Counterfeiters are flooding Cincinnati with spurious dollars of silver. The curious feature of this illegal act, is, that the counterfeit is said to be pure silver, and, therefore, of a better quality than the government furnishes as a legal tender. The present market price of silver enables the counterfeiter to manufacture this superior coin and yet obtain for his labour a handsome profit.” — Philadelphia Ledger, March 10, 1894. And this, “An undergraduate of the University of Pennsylvania, who considers himself a practical joker, recently placed a five dollar gold piece on the tracks of the Reading Railroad, and after a train had passed over it, hammered it out of all shape, removing every trace of the die. Then he took it around to purchasers of old gold, who tested it by weight and acid, and told him how much they would give for it. The highest offer he received was seventy-five cents''— Philadelphia Record, Feb. 7, 1894.) The gold merchant will buy the defaced coin just as he would buy tea, coffee or any other commodity.

What, then, is the meaning of the phenomenon, viz., the disappearance of the largest and fullest weight coins? Merely this, that the tendency of commerce and of industry is towards cheapness, towards the destruction or abolition of value — as used in the commercial sense. (I have dealt more fully with this subject in the Chapter on Value, viz., the constant tendency of industry — when free from governmental interference — to reduce the “valuable" to the merely useful.) It is founded upon the economic law that men seek to gratify their wants with the least expenditure of energy, a law that corresponds to the line of least resistance in mechanics. This is a fundamental law of nature exemplified by the fact that water does not run uphill, only downhill. Much of what is preposterous, unreasonable, stupid or otherwise pointless in this world, stems from human efforts to defy natural law, compounded many times by idealisms.

Consequently, of two things, both equally well adapted to fulfil a certain function, the cheaper one will be selected. For this reason iron has superseded brass and wood, and steel has taken the place of iron in many of the arts. Eor this reason iron itself will be displaced as soon as mankind finds a cheaper material capable of performing the same duties. For this reason, too, coins of short weight stay at home, and those of full weight go abroad. For this reason, were it not for the interference of governments, and for legislative enactments, gold and silver would be relegated to the arts to which they properly belong, and the cheapest and best form of money, paper, would be universally adopted. So now, we have swipe cards to perform this function because money only exists as numbers in someone's accounts, not as the tokens they represent in the actual trades. For most people, paper money is still preferred because it is anonymous, which we pointed out here.

The Gresham Law is a thorough demonstration of the fact that the ability of money to perform its duties is a function which a commodity is incapable, as a commodity, of performing. In commerce, as in mechanics, the utility of an invention is determined by its ability to discharge the functions for which it was invented. As Francis Walker says: "Money is that money does."

Now, knowledge of the fact that when two kinds of coins were put in circulation, the one circulated freely whilst the other refused to do so, would lead to the inevitable conclusion that that which circulated was the better money, i.e., better adapted for the work required; for what is the work required of money but to circulate freely? Money is to trade what wheels are to a car, a means of facilitating its progress. What possible use would a wheel be to a car that refused to revolve? And yet we are gravely informed that money which will not circulate is the best money! Gresham's Law is, therefore, an absurd and ridiculous fallacy. Good money will always drive out bad money. The cause of the "picking and culling'' of gold and silver coins (as it is called) is this, that when coins function as money, they are not, properly speaking, commodities; as metals, they are; and coins, like everything else, obey the highest law of their being. This law is, that they seek the sphere wherein they can perform the functions of that office for which they are best adapted; and this is the law of the survival of the fittest, a law which Gresham's theory contradicts. Actually his law proves the same thing in reverse, which is why we still accept it as a legitimate observation of natural law. So called “bad money” to him, made of paper, really does drive out of circulation “good money” esteemed by him to have greater value. What “gold bugs,” Rothbard and others have advocated down through time, is that money, like water, should be made to run uphill in defiance of nature. Their efforts are as doomed to failure as that anything subject to gravity can be held up in the air in defiance of gravity forever. As coins, they are of less value than mere commodities. Their money functions are subordinate to their commodity function. But now, it may astonish “Greshamites” to learn that, as a matter of fact, money never goes abroad. It is the commodity that emigrates. Coins are sent abroad as bullion, not as money. They are sent to foreign mints and re-coined or sold to exchangers. Well of course paper tokens of money may be sent overseas now, but actual money transfers overseas strictly as numbers from on-shore accounts to off-shore accounts. They are still regarded by speculators as commodities, whether represented by silver or gold, or these days by barrels of oil or British thermal units of natural gas.

