Why do individuals accept and use USA monetary tokens as money in their everyday lives? Why isn't gold or another real substance used? Does the USA actually prohibit the exchange of labor and other goods for gold and silver, and if not, why don't we see such exchanges occurring?
Thanks.
Egon
Egon: Alright, that was a good round of responses. I'll try to summarize the points which currently make partial sense to me: -USA Legal tender policies prohibit contracts which require either of the parties to surrender gold
Alright, that was a good round of responses. I'll try to summarize the points which currently make partial sense to me:
-USA Legal tender policies prohibit contracts which require either of the parties to surrender gold
This is not the case. The gold clause prohibition was ended circa 1976. If you want to denominate a contract in gold nowadays, you can. As always, check with a lawyer before you engage in any business which can get you sued by your competitors or their cronies in gov't.
-USA monetary tokens have an officially enshrined "legal tender status," which apparently means that all individuals must accept the tokens in exchange for any other goods rendered (thank you, Snowflake, for the wikipedia link)
Yes, but legal tender is not very important nowadays because Federal Reserve Notes (FRNs) already have a complete currency monopoly. Where legal tender status matters is where you have multiple currencies of varying quality co-circulating. The legal tender status has a price-fixing effect, "one copper-diluted coin minted by the king is exactly equal in value to a standard pure gold coin at par." Usually, the king will exercise self-restraint and dilute the coins just slightly enough to prevent outright rebellion but still pocket a handsome premium from the debasement.
-The USA imposes tax disincentives on the exchange of gold, including "capital gains" taxes which affect gold
Gold is not singled out for special treatment by capital gains tax laws but it suffers with every other commodity.
-Contracts requiring the exchange of gold are not enforceble in USA federal, or state courts
This is simply false, as far as I understand the law since 1976.
Do I consider USA monetary tokens to be something other than dollars? The answer is yes. A USA monetary token (or a Union monetary token or federal monetary token, whichever you prefer) is any physical object which legally represents the imaginary substance which the USA declares into existence as money. USA monetary tokens include pennies, nickels, dimes, quarters, John Fitzgerald Kennedy 50 cent pieces, and green pieces of paper with various numbers printed on them; however, these tokens are not actually, as far as I can ascertain, the substance which is theoretically exchanged in modern commercial transactions. A "dollar" is not a piece of paper or a substance or medium of itself per se; it is a measurement of mass or weight similar to a "gram" or "ounce." The Confederation of Columbia (that is, the federation of states under the Articles of Confederation and Perpetual Union, 1781-1788, also ambiguously referred to as "the USA"), originally defined 371.25 grains of fine silver as a "dollar" of silver. In other words, back then the word "dollar" was merely a substitute for "371.25 grains," a measurement of mass or weight (I'm not sure which one right now). Documents (pieces of paper) printed up by states and private corporations represented their holders' entitlements to specific quantities of gold or silver. In other words, if I, say deposited 500 grains of fine silver into my neighbor's vault for safekeeping, s/he would manufacture a slip of paper or receipt enshrining my entitlement to withdraw the substance upon demand (I realize that this explanation may be painfully long and obvious for some, but I'm just making sure that we're on the same page here). In this circumstance, the piece of paper, or "token," is not the good itself but rather represents my claim to a particular substance completely separate from the token. Similarly, in today's market, the pieces of paper which we call "dollars" are not the actual "dollars." These pieces of paper only represent specific quantities of a hitherto unnamed and imaginary substance which I have denominated "Usonian Farcia" (my introduction of a new term is a result of there being no other term previously advanced for the imaginary substance represented by the tokens which most people term "money"). Thus, a green piece of paper with a picture of George Washington and the number "1" on it represents one dollar of Usonian Farcia. I hope I've made it clear by this point that such paper is not the substance being exchanged. (If this is confusing to anyone, or if someone thinks I'm outright incorrect, I would be happy to clarify any points of confusion or contention.)
Good luck with all that.
Mises Pieces suggested that the USA actually "prevent private citizens from creating contracts that specify remuneration in the form of gold." Does the term "private citizens" mean only USA citizens, or does it also include USA "residents," or does the prohibition apply to all exchanges made on USA territory, regardless of the citizenship or residency of the participants? Also, does the prohibition extend to all real substances, such as silver, aluminum, salt, etc. or just to gold?
