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BOOK REVIEW: The Black Count by Tom Reiss

This is a fabulous  non-fiction narrative that rivals many of the best novels ever written.  Even the fact that it made the New York Times bestseller list and also won the Pulitzer Prize hardly does it justice.  Tom Reiss obviously spent many months, even years, doing very original research on at least two continents and as many languages.  But let’s begin at the beginning

If you have ever read the novel The Count of Monte Cristo by Alexandre Dumas, and you liked it, or like me, loved it, Reiss’ book is a must-read for you.  Dumas also wrote The Three Musketeers and The Man in the Iron Mask, as well as dozens of other fiction and non-fiction books and articles.  The Count of Monte Cristo is a story of revenge; the story of a man imprisoned for life on unknown charges as the result of a conspiracy of three enemies he didn’t know he had.  He is condemned to a medieval prison, whose castle walls are several feet thick.  He makes a daring and miraculous escape aided by another prisoner, an aging abbe, who reveals to him the location of great treasure.  The hero becomes fabulously wealthy and the rest of the book is about how he wreaks revenge on those who had condemned and then forgotten him.  The Hollywood movie version in my opinion ruined the story by changing the ending.

What I didn’t know is that the author of these sagas, Alexandre Dumas, was a mulatto, and his father, Alex Dumas was a very dark black man from the island of Haiti who intermarried with a white French woman.  Through the real story of this man, Reiss takes us on a global panoramic tour of the institution of slavery itself, with many surprises along the way.

Slavery of course, has been around since the beginning of man’s recorded history, and obviously predated that history.  All acquisition of property and power throughout the ages was through conquest, and the victor took all, including the vanquished as slaves.  Slavery was not racially tinged until the 18th century.  Before then, anyone anywhere was at risk of becoming a slave if a predator group won the battle.  For example, when Alexander the Great conquered Egypt, he made slaves of the Egyptians, but he also imported lots of white slaves from what are now eastern European nations populated by ethnic Slavs, which is where we got the word slave.  Christians during this time period thought slavery was fine as long as the slaves weren’t other Christians.  So making slaves of non-Christians and especially the Moors, was acceptable.    In time these ethnic Slavs, who became known as Mamelukes,  revolted against their Egyptian masters, and the Egyptians became their slaves–until Napoleon came along and drove off the Mamelukes. Read more..

In the western hemisphere, there were large population centers located among the Mayans, the Aztecs, and the Incas.  One of the Incan cities had a larger population at the time than the European city of Lisbon, the capital of Portugal. Each of these south and central American civilizations had slave populations themselves.   When the Spanish conquistadors invaded they absorbed the existing slave populations and also made slaves of the former masters.   Those  who didn’t die of the white man’s diseases were turned into slaves and were sent to die in brutal, murderous silver and gold mines.  None of this was race related.

When other imperial explorers reached the islands of the Caribbean, they didn’t find precious metals as they had hoped, but instead found sugar cane, which they learned how to refine into sugar.  The sugar capital of the world became the island of Haiti, then known as Saint Domingue.  Growing sugar cane was labor intensive, and unlike in central and south America, there were no large concentrations of population that could easily be enslaved.  The African slave trade in the 18th century was largely concentrated around the sugar plantations of Saint Domingue.  There were few African women imported to Saint Domingue, and the men were treated so brutally they died quickly of starvation and beatings.  This rapid turnover further exacerbated the labor shortage, requiring more and more slaves.

Reiss traces how the imperial expansion into the western hemisphere took place concurrent with the philosophical movement of The Enlightenment with its special emphasis on liberty and individual rights.  The French were the first to attempt to come to grips with the contradictions between slavery and liberty.  The French were intrigued by the American experiment and the principles embodied in our Declaration of Independence and Constitution, and of course our revolution only came to a successful conclusion due to the assistance of the French navy.  As a matter of fact, the French involvement in our revolution drove their nation into bankruptcy, and precipitated food riots and their own Revolution.  The French Revolution championed the rights of man at the same time that it engaged in a Reign of Terror against its own citizens, sending thousands of innocent people to the guillotine.