We may sum up the matter as follows: Commodity-money is the subject of two powers, one governing it as a medium of exchange, the other as a commodity. The question as to whether a coin will perform the money function well or ill, whether it will circulate or not, is dependent upon whether its commodity value is greater or less than its money value. Any money that is tied to a commodity is, therefore “bad money” in the sense of not being reliable in performing the money functions when it is needed. “Good money” is of that nature that at all times it obeys the law of its being and is subjected to no other law. Riegel would have and we see things precisely in this way. We further assert again that it is not whether such money is issued by fiat at all that matters, but that it is WHO gets to issue it that matters. All governments and organizations are forbidden this function in an honest E. C. Riegel based monetary system because they do not fit the requirements for right of money issue. Governments because they have nothing to sell and organizations because they derive their basis by participation of individuals making them up. Which leaves individuals themselves. We can divide these among those who can or would work and those who cannot work. Those who work redeem their labour by money that they issue in exchange for their work as explained here. The rest is issued by the poor as allowed by their local independent exchange.

Gresham's Law shows further that the natural tendency of money is to become disassociated from the commodity. A coin short in weight circulates where the full weight one cannot. The commodity begins to disappear from the moment a coin is started on its course. Either it disappears per saltum, or else it is gradually worn away by abrasion. The loss from use is in itself evidence of the un-wisdom of allowing money to carry the wealth of which it should be merely the representative, with it. It is handicapped from the start, like the snail that is compelled to carry its house on its back. Again, see what a faulty consideration of wealth as merely “stuff” gets us into? If wealth is incapable of providing a return, then it certainly is not wealth. By a return, we do not imply a yield as in all forms of usury, but the generation of actual goods or services that make life possible or improve living conditions; goods and services that provide a living for real people.

We can now see the absurdity of striving to make money a commodity, or in associating it with a commodity. Subjected as it must be to two conflicting forces, it cannot well perform the money function so long as it is exposed to the force acting upon it as a commodity. "No man can serve two masters." Gresham's Law distinctly shows that as commodities, gold and silver refuse to perform the money function; they will not serve as money. It is only when their commodity forms disappear, are lost sight of, that they properly fulfil the function of a medium of exchange. They obviously cannot do that as long as speculators in commodities operate and we believe that as far as commodities are concerned, it is impossible ever to drive the professional speculator out of the economic picture. All we can do is to dissuade speculation in money itself by eliminating the commodity basis of money from the equation, which this blog's proposal clearly accomplishes.

Gresham's Law should, therefore, be amended in order to become truthful, as follows: "Cheap money is the best money and drives out dear money," which means that the cheaper the material of which the money is composed, the better. Yes, we like and accept this. But if the best money be cheap money in terms of what its tokens are made, we consider that it serve the function of advertising the businesses and services of its exchange membership as well. We proposed that the circulating medium be the V-Check, made of good quality paper and waterproof inks, which would have a minimum circulation period of six months, be redeemable for other V-Checks, or capable of deposit into a member's account, that would carry on its reverse side advertisements of its member businesses, that these blank V-Checks should represent ½, 1, 2, 5 and 10 Value Units (larger amounts to follow as needed) and that their production should be paid for in “public” money by these member businesses as legitimate advertising expenses. Note that no blank V-Check is ever good until over-printed by each independent exchange Valun counter and recorded for universal identification by the proposed International Valun Exchange Society (IVES).

Of course, in order to be money, it must properly fulfil the duties required. Cheap money, therefore, does not mean poor money, I. e., inability to discharge the money function. Iron is cheaper than gold, but an iron bridge is infinitely preferable to one of gold. A locomotive, constructed of steel, iron and brass, is infinitely cheaper than one built of gold and silver, but no one need be told that the former makes a better locomotive. So long, then, as it performs satisfactorily the money work, cheap money is the best money, and must of necessity drive out dear money. Take another slap, gold bugs! You deserve being told yet again that what you want does not work and will not work.

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