Monetary History in Ten Minutes

submitted by jwithrow.
Click here to get the Journal of a Wayward Philosopher by Email

Journal of a Wayward Philosopher
Monetary History in Ten Minutes

August 23, 2016
Hot Springs, VA

Money, moreover is the economic area most encrusted and entangled with centuries of government meddling. Many people – many economists – usually devoted to the free market stop short at money. Money, they insist, is different; it must be supplied by government and regulated by government. They never think of state control of money as interference in the free market… If we favor the free market in other directions, if we wish to eliminate government invasion of person and property, we have no more important task than to explore the ways and means of a free market in money.”Murray Rothbard

The S&P closed out Tuesday at $2,183. Gold closed at $1,343 per ounce. Crude Oil closed at $46.81 per barrel, and the 10-year Treasury rate closed at 1.58%. Bitcoin is trading around $585 per BTC today.

Dear Journal,

Little Maddie is rapidly approaching her second birthday, and I swear she is going on twelve. Like her mother, Madison is quite adept at the art of talking, and she communicates with us very well. This makes life so much easier when she tells us exactly what she wants for dinner; it makes life just a touch more difficult when she wakes up in the wee hours of the morning and tells us she wants to watch Mickey Mouse.

While this seems terribly inconvenient to her parents now, I can only imagine how immaterial it will seem when Maddie is a teenager and we just hope she comes home before the wee hours of the morning. Nevertheless, it all makes perfect sense when she looks up at us with her blue eyes shining bright and says I love you sooo much!

Moving on to finance… Continue reading “Monetary History in Ten Minutes”

How Fiat Money Enslaves Society

submitted by currencies

Journal of a Wayward Philosopher
How Fiat Money Enslaves Society

January 1, 2015
Hot Springs, VA

Happy New Year!

The markets stayed in bed today nursing their hangovers so we have no updates for you. Check back with us tomorrow for market updates.

We have recently been discussing the difference between fiat money and real money so I thought it would be prudent to kick off 2015 by discussing how fiat money enslaves society.

I know, nobody is walking around in shackles and chains – the slavery is much more subtle than that. But I firmly believe this is the single most important issue of our time. You cannot understand finance and economics unless you understand how fiat money operates. And you cannot become financially independent unless you understand finance and economics.

So here’s how it works:

Government creates a currency and decrees it money. Being the narcissist institution that it is, Government usually prints faces of past government officials on the physical currency. Next Government creates a central bank and declares that the central bank will issue and manage the currency. Government then implements an income tax to supplement the other taxes in existence and decrees that all taxes must be paid with the government’s currency. Government then passes legal tender laws requiring citizens to accept its currency as payment for all private debts as well. The penalty for not paying taxes or for not accepting government currency as payment is jail.

In this way the government/central bank alliance has effectively created a situation where everyone under the government’s claimed jurisdiction is forced to use its fiat money. There is no way to completely opt out; at minimum everyone has to acquire enough fiat money to pay taxes or else they will be thrown in jail. And we’re not talking about one or two little taxes; we are talking about taxes on all income earned, taxes on all investment gains earned, taxes on all real estate owned, taxes on all vehicles owned, taxes on all gas purchased for those vehicles, taxes on all food and goods purchased, and taxes on any inheritance received. Virtually everything you do is taxed!

Add up all of the taxes across all levels of government and it is very likely you are paying out 50% of what you earn in taxes, especially if you live in a major metropolitan city. That means you are working six months of the year just to pay the government.

But wait, it gets even better!

The central bank is free to issue as much new fiat money as it pleases and the record clearly shows that all central banks very much enjoy creating lots of new currency. The law of supply and demand tells us that each unit of currency will be worth less as new currency enters the economy – this is intuitive. What’s less intuitive is something called the Cantillon Effect.

Classical economist Richard Cantillon noticed something very important about inflation back around 1730 in France. Cantillon observed that the original recipients of newly created money enjoyed much higher standards of living at the expense of later recipients. The reason for this, Cantillon noted in his economic treatise Essai, is because of the disproportionate rise in prices as a result of inflation; prices do not rise until after the first recipients of the new money spend it into the general economy.

What this means is the very act of creating new money from nothing effectively steals purchasing power from everyone except those who first receive the new money!

So who first receives the new money? Why, governments and their favored institutions of course! This is how governments and their favored institutions grew to be so fantastically large in the 1900’s – they steadily picked the public’s pocket for an entire century!