The French resolved the slavery/liberty debate at first by declaring that any black man who made it to the shores of France proper was a free man, and the French sort of washed their hands, Pontius Pilate-like,  of what happened in the slave-holding colonies such as Saint Domingue.  Activists pressed the issue however, and within a short time freedom was being promised to slaves in the colonial territories, which of course enraged the plantation owners, who withdrew their support from the French Revolution.   This facilitated Napoleon’s rise to power, culminating in his naming himself emperor of France and ending the centuries-old monarchy.

Alex Dumas, the father of Alexandre, came to France as a young man and entered the military, and quickly distinguished himself.  For a while he actually outranked Napoleon, but in time came to report to him.  He was captured in what is today Italy, and spent several short years in a medieval prison, held without charges.  His prison experience broke his spirit and his health.  Napoleon meanwhile, in an effort to placate the very wealthy plantation owners of the French Caribbean colonies, rescinded many of the freedoms that the Revolution had instituted for blacks.

After many years of valiant service to the Revolution in which he devoutly believed, Alex Dumas found himself without a pension, without a home, and with no means of support.    Napoleon, who knew him well and personally, ignored his requests and his lieutenants ignored the requests and pleas of his widow after Alex died, still fairly young and impoverished.

This is broad brushing this delightful narrative, which holds many insights you’re not going to find in a history book.  Reiss approaches his topic without bias or political correctness, and what I came away with was that the lot of the common man of any race, color, or origin from time immemorial has been to serve as the cannon fodder of the ruling class of every nation, and that the golden rule prevailed:  he who had the gold ruled.

Reiss is quick to point out many of history’s ironies:

Napoleon and Alex Dumas fought against the Spanish in southern Italy.  This is the same Spain that was colonizing the central and southern Americas.  And that is how the South American tomato made it’s way to southern Italy, which of course made it famous. or was it the tomato that made Italian cuisine famous?

The French continued to refer to black and mixed race people in France as “Americans”, in America members of its Congress would not permit blacks into their presence except to serve refreshments or sweep up. Says Reiss: “But having enjoyed prestige as “Americans” during the[French] Revolution, black and mixed-race soldiers now found themselves denigrated as “Africans.”

The French helped us achieve the rights to life, liberty, and pursuit of happiness, and were also the first to give blacks freedom, at a time when  General George Washington said he didn’t think Virginians were ready for that step yet.   French  General Lafayette of Yorktown fame had to flee for his  life from his own Revolution.  He was captured by the Prussians and spent the next five years in prison.  His friend George Washington was powerless to help him because Prussia [parts of what is now Germany] and Austria at the time refused to recognize the new United States.

Miscegenation , or racial intermarriage, was common until it too was outlawed.  Haiti, the sugar capital of the world and probably the richest island on the planet, experienced the first successful major slave rebellion. The slaves fought 80,000 of Napoleon’s troops to a standstill; the French left, the plantations closed, and today Haiti is quite possibly the poorest island on the planet.  Today Haiti has experienced something of a brain drain as their best and brightest have abandoned her to seek their fortunes in the United States and elsewhere.

New post-revolutionary France decided to deflect attention away from their internal problems by invading most of their neighbors, which is how Napoleon and Alex Dumas came to know each other and fight almost literally side by side.  As always, the government attempted to finance their wars with debt, in the form of bonds backed by property–that had been seized from the Church.  These bonds were on pieces of paper called assignats, which were used as money,  and of course they printed more assignats than there was real estate collateral, which resulted in devaluing the assignats and creating massive inflation.  Eventually the floor under the assignats gave out–literally.  At the Paris printing house someone piled up too much of the worthless paper in one place and the floor of the building collapsed under the weight.  Their real-estate secured bonds were worthless.  Nothing familiar here, is there?

