"A Study of Money" -- A Step-By-Step Study of Money and the Money Supply in the U.S.A.

This study will lead to a plan of action aimed at;
(a) Regulating the money supply in accordance with the Constitutional mandate of (1) a separation of, and (2) a balance between legislative, judicial and executive power.

(b) Removing the Federal Reserve, a privately owned and managed corporation that answers to nobody, from the creation, control and regulation of our money.

Definition of Conjecture / "A proposition ... before it has been proved or disproved" *. (In the current instance, the writer is asking the reader to go along as though each conjecture is true. If any conjecture later turns out to be untrue -- the discussion and conclusions that are based on that conjecture are not valid).

* From Merriam Webster online dictionary. <<http://www.merriam-webster.com/dictionary/conjecture>>

Scroll down to the end for a summary of the conclusions

Conjecture 1 / Money and the money system are not made by God -- money, as we know it, is a relatively recent invention of Humans. Money has no God-based qualities or powers such as truth. Money is not mysterious or inscrutable. The basic principles of money and banking can be understood by most people if those principles are explained simply and logically and are not complicated by esoteric theories and specialized jargon.
Conjecture 2 / Money is any set of assets used to buy products and services. In the U.S., money is usually the set of bills and coins that an average person calls money. See conjecture 18.
Conjecture 3 / Money is often used to set a standard of value when people are trading goods and/or services. In plain, simple English, if you are selling apples for a dollar per pound and I want 2 pounds -- I would give you $2 in bills and coins and you would give me two pounds of apples. In this case, we are each using dollars as a standard of value. "Standard of value" is an abstract term.
Conjecture 4 / In the above case, the $2 in coins and bills is money actually used in the transaction as a product -- in the same way that the apples are a product.
Conjecture 5 / So, in this transaction -- the money is acting as both (a) a product and as (b) an abstract standard of value. This dual nature of money sometimes causes confusion when we are discussing money outside of a simple transaction.

Conclusion 2 / Based on conjectures 3, 4, and 5. Money may be a product and a standard of value in the same transaction.

Conjecture 6 / In the above transaction we were discussing theoretical Apples. Even if the related conjectures lead us to conclusions that we accept as true -- that does not mean a similar transaction in the real world will lead to the same conclusions. In other words, theoretical arguments can't be assumed to be absolutely reliable. This is an important point. In the real world, we would have to know something about the apples before the transaction could be completed: for instance (1) what kind of apples are they? (2) will they be delivered -- or must I take them? (3) are they available for immediate delivery? what is the quality? (4) is satisfaction guaranteed: can I get my money back if I do not like them?

Conclusion 3 / Based on conjecture 6. Theoretical arguments are trumped by real world experience. If a theoretical argument or theory is in conflict with experience -- the argument or theory is unquestionably wrong.

Conjecture 7 / If we are discussing a theory of economics and I am talking about money as a product and you think I am talking about money as a standard of value -- we could get confused. See conjectures 3, 4 and 5.
Conjecture 8 / The same type of thing often happens when people read books on economics or any other subject related to money. The author might be using money in one context and we are listening in another context.
Conjecture 9 / It is always wise to be sure you are talking about the same thing when you are in a discussion about anything.
Conjecture 10 / It is always wise to be sure you are reading a book or article in the same context that the author is using,
Conjecture 11 / If we are both sellers at a market. You selling apples, and I selling oranges, we can trade the oranges for apples and ignore the fact that neither of us have money on hand.

Conclusion 4 / Based on conjecture 11. Product-money is not always part of a transaction.
Conclusion 5 / Standard-of-value money is always involved in a transaction.