Mises Pieces is mistaken, as far as I can tell. Otherwise, the commodities exchange and futures markets and gold ETFs simply could not exist.
scineram stated, "Dollar and dollar denominated assets are money. There is not much more to it." The statement leaves me perplexed and there is not much I can do to clarify my misunderstanding. Moving on.
Sure there is. The Austrian definition of money is: That good which acts as a medium of indirect exchange. If you want clarification, I recommend this article for a brief, accessible introduction to the Austrian conception of money.
Smiling Dave said, "if you pay in gold both sides have to pay tax ." I need to clarify the meaning of this statement before I can say that I understand it. What kind of "tax" has to be paid? Is there a special federal tax on the exchange of gold for other commodities, or is Dave just referring to state sales tax? Does Dave's statement mean that if I, a USA citizen, walk into the restaurant of Matthew, another USA citizen, located in Seattle, and exchange five grams of my gold for one of his sandwhiches, then I must surrender a part of my gold to the Union, and that Matthew must also surrender a part of his sandwhich (or some other commodity including USA tokens)? Also, does this "reflexive" tax apply to exchanges involving substances other than gold (say, iron for bread)? Sorry if I seem naive or nitpicking in this post, but I'm really just trying to understand this, and the truth is, I don't. ... Clayton B mentioned "capital gains tax on gold and other commodities." What does this mean? How is such a tax levied and in what circumstances? Clayton B seems to be alluding to the existence of a federal sales tax when s/he states, "notes are the only duty-free asset one can hold. Any other asset must be valuated at market price (as denominated in FRNs) and taxed upon sale." Am I misreading Clayton B's post?
...
Clayton B mentioned "capital gains tax on gold and other commodities." What does this mean? How is such a tax levied and in what circumstances? Clayton B seems to be alluding to the existence of a federal sales tax when s/he states, "notes are the only duty-free asset one can hold. Any other asset must be valuated at market price (as denominated in FRNs) and taxed upon sale." Am I misreading Clayton B's post?
So, the current tax law on barter is that any goods exchanged in barter must be valuated at their "fair market value" and the recipient of each good must report this FMV as income on his income tax. For example, let's say you exchange a TV for my sound system. The TV has a FMV of $500 and the sound system has a FMV of $350. You must, under current tax law, add $350 to your income tax in the "Other Sources" field and I must add $500 to my income tax under the "Other Sources" field. However, if I simply purchased the TV from you for $500 in FRNs, only you would need to add the $500 to your income and the exchange would have no tax consequences for me.
To see why this is a problem for gold, imagine that you have a car you want to sell for $5000. I can pay you with 5 gold coins or with $5000 in FRNs. If I pay you in gold coins, then it is a barter transaction, not only must you report the $5000 in gold coins as income at their FMV but I must report the FMV of the car as well, which is $5000. If we had used FRNs, the transaction would have no tax consequences for me, as I would merely be buying, instead of bartering. So, the tax consequences have doubled by using gold coins instead of FRNs, right off the top. In addition to this, let's say you hold onto the gold coins for 1 year. In the course of a year, the Federal Reserve increases the money supply and the dollar-value of the gold goes up by 5%. When you exchange them for something else, their FMV will now be $5250. You will have to pay capital gains tax on the $250 "profit", which is no profit at all as long as it is due to expansion of the money supply.
Clayton -
ClaytonB: This is not the case. The gold clause prohibition was ended circa 1976. If you want to denominate a contract in gold nowadays, you can. As always, check with a lawyer before you engage in any business which can get you sued by your competitors or their cronies in gov't.
Good enough.
A few questions arise upon perusal of this passage, but I'll stick to the most relevant one. What do you mean by the statement that FRN's have a "currency monopoly"? I guess I just don't know what this term means, and a simple definition may suffice.
Quickly, what are the commodities exchange, futures markets, and gold ETF's?
The Austrian definition of money is: That good which acts as a medium of indirect exchange. If you want clarification, I recommend this article for a brief, accessible introduction to the Austrian conception of money.