Reiss peppers his story with personal vignettes such as this description of one French revolutionary:  “. . . his main character flaw was that of so many French revolutionaries: a zeal for human rights so self-righteous that it translated into intolerance for the actual human beings around him.”  I’ve often thought the same of the purported champions of the war on poverty; their concerns are usually self-serving and they wouldn’t want to get too up close and personal with real poverty.  They preach humanity but don’t like poor people moving into their neighborhood.

Reiss weaves a wonderful and complex tapestry of events that spans the globe and leads to even more questions.  Life is never quite what it appears to be, and the more it seems to change the more it stays the same.  If you have strong opinions about modern race relations in the U.S., read Reiss’ book for a more global perspective.  Without our Constitution and limited government, there is nothing left but the governments guns, the moneyed powers behind the throne, and the ragtag mob.  Without individual freedom that cannot be voted away by any block of voters of any color for any reason, there is no freedom except by permission, and that is not freedom at all.

For author Alexandre Dumas, his novel The Count of Monte Cristo was the fantasy version of his father’s life.  Indeed part of the story begins in an obscure little village in Haiti (Saint Domingue) near the border with the Dominican Republic (Santo Domingo) called Monte Cristo.

Many parts of this biography of Alex Dumas, and his legendary fictional counterpart, the Count of Monte Cristo, read like a Kafkaesque novel.    Until we figure out a way to change human DNA, the possibility of a return to this world should never be dismissed lightly.  Liberty is and always will  be under siege.

When Money Can’t Be Trusted

Money and wisdom do not always go hand in hand.  The Bible says in Ecclesiastes 7:12:  “For wisdom is protection just as money is protection, but the advantage of knowledge is that wisdom preserves the lives of its possessors.” (New American Standard Bible, 1995)  I can’t possibly know what the author of those words long ago had in mind when he wrote about money, but in this column, money has no intrinsic value, but it serves as a store, or warehouse, of value.  When you work, you produce something of value, and then you seek to trade your product with others who have produced other things of value. 

Money is a symbol of the value in what was produced by work.  Money facilitates the trade, of value for value, between people.  It is easier to “store” or “warehouse” money than it is to store all the goods and services that that money represents.  Think about what a ridiculous burden it would be to store all the commodities we use in a single day of modern life.  We don’t stock up on a year’s supply of Cheerios, for example (at least not most of us), because we know that with this thing called money we can go down the street and pick up a box of cereal at a moment’s notice (at least as of this writing!).  And what do we trade for that box of cereal?  We exchange money.  We can’t eat money, but we can use it as a store of value and a medium of exchange.

Our modern world would not be possible without money to facilitate trade. . . .  Read more..

 The value of money is its universal acceptability by anyone and everyone.  If we had money that no one trusted, our money would be useless as a means of exchanging goods and services.  No one would take our money if they suspected they couldn’t immediately turn around and use our money (now their money) to trade again with yet others.

And therein lies our problem, dear Reader.  Because money is not always trusted.  Sometimes money is not trustworthy.  The problem begins when those in control of money begin to see money as the value itself, rather than the symbol of value.  The value is in production, i.e. the use of our minds or muscles to produce something, anything, some good or service that others want and are willing to trade for.  Without the production of goods or services as the original value, money has no meaning.  But sometimes those in control of money begin to see the money, and not the production it represents, as a value in itself.

What does this mean?  In concept, let’s say Joe Smith has produced some good or service, and let’s say the value of one unit of that good or service is valued (by buyers–meaning that’s what they’re willing to pay for it) as $1000.  Joe sells one unit of his product.  He now has $1000 to show for his effort.  But $1000 is not enough for Joe.  He cannot buy everything he wants or needs with $1000.  Joe says he “doesn’t have enough money”.  What he means, whether he knows it or not, is that he has not produced enough, at the current rate of exchange in his market, of his product.  If he produces and trades more units of his product, he will receive more money.  Joe’s shortage is essentially a shortage of production, not a shortage of money.  Money is the “stored”  value of his production. 