To tie it all together: Government creates currency from nothing and forces you to use it by levying all manner of taxes on you that can only be paid with the government’s fiat money. Then Government’s buddy, the central bank, inflates the money supply which depreciates the value of the currency you are forced to use and transfers that lost purchasing power from you to Government. This makes it very difficult for you to save money because the money constantly loses value over time. The result is you have to work harder and harder just to pay off Government lest it throw you in jail. And that is how fiat money enslaves society.

This process is why you could drive down Main Street in Small Town USA back in 1950 and see bustling storefronts and a vibrant economy. Drive down that same Main Street today and you will probably see empty buildings and boarded up windows. You just can’t earn an honest living as a small proprietor or shopkeep anymore because you are Cantillon’s last recipient of new money in those businesses. Decades of unrestricted inflation has destroyed the value of the money to the point where small proprietors cannot earn enough of it to keep up with rising prices. Fiat money has hollowed out Middle America to the point where there’s not much of it left. This is exactly what has happened throughout history where fiat money has been implemented – the middle class is destroyed.

Governments have experimented with fiat money all through history and the most recent monetary model is the most deceptive to date. Fortunately, a fiat monetary system always sows the seeds of its own destruction and cannot last forever. In the meantime you can employ some basic financial strategies to protect yourself once you understand how the fiat money system works. We’ll look at some of those strategies in a later entry.

Until the morrow,







Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on the “Great Reset” and the fiat monetary system please read “The Individual is Rising” which is available at The book is also available on Amazon in both paperback and Kindle editions.

Real Money

submitted by jwithrow.Money

Journal of a Wayward Philosopher
Real Money

December 4, 2014
Hot Springs, VA

The S&P is buzzing around $2,069, gold is back up over $1,210, oil is checking in just under $67 after OPEC announced that they would not cut production, bitcoin is hanging around $373, and the 10-year Treasury rate is checking in at 2.29% today.

How about those prices at the pump, huh? Some resource analysts think that oil won’t remain this low for long. They point to the fact that several OPEC nations are dependent upon high oil prices to run their social welfare states and suggest that, coupled with increased demand over the coming winter, oil will be forced to climb back up the ladder. Other analysts suggest there are numerous oil companies still profitable at current price levels thus supply will remain strong and oil will hang around current prices for longer than expected.

We can’t know which analysts are right and which are wrong but we do know that numerous well-run resource companies have seen their stock price hammered as a result of oil’s decline while the S&P has continued to escalate up its stairway to heaven. Speculators may see this as the best opportunity to get into resource stocks since 2009. Natural resource prices are especially cyclical – low prices drive marginal producers out of business which reduces supply and leads to higher prices which attract marginal producers back to the industry. Booms lead to busts which lead back to booms. Those disciplined enough to buy the bust and sell the boom tend to do well in the resource sector.

Speaking of natural resources, it is the rejection of real money backed by precious metals that, more than anything, has led to the disturbing macroeconomic trends we have been analyzing recently.

In October we examined fiat money and realized that it has always been a major drain on society when implemented throughout history. We agreed fiat money is any currency that derives its value from government law and regulation and we noted that legal tender laws are what force the public to use the government’s money rather than the market’s money.

The academic economists would have you believe we have a complex and sophisticated monetary system. They would suggest that you cannot possibly understand it so you may as well leave it to the experts. The economists will use strange terminology when discussing the economy in newspapers and on television in order to confuse and bore you. Want to know their little secret?

Our economy operates mostly on fake money.

I know, it sounds ridiculous. How is it fake money if you can spend it? That’s exactly what makes the fake money so insidious – you can’t tell that it’s counterfeit.

I will attempt to explain myself by asking a simple question: where does our money come from?

Take your time, I will wait…

If you said “from thin air” then you are the winner! For the last forty years or so our money has been loaned into existence. The Federal Reserve loans new money to its member banks and to the U.S. Treasury and the new money then eventually finds its way into the general economy. Where did the Fed get this money to lend? It created it! From nothing. Ex nihilo nihil fit.

But wait, it gets better. This same process takes place every single time a bank originates a new loan. Say you go get a mortgage to purchase a new home. The bank supposedly lends its deposits to you at interest to finance your home. But this isn’t entirely true. First, the bank is only required to have a fraction of the loan in reserve – roughly 10%. So if your mortgage is $100,000 the bank is required to have at least $10,000 in deposits to support the loan. But does the bank actually take that $10,000 and give it to you? Of course not! That $10,000 in deposits stays right where it is. It could be spent tomorrow if the depositors took a trip to Vegas. So where does the money come from to finance your home?

Hint: it’s the same answer as above.