Conjecture 12 / Whenever apples (or any product) are sold, there is some element of labor built into the value of the apples (or product). The labor of the farmer, the picker, the person who made the fertilizer or supplied the water, the banker who provided the financing for the farm, the farmer's lawyer and doctor -- and even the teacher who taught the farmer how to add in third grade. The labor of everyone who helped the farmer in any way can all be thought as contributing their labor to the apples. This is a theoretical concept and might be hard to apply precisely in the real world -- but if we consider all the labor in a community and apply that labor to all the goods produced by the community, we can probably come to an acceptable estimate of the labor in any product. This would be very much like real world accounting in a factory where accurate records are kept of (a) direct labor costs in every product and accurate records are kept of (b) the aggregate indirect costs of the factory (management costs, heating costs, legal costs, etc). When figuring total labor costs, the indirect labor costs at some ratio that has been calculated from the totals of the aggregate are added to the direct labor costs to get the total labor costs that should be applied to the particular product. Note that labor can be physical labor or mental labor. Most managers and owners supply mental labor.
Conjecture 13 / It can be successfully argued that the entire value of the apples in conjecture 12 is made up of labor costs.
Conjecture 14 / In most factories. The costs that go into any product are usually considered to be (1) direct labor, (2) Indirect Labor, (3) materials and (4) overhead.
Conjecture 15 / In most factories, the desired selling price of the product is the sum of all costs (from 14 above) plus the desired profit. For instance if all the costs for one unit of product (A) is $5 -- the asking price for that one unit will be something like $10 to $40 depending on the facts in the marketplace.
Conjecture 16 / It is harder to attribute costs to agricultural products than manufactured goods -- but the same type of record-keeping and thinking can probably handle the calculations adequately.
Conjecture 17 / If we want to trade one hour of my apple picking labor for some your apples, we first have to generally agree ( at least informally) on (a) how many dollars my hour of labor (physical or mental labor) is worth and (b) how many apples that amount of dollars is worth. In other words, we have to use money as a standard of value.
Conjecture 18 / The following definition of money is reasonable " money is any set of goods that people will accept in personal dealings, commerce or trade". From: <<http://www.canadianeconomy.gc.ca/English/economy/money_concept.html>>
Conjecture 19 / Coins and dollar bills are each money -- where money is defined as in conjecture 2
Conjecture 20 / The coining of metal into coins and the printing of dollar bills into dollars are essentially the same thing. Both are examples of making money from other products.
Conjecture 21 / In section 8 of the Constitution, Under "Powers Of Congress", the words "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;" appear.

Conclusion #1 / Based on Conjectures 18 to 21: The Constitution gives Congress the power to create money.

Conjecture 22 / No economic theory (Marxist/communism, Socialism, Keynesian, Monetarism, State Controlled Capitalism, Laissez Faire Capitalism or Austrian School) has ever been tested and found to work well for an extended period of time in any country.
Conjecture 23 / All of the existing theories have had (a) strong support by obviously intelligent people and strong criticism by obviously smart people.

Conclusion #6 / As they presently exist, none of the existing theories are likely to work perfectly. They have all had lots of time to develop, but none has ever "jelled". Based on conjectures 22 and 23.

Conjecture 24 / Rather than try something entirely new, it is probably best to pick that theory or system that has come closest to being successful and change the features that most likely is/are inhibiting success.
Conjecture 25 / A capitalistic democracy with strong built-in checks and balances and a good system of laws is most likely the system that would have the best chance of success.
Conjecture 26 / We almost have that system in the United States -- except for the fact that the control of the money supply has never had checks and balances -- whether it was run by the government or The Federal Reserve System.

Conclusion #7 / ( Based on conjectures 22 to 26) We should simply eliminate the Fed and give control of the Money supply to Congress, which is subject to checks and
balances of the Executive Branch, the Courts and the People.