When those in control of money (always governments, who universally hold a monopoly on money)  see the money itself as the value, they believe they can control how and under what circumstances people trade by manipulating the supply of money.  This is important.  Governments do not do well at producing things. Governments excel at telling people what to do with their money, and how much of their money they are allowed to keep, and government does an outstanding job of initiating the use of force if those people do not comply.  Government in the market place is an example of the few dictating to the many what is best for everybody. 

There is a limit to how much of people’s money a government can take.  That limit is set by the patience (or stupidity) of the population, or the cleverness with which the rulers persuade them to part with their money (remember–money as the symbol of what each of them has produced.)  In a democracy, when the patience of the people is exhausted, they vote the rulers out of office.  In a less democratic state, the rulers point guns at their people and the people have to ask themselves if they really want to die for this.  Guns can be very persuasive.  But rulers feel safer if the population feels content.  That is why it is much, much better if the population can be persuaded to vote themselves into slavery, rather than crudely having to point a gun at them.  Slavery, without being too elaborate,  means you work and someone else lets you keep just enough of your earnings to keep you alive to go to work again.

To keep the population happy, you have to give them goodies, treats.  Things for free.  Everyone loves freebies.  Besides, freebies distract the population; they start watching each other, making sure they are getting their fair share of the freebies; making sure others are not getting a disproportionate share of the freebies.  After all, that would be unfair.  Then the rulers step in to make things fair.  And everyone is grateful, and they all forget that it was their money, their production, their time and effort, to begin with.

The freebies are expensive.  Even slaves have to be fed and housed.  And regulating all their activities, to keep everything fair, is expensive.  Because all these activities redistributing everything, and regulating everything, have to be paid for.  Sometimes this expense is bigger than even the rulers can afford.  They can only afford to give away in the amount to which they have already taken, in the form of taxes.  But when the population is unhappy and quarreling over who got what, and the unfairness of it all, the best way to quiet them is to give everyone still more.  It dulls their wits; it distracts them, and they get quiet again, for a while.

But the rulers know they are at the line.  There is a line the rulers must not cross.  No one knows for sure where that line is, but when rulers cross it, they sometimes don’t get to be rulers any more.  They get voted out, or fights break out for control of the guns.  Then everything falls apart.  It gets ugly.  People stop working.  Because they stopped working, they stopped producing, and  they have no money.  So they start stealing from each other. Sometimes they kill each other.  Things get out of hand.   So rulers have to be wise.  They have to know where the line is.  They can’t cross the line.

So where do the rulers get the money to pay for more freebies, without crossing the line?  They borrow it.  And they promise to reward the people who lend them money by paying interest.  How do they pay for the interest on the borrowed money, since they are already out of money?  They print it.  There is now money out there in circulation that did not come from increased production.  There is now a disconnect between money and the production values it is supposed to represent.  Something very important has just happened.  There are no announcements in the paper or on the six o-clock news.  When production has not gone up, but there is mysteriously more money available, everyone is willing to pay more, because after all, there is more money chasing the same goods and services.  So prices rise.  The value of the goods and services has not changed intrinsically; a banana is still a banana, a car is still a car, a book is still a book.  It just takes more dollars to obtain one.  The banana hasn’t changed; the dollar has.  A dollar buys less.  The dollar has gotten cheaper.  The dollar has lost its purchasing power.  The dollar cannot be trusted.  Money has betrayed its owners.

Whoever is in debt wins.  If you borrowed $100, and repay that debt with $100 that now buys only $80 worth of goods and services, you got something for nothing.  You got a discount without having to demand it.  On the face of it, you repaid the same amount you borrowed, but the same value is not there.  The dollar is still a medium of exchange, because people still trust it enough to use it, but it has failed as a store of value.  Money lost its value.  And money lost its value because the rulers disconnected money from its source:  the work, or production that the money represents.

