The Price of Gold,
Part II

Oscar B. Johannsen

[Reprinted from The Gargoyle, June 1958]

Mr.Gleason Densmore of San Francisco, Cal. writes: Re the "Price of Gold" by 0. B. Johannsen: As a practical fact gold is NOT money in these United States, for by the Gold Reserve Act it became the sole perogative of the Government to own, possess and offer in exchange any gold in excess of 1/7th of an ounce.

In considering the question of money it must be remembered there are five types of money: (1) Standard money, usually gold or silver. This is sometimes called "commodity money" (2) Representative money; certificates that a certain amount of gold or silver are on deposit with the government with the implication that the gold or silver will be surrendered in redemption of the certificate. (3) Credit money; engraved paper promises to pay standard money of representative money on demand. (90% of all money in U.S. is credit money.) (4) Taken money; metallic coins which are exchangeable at a value in excess of the value of the metal in the coin. (In relation to this it is interesting t" note that our penny and nickle has a smooth edge while the dime, quarter, half and dollar have knurled edges to discourage clipping.) (5) Fiat money; paper money "that has no promise to pay any ether type of money or any means of establishing the value thereof.

Mr. Johannsen errors when he states "the paper is not money." Under Art. 1, Sec.8, Congress has the power "To coin money, regulate the value thereof and of foreign coin, and fix the standard of weights and measures; ..." By virtue of that authority there appears this printed statement on U.S. currency, "This note is a legal tender at its face value for all debts public and private."

The purpose of money is to avoid the disability of barter, and since it involves rights and duties it is a legal matter; hence by that notice of legal tender on U.S. currency it becomes U.S. money.

There is error too in the statement that our Government is free to print as much paper as it wishes. It is bound by the amount of silver it can by for monetary purposes and by its debt ceiling.

The greatest point of inflation was missed, and is missed by almost every one: inflation is a way of defeating land speculation. Suppose you make 100% on a land deal and get cash (an unusual situation); what to do with the money? If you buy more land you will have to pay an inflated price for it; commodities the same. If you hold it the money loses value and your speculative profit is lost. Land value taxation is the only answer to inflation just as it is the answer to most of our economic ills.

Reply

In answer to Mr. Densmore, may it be pointed out that people and only people make a thing money, and they do it by using it as a medium of exchange. The fact the government forbids the use of gold makes it difficult for the people to use gold internally. However, the fact that the government permits foreign central banks to redeem their dollar holdings in gold shows only too clearly that gold is money. If gold were not money, the government would not bother holding all that gold it has in its vaults nor be prepared to give the foreign governments the gold for the dollar credits they held.

Mr. Densmore lists the so-called five types of money. This is the nomenclature usually given to these types of media. The writer feels that is where some of the difficulty enters in dealing with money. The word "money" must have a definite precise meaning, just as the word "wealth" must have a precise meaning. The fact that most people call land wealth has led to all kinds of confusion as Henry George pointed out. Mr. Densmore lists standard money, representative money, token money, credit money, and fiat money. That is all well and good but what does he mean by the word "money"?

The fact that governments make certain things legal tender, usually paper, does not make them money. If it were that simple no government would have any trouble with money. The fact that the government uses its monopoly of coercion to force people to accept such paper in payment of past debts does not mean that future debts will be so paid. The most the government can do is to accept its taxes in such paper, but for transactions between people if they will not use the paper, exchanges are simply not made. Barter, or some other medium of exchange is used.

As explained above, legality has nothing to do with whether a thing is money or not. People and only people make a thing money, not governments.

This writer did not say the government could print unlimited amounts of pieces of paper, although it practically amounts to that. The amount of silver it purchases does not limit it, nor does the debt limit it. What limits it primarily, at the present time, is the number of gold certificates due the Federal Reserve Banks, These Banks can issue four times the amount of gold certificates they have in the form of Federal Reserve Notes, or in the creation of demand deposits. However, this limitation can be changed by an act of Congress. It was changed in 1945. At that time, they could issue only 2-1/2 times as many Federal Reserve Notes or demand deposits. When the amount was getting close to this limitation, they changed it to four times. No doubt; when the Reserve Ratio as it is called approaches they will have it changed, maybe to maybe 1%. If the ratio is 1%, they could issue $100 in Federal Reserve Notes for each $1.00 in gold certificates.

Inflation, of course, is as Mr. Densmore points out a means -- a poor one -- to defeat land speculation. As most rentals are on a contract basis,, some of them long term, if you inflate yon can pay your contract rent much easier. However, landlords soon wake up and insert all sorts of conditional clauses to take the inflation into account.