Conjecture 27 / When a citizen-couple of this great country enter into a contract with a private bank to borrow enough money to buy a house, while putting down a significant down payment which stands as collateral for that loan, they and the bank are jointly creating the money to pay back that loan. That money is not created out-of-thin-air. To say, in a derogatory way, that money is created out of thin air is an unwarranted attack on a great American tradition.
Conjecture 28 / Every wise loan is a contract that usually leads to a creation of wealth that precisely, over time, offsets the cost of that loan. it is a win-win situationthat can only can only come into being through the natural genius of fractional reserve banking wherein borrowers create wealth with the money they have borrowed..
Conjecture 29 / The right for people to enter into contracts is a vital and necessary part of our American way. That right should not be abridged or diminished in any way.
Conjecture 30 / There is no good substitute for the creation of money through good loans to reliable people under fractional reserve banking.
Conjecture 31 / All bank loans created under a fractional reserve system carry a natural leveraged pressure for bankers to wisely give those loans to responsible people. For every $1 loan that goes bad, the banker loses the right to lend $10. The wise banker knows this and is very conservative when he makes loans. The unwise banker ignoress this feature of fractional reserve banking and thereby makes risky loans.
Conjecture 32 / Any good citizen or group of good citizens can open a bank. See requirements for starting a bank in California.
Conjecture 33 / The Constitution (article 1, section 10) prohibits states from "(A) coining Money; (B) emitting Bills of Credit; (C) making any Thing but gold and silver Coin a Tender in Payment of Debts".
Conjecture 34 / The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people. (10th amendment).
Conjecture 35 / Trade is a Human Universal. See Brown's human universals from << http://www.robotwisdom.com/ai/universals.html >>Jorn Barger April 2003. "By winnowing the literature of anthropology, Donald E Brown collected a list of some 200 'human universals'. Steven Pinker's "The Blank Slate" includes an alphabetical version of the full list ..."
Conjecture 36 / Paraphrasing Frederick Soddy, "Money is evidence that the owner of the money has not recieved the wealth to which he is entitled and that he can demand that wealth at his own convenience ..."

Conclusion #8 / The creation of money through wise loans is a good thing. (Based on conjectures 28 to 31)
Conclusion # 9 / Banks should not be bailed out if they lose money on bad loans. To bail them outis to encourage the other bankers to be careless and unwise. (Based on conjectures 28 to 31
Conclusion # 10 / Based on Conjectures 32, 33 and 34: The people or any group of people, such as a charity, church or business have a right to start a bank and emit (issue) Bills Of Credit (paper money). This right is very rarely exercised. Most people think only the government can issue bills of credit.
Conclusion # 11 / No laws should be passed by The Federal Government or the States that will significantly interefere with the right of people to trade and to use the necessary tools of trade. Based on Conjecture 35.

A summary of the conclusions

Conclusion 1 / Congress has the power to Create money. (Based on Conjectures 18 to 21.)
Conclusion 2 / Money may be a product and a standard of value in the same transaction. (Based on conjectures 3, 4, and 5.)
Conclusion 3 / Theoretical arguments are trumped by real world experience. If a theoretical argument or theory is in conflict with experience -- the argument or theory is unquestionably wrong. (Based on conjecture 6.)
Conclusion 4 / "Product-cash" is not always part of a transaction. (Based on conjecture 11.)
Conclusion 5 / Standard-of-value cash is always involved in a transaction. (Based on conjecture 11.)
Conclusion #6 / As they presently exist, none of the existing theories are likely to work. They have all had lots of time to develop, but none has ever "jelled". Based on conjectures 22 and 23.
Conclusion #7 / ( Based on conjectures 22 to 26) We should simply eliminate the Fed and give control of the Money supply to Congress, which is subject to checks and balances of the Executive Branch, the Courts and the People.
Conclusion #8 / The creation of money through wise loans is a good thing. (Based on conjectures 28 to 31)
Conclusion # 9 / Banks should not be bailed out if they lose money on bad loans. To bail them out is to encourage the other bankers to be careless and unwise. (Based on conjectures 28 to 31)
Conclusion # 10 / Based on Conjectures 32, 33 and 34: The people or any group of people, such as a charity, church or business have a right to start a bank and emit (issue) Bills Of Credit (paper money). This right is very rarely exercised. Most people think only the government can issue bills of credit.
Conclusion # 11 / No laws should be passed by The Federal Government or the States that will significantly interefere with the right of people to trade and to use the necessary tools of trade. Based on Conjecture 35.

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