There are winners and losers.  The winners are debtors, because they get to repay with devalued money.  The lenders lose.  They get their money back, but that money has less value than when they lent it.

Who is the biggest debtor of them all?  The rulers.  They get a big discount they never had to demand.  It was so much better than a new tax.  It was a tax, a stealth tax.  No unhappy population.  No riots in the streets.  The freebies still flow.  And the rulers get to keep ruling.  The rulers were wise.  The population was foolish.  The population thinks it has more money, but the money buys less.  It’s an illusion. Everyone’s happy.  It couldn’t be helped.  Who can understand such things?  Who is John Galt?

Money is a protection.  You can buy things with money; goods, services, toys, tools, power, sex, even pretend love.  But if you don’t understand money; if you don’t understand that money is only a symbol of values produced by work, creation, innovation, integrity; if your money is greater than you are; then, indeed, you will lose it.

“The advantage of knowledge is that wisdom preserves the lives of its possessors.”  Money, properly defined, is not the root of all evil.  To say that honest money is evil is to say that the productive use of our mind (aka work) is evil.  However, money disconnected from its source and meaning in productivity, is evil.  Money as something for nothing is evil.  Because such money is no longer a store of value.  The value it supposedly represents is a fraud.  Such money requires no diligence, no work, no mind.  It only requires the backing of a gun.  Eventually such money can no longer even pretend as a store of value; when the mask is dropped and it is sufficiently devalued, even the densest in the population will reject it as a medium of exchange.  That’s called hyperinflation.  When that happens, people will find something else to use for money. Usually gold or silver.  When the population doesn’t trust their paper money, the price of gold and silver rises. 

In the last 100 years, the dollar has lost 97% of its purchasing power.  That’s why it takes so many more dollars to purchase an ounce of gold or silver.  Gold and silver store value reliably.  Paper (fiat) money doesn’t because rulers have severed it from the source of its value–production.

Wisdom is applied knowledge.   The difference between the wealthy and the poor is often the difference between what they know, both in their mind and in their gut.   There are many academics with advanced degrees who probably couldn’t effectively run a lemonade stand.  But they understand grand concepts extraordinarily well, and can explain it to you in long, multisyllabic and arcane terms.  Just as I thoroughly understand the concepts of the game of basketball, but am a lost cause participating in a game of it.  On the other hand, there are families, dynasties even, where the art of trading is a legacy that gets passed along from generation to generation.  They hear it at the dinner table, in conversation; it is almost in the air they breathe.  At the street level, they GET IT because they were raised around it.  They will succeed at ANY business because they know what works, and they are constantly evaluating results and adjusting their plans accordingly. 

Wealth is created by 1) producing goods or services that others will trade for;  2) reinvesting the surplus remaining from such trades in further productivity.  The values in all transactions are stored in money, and that same money serves as the medium of exchange.  The money must be trusted by all for the system to work.  When a government prints money with no basis in production, all that happens is that it takes more money to purchase anything.  Although this may very temporarily make us all feel that we are richer than we are, because all the numbers have gotten bigger, what the government has really done is stolen from the savers from whom it has borrowed.  It repays its debts with intentionally devalued money.  The nations creditors know they have been defrauded.  When creditors are being cheated, they no longer want to loan money or invest money, because they know they will be repaid with money that has less buying power than when they loaned it or invested it.  Or if they do continue to loan or invest, they will only do so at higher interest rates as their reward for their increased risk.  But if interest rates go up, the economy as a whole contracts, because the cost of money has gone up.

So our government has a further solution.  It will continue to print the money (digitally), which will continue to devalue the money, and it will continue to borrow, but from itself.  The Treasury will borrow from the Federal Reserve, and the Federal Reserve will print the money to loan to the Treasury.  The Treasury will use its borrowed money to pay interest on its other debt, and will also loan it out to its member banks.  The overextended member banks will  put some of the new money in the back room as reserves, and only then begin to loan it out to the market.   