So you get $100,000 in fresh new money and give it to the seller in exchange for the house. The seller uses your new money to pay off his mortgage and often there is a little bit leftover. The seller calls this profit and puts it in his account and the economy’s money pool gets a little bit bigger: there is now more money in the system then there was before you financed your house.

The economists use terms like ‘M1’, ‘M2’, and ‘money multiplier’ to make this seem like a complicated system but as you can see it’s pretty simple. It’s just a journal entry and a few clicks of the mouse and… PRESTO!

No one noticed a little extra money sneaking into the system here and there at first. But the rate at which new money entered the system increased dramatically as the money supply grew. Forty years later we are starting to see the ill-effects of exponentially expanding credit-based money. This credit expansion has distorted all aspects of the economy because money is half of every transaction. Financial planning and analysis is extremely difficult if no one knows what one unit of money will be worth from one year to the next. It’s always apples to oranges.

So where did our money come from before the fiat money explosion? Money has taken on many different shapes and sizes throughout history but if you go back just a little bit in modern history, say to the mid-19th century, you will probably find yourself using the market’s choice for real money – gold and silver. A little bit later – the late 19th century or so – governments muscled their way into the money business and, instead of just minting gold and silver coins, they created national currencies but they fully backed these currencies with gold or silver. While fully convertible, the currencies operated much like real money but it didn’t take long for governments to reduce the real money backing. They found this so pleasant, they eventually got rid of all currency ties to real money altogether!

One of the big advantages to using real money is that it tends to maintain purchasing power over long periods of time. You can expect real money today to be roughly as valuable as real money ten years from today. You could actually save this real money if you wanted to! Saving leads to capital formation which can drive steady economic activity without the need for massive credit expansion which always results in booms and busts.

There are numerous other advantages to using real money but wife Rachel will fuss at me for making this post long and boring as it is so we will have to come back to them in a later entry.

More to come,






Joe Withrow
Wayward Philosopher

For more of Joe’s thoughts on monetary history and real money please read “The Individual is Rising” which is available at The book is also available on Amazon in both paperback and Kindle editions.

Sound Money

submitted by jwithrow.CurrenciesinGold100years

The most important facet of free market capitalism is sound money. If you don’t have sound money then you don’t have free market capitalism – you have something else.

Sound money is simply money that serves as a reliable store of value. Put another way, sound money is money that does not constantly lose its purchasing power. Sound money affords one a reasonable expectation that one unit of money today will buy the same amount of goods and services as one unit of money tomorrow. And next month. And ten years from now.

What a novel concept!

Anyone who has taken a finance course is familiar with the time value of money principle. In finance class, we learn to discount our money over time based on the inflation rate. We are taught, correctly, that present dollars are worth more than future dollars.

What we are not taught is that this is a deformation of free market capitalism!

The general market has chosen gold and silver to serve as money throughout most of history because the precious metals are particularly well suited for this purpose: they are limited in supply, they have functional utility outside of the monetary system, and, unlike our money today, they cannot be created from nothing.

Make no mistake about it, that’s where our money comes from today: nothing. It is created from nothing and then loaned into existence at interest. See the Hidden Secrets of Money video series for a more thorough examination of our money.

You see, money should not be a function of government nor should it be a function of a central bank behind closed doors. And it certainly shouldn’t be created from nothing. This is why the U.S. Constitution only authorizes gold and silver as legal tender; the Founders knew well the virtues of sound money and the dangers of fiat currency.

Did you know that the U.S. dollar was defined by the Coinage Act of 1792 to be 371.25 grains of fine silver? This act set the standard weight and measure of the dollar in terms of silver and individuals in the market were still free to accept or reject coins of differing weights and measures as they saw fit.

But we digress.

Here is why sound money is important to you:Thomas Jefferson Money Quote

Every dollar to your name is constantly losing value and there is no way for you to predict how much value your savings will lose over time.

This is a direct result of the monetary system that is in place whereby central banks create money from nothing and then lend that money to governments and to commercial banks at interest. That money then enters the economy when governments spend it and when commercial banks lend it out to customers. This is done constantly and it is why your money constantly loses value. Such a system has a profound impact on people from every walk of life.

How can we accurately plan for anything long-term if our money is constantly losing value? We can only guess.

What we do know from history is that sound money leads to a stable economy while fiat money leads to booms and busts.

The general market prefers the former while big government prefers the latter.

For more information on the sound money principle see the article links below. For a lot more information on sound money and monetary history see the book links below.

The Principle of Sound Money

The Simplicity of Sound Money

An Introduction to Sound Money