Point taken. I do recognize that Federal Reserve tokens are money. The initial question was why they were used as money, which we are in the process of answering.
So, the current tax law on barter is that any goods exchanged in barter must be valuated at their "fair market value" and the recipient of each good must report this FMV as income on his income tax. For example, let's say you exchange a TV for my sound system. The TV has a FMV of $500 and the sound system has a FMV of $350. You must, under current tax law, add $350 to your income tax in the "Other Sources" field and I must add $500 to my income tax under the "Other Sources" field. However, if I simply purchased the TV from you for $500 in FRNs, only you would need to add the $500 to your income and the exchange would have no tax consequences for me. To see why this is a problem for gold, imagine that you have a car you want to sell for $5000. I can pay you with 5 gold coins or with $5000 in FRNs. If I pay you in gold coins, then it is a barter transaction, not only must you report the $5000 in gold coins as income at their FMV but I must report the FMV of the car as well, which is $5000. If we had used FRNs, the transaction would have no tax consequences for me, as I would merely be buying, instead of bartering. So, the tax consequences have doubled by using gold coins instead of FRNs, right off the top. In addition to this, let's say you hold onto the gold coins for 1 year. In the course of a year, the Federal Reserve increases the money supply and the dollar-value of the gold goes up by 5%. When you exchange them for something else, their FMV will now be $5250. You will have to pay capital gains tax on the $250 "profit", which is no profit at all as long as it is due to expansion of the money supply.
This is something which I have definitely never heard of before, and is an excellent start to a rudimentary understanding of barter/capital gains taxation in the USA. Up until this point I had no knowledge of capital gains tax. Further reading of actual statutes passed would be instructive. This piece of the puzzle will serve me well in coming to grips with the meaning of the present monetary situation, and I believe that this question, as well as this thread, to be for all intents and purposes complete.
Thanks again, all. There will be other posts.
scineram: Dollar and dollar denominated assets are money. There is not much more to it.
Dollar and dollar denominated assets are money. There is not much more to it.
Except the question that you just begged, why are they money?
Peace
Because money Spanish colonies used was popular in he English colonies too, and there it was called dollar.
One thing I don't understand is why people who object to the Federal Reserve don't trade in precious metal coins more often.
I understand that the IRS considers a person paid in gold to be 'buying' gold an thus subject to the sales tax. At the same time, if you fill out the 1040 form, it asks how many 'dollars' you earned in income. A person who accepted only payment in gold made zero dollars, by any sane use of the English language. The "fair market value" concept is contemtible bullshit. If my friend gives me a backrub, in exchange for giving them a backrub, should we both record that on our taxes as "income," using the local market rates charged by professional massage parlors? If not, then why would any other barter transactions be taxable?
If you go to court and argue that you filled out your taxes as you understood the questions, I don't see how the government could establish intent to violate any law, which would mean the most they could get is the money they think they're owed. Additionally, if there are no paper records kept, how would anything be proven? If the government's position is that it's a citizen's obligation to understand the tax code, one can only laugh. Let's hear them explain the tax code to a jury then. Let's start with the definition of "income;" doesn't it mean "profits" in law dictionaries? Isn't "profits" different from "revenue?" If corporations are people, then isn't the statement true that "people can determine individually whether the money they made was revenue or income?" No one understands the tax code.
Again, I'm less concerned with what the IRS might do than what a jury might do; juries are the real law.
I do prefer a fiat currency to gold or fractionally reserved gold backed currency. The problem I have with Federal Reserve Notes is that the profits for creating the people's collectively owned currency accrues to private banks, when it should accrue collectively.
scineram: Because money Spanish colonies used was popular in he English colonies too, and there it was called dollar.
When was your last serious contribution to this forum?
Benjamin: One thing I don't understand is why people who object to the Federal Reserve don't trade in precious metal coins more often.
Because there's no advantage in doing so if you still have to make most transactions in dollars. There are people who trade outside of the dollar, but there's little use if most people still only accept dollars.