This is our government’s Master Plan to improve the economy.  We will manipulate the money supply so we can repay our creditors with intentionally devalued money, and we will give our citizenry a fraudulent sense of well being by injecting into the economy new money with no basis in production, in order to create the illusion that things are better than they really are.   They are betting the farm that we are either too busy or too lazy to educate ourselves.  If you are an activist, you may seek reform at the polls.  Or on a more modest scale, you may simply decide that is time to inform yourself.  It is not enough to earn money.  You have to learn  money, because not all money can be trusted.

This is a financial literacy newsletter dedicated to learning about the financial world we live in, and translating the concepts into concrete financial possibilities for ourselves and our families.  It is dedicated to wealth-building; the reinvestment of the excess of our earnings over our consumption.  In case you missed that, this newsletter is for people with the self-discipline to spend less than they earn, so that they can invest the excess and put that money to work for them.  Wealth is about your money working for you, not you working for money.  Financial literacy is about learning the language of money and wealth.  You can learn it here.  Tell your friends.

Subscribe in the column at the right.   Get wise to money.  Know what’s going on.

The Gods Among Us

In the beginning there was Money.  Well, not exactly.  There was barter.  There was a high degree of vertical integration, which is a fancy way of saying if you wanted something back then, it was pretty much up to you to grow it or make it yourself.  What trade existed was largely between members of the tribe or village or group.  If some guy made a pretty cool hunting knife, and his wife was nagging him for a deer to butcher and eat, a trade of the knife for the deer (or parts of it) might take place.  Trading was simple, uncomplicated, and very very slow.  Life was brutal and short.  At the end of the day, when you had run out of you, you had also run out of future.  You aged quickly and died young.  When groups of nomads found a place to their liking, they sometimes stayed, settled in, and became agrarian.  Society became more complex, and slightly greater specialization of labor became possible.  One family could grow things from the soil; another could domesticate animals as a source of meat.  There was still no Money.

Trading in this primitive context was still taking place among the so-called Indians on this North American continent when the first Europeans arrived.  The native Americans were fascinated with some of the baubles brought over by the Europeans and willingly traded furs for them.  Eventually some commodities became so commonplace and essential to daily life in primitive societies that they took on new importance as a means of facilitating trade.  Salt, because it was needed by everyone for daily purposes, came to assume more importance as a form of “money” than it formerly had as just salt.  Since everyone had salt, and used salt, goods and services were traded using salt as the store of value and medium of exchange between trading partners.  The same was true of other things of universal value, including furs.  Because of their prized ornamental value and scarcity, gold and silver  became universally accepted as Money. 

The term store of value is very important.  Without some universally accepted warehouse of value that had been produced, all exchange was limited to what could be immediately produced and immediately consumed.  No long term planning was possible, and without long term planning, the Industrial Revolution with its complex machines and processes was impossible.  Modern society was impossible.  The invention of Money was a prerequisite to all the amenities of life as we know it.  Without the invention of Money, we would all still be primitives.  In spite of Rousseau’s idealization of the Noble Savage, the Garden of Eden it was not.  Man was the victim of ignorance, superstition, disease, and unmitigated natural disaster the likes of which are only occasionally experienced today in the poorest parts of the world.

In primitive society, wealth was limited to whatever a person could produce in a day, or a month, or a year of his own individual effort.  All other wealth was acquired by confiscating the values produced by others at the point of a spear, or in time, at the end of a gun.  All great monuments of history were made possible by the confiscation, not only of others wealth, including their grain, their herds, their tools, but also the confiscation of the people themselves, physically.  People became property, to be used and exploited by their conquerors.  When Rome was starving because of crop failure, their solution was to conquer Egypt with their legions, make that part of North Africa a vassal state and require them to ship their grain to Rome at prices Rome dictated.  You might say that Rome “nationalized” Egypt;  Cleopatra, in name at least, still “owned” the means of production, but the prices were dictated by Rome, her Master.  For a while, she was able to continue her pretense of being in charge of her country, of being Queen.  Then one day Caesar extended an invitation she could not refuse:  to come to Rome to visit, as his “guest”.  The dress code for the event was a little intimidating–naked, in shackles, to be paraded as the spoils of war through the crowds of Roman rabble and oglers, the nobility and the great unwashed.  Cleopatra committed suicide.

Read more..

Rome, of course, did not invent slavery.  Man was a part of Nature, and you took what you wanted, if you could.  You formed groups and tribes for this purpose, for there was greater safety and strength in those groups and tribes.  There was no concept of the individual or individual rights; you were a member of your group, and your survival depended on that group.  If your group won, you confiscated the property of your rivals, including his children and women.  Anyone you had no use for, such as the old or the sick or the dangerous, you killed.  And of course, if your enemies prevailed, you shared the same fate. 

If you were successively victorious, you celebrated by building temples to the gods who had blessed you, or you worshipped the gods among you  Of course you also built monuments and palaces to your leaders and warriors, as totems to their greatness.  And if your civilization succumbed to a rival some time later, your enemy sat on your thrones and lived in your palaces that they acquired the same way you did–by force.  You supplicated your gods and you placated your gods, and you worshipped and obeyed your kings and princes as gods themselves, or the sons of the gods, or the direct representatives of the gods.  And sometimes the Great Leaders and Warriors had to share the power in an uneasy alliance with the Priests and Shamans who controlled and manipulated the fears and superstitions of the human herd, who provided opaque and inscrutable explanations for why things sometimes went wrong, who demanded sacrifices for the gods of both this world and the next.  It reminds us somewhat of the chief economists and central bankers  ‘divining  the liver’ of the economy, reading the stars, making their prognostications and gobbledygook commentary about what it all means, and who also require sacrifices so that the gods may be propitiated.

There were two ways to acquire wealth; the tedious, slow way of trading successfully with others, or the riskier but faster way–to seize what others already had.  You could do this as a petty murderer; or as a tribal leader, a mass murderer if the occasion demanded it.  You could enslave others, or you could be enslaved by others.  The spoils went to the winner.  For those who chose the route of peaceful and voluntary trade with others, the advent of Money was an organic process that developed naturally as a more efficient way to trade.  It expanded the possibilities of what could be traded, as Money was a way to store value.  Money was a symbol of value that had been created and was warehoused somewhere else.  If on the other hand, you were a Ruler, Money facilitated the confiscation of the wealth of your subjects.  As a Ruler, you saw Money as nothing more than an extension of your right to plunder your subjects; if you insisted that your subjects pay their taxes to you in salt, or grain, or gold, you didn’t care what medium of exchange they used among themselves, as long as you controlled the form in which they paid you.  This became your Treasury.

As the Ruler, what did you need a Treasury for?  Well, your subjects didn’t always have the products or skills to do what you wanted.  So you had to bring people and products in from other places, and to do this you had to trade with them.  You could force your own subjects to engage in slave labor, but you could not do so with others outside your domain, for most likely they belonged to another Ruler, another Tyrant.  They were his property, not yours.  If the other people were accustomed to gold as a means of exchange, as you were, trading was simple.  If they did not use gold, trade quickly got more complicated.  Now there were two forms of money, your gold and whatever they were using.  A rate of exchange had to be negotiated.  If they were using salt, then you had to establish how much salt was equal to an ounce of gold.  Your joint answer to this question would become your exchange rate between two kinds of money.

You also need a Treasury to finance your wars.  You may have had your own troops, but many, if not most wars were fought with soldiers-for-hire, mercenaries.  Either way, they had to be paid.  If soldiers didn’t get paid, they and their families didn’t eat, and when people don