USA monetary tokens include pennies, nickels, dimes, quarters, John Fitzgerald Kennedy 50 cent pieces, and green pieces of paper with various numbers printed on them; however, these tokens are not actually, as far as I can ascertain, the substance which is theoretically exchanged in modern commercial transactions. A "dollar" is not a piece of paper or a substance or medium of itself per se; it is a measurement of mass or weight similar to a "gram" or "ounce."
if you limit yourself to the definiotion of a dollar as a specific weight of silver..ok. but the green piece of paper i have says dollar on it, among other things.
do you consider the green piece of paper that says dollar on to be a us monetary token?
i have seen definitions put forth other than the silver wieght you mention for dollar.
can dollar mean both a silver weight and a green piece of paper with some type of congressional edict and govt force goving it exchange value???
You can exchange labor for gold and silver, but there are several factors which make it difficult, such as legal tender laws and tax laws. Ron Paul sums it up here:
http://is.gd/aYanW
Mark
Not to mention if you try to compete with US money directly the government QUITE LITERALLY will send men with guns to confiscate all your reserves while you stew in the legal process for years:
http://en.wikipedia.org/wiki/Liberty_Dollar#FBI_.2F_Secret_Service_raid
Because the Dollar has value, it is what they accept for payment of tax. So your answer is violence is the reason why.
"Mises Pieces is mistaken, as far as I can tell. Otherwise, the commodities exchange and futures markets and gold ETFs simply could not exist."
Keep in mind that Mises died in 1973 so when he wrote his pieces he was correct, but the laws changed since then. Now trading with gold is allowed of course, but this has been the case only since as you already said gold prohibition ended in 1976.
1. Yes, I consider the green George Washington portrait to be USA monetary token.
2. The word dollar does not and never has signified a green piece of paper. I have two reasons for saying this: the "semantic" reason and the "physical" reason. Since I've already tried the semantic reason, I'll go with the physical reason first. If a dollar is a Washington portrait by definition, then you must have ten physical Washington portraits to have ten "dollars." But this is not the case in reality. In reality, there are two, five, ten, fifty, and 100 dollar bills. An Alexander Hamilton portrait (10 dollars) is not ten George Washington portraits. It is a single piece of paper. If a George Washington portrait is your definition of the dollar, then how can a single piece of paper with another design be called "ten dollars"? Does this make sense? Now here is the semantic reason, which actually follows from the physical explanation. If vendors are forced to accept various portraits as representing various "dollar" amounts, then the green paper isn't actually what is traded. What is traded is what is represented by the green paper. It is an invisible, imaginary commodity or substance which has no name (and I have suggested a name for this substance in a prior post). A dollar is actually a measurement, like a kilogram, of an imaginary substance, so you have five dollars of the substance, not just five dollars. Imagine if I went down to an open air market and announced that I had three kilograms for sale. That wouldn't make any sense to anyone. Three kilograms of what? I haven't stated what the actual substance is that I'm offering, only the measurement. Let's say I have three kilograms of beef. Okay, now that makes sense. Similarly, it makes no sense to say "five dollars." Five dollars of what? Five dollars of this imaginary substance (which I have named Usonian Farcia). So the official currency of the USA is not the "dollar." It is Usonian Farcia measured in units of dollars. Does this make sense?
Thanks,
its not just a portrait..there is a seal on it to. a signature on it as well. but is says one dollar and federal reserve note.
as far as a monetary token. if it isnt money it is a currency. maybe a currency piece would be more appropriate.
i dont understand what you mean by token.
i dont think anyone classifies teh currency as imaginary substance. it isnt substance.
but if i give up green paper for something i no longer have green paper and someone else does.
Where it says "1 Dollar" it actually means "representing 1 Dollar." The paper isn't the dollar itself. A note, or token, is something that represents something else. The word "token" describes physical currency better than the word "note" because not all tokens are notes; there are also metal coins, which are not notes. So the word token is a better generic umbrella term to describe coins and bills.
USA currency is money because it is used as such. A "USA currency piece" is the same thing as a "USA monetary token," if you prefer the former term. It is immaterial either way and does not change the situation.
Currency, or tokens, are physical. The substance which the tokens represent is not. It is imaginary. Whether someone else classifies it that way is irrelevant. That's what it is.
If you give up green paper for something than you no longer have green paper and someone else does. That is correct.
This is really diverging from the original question, which has been answered already.
Sincerely,
No, the paper is the dollar. What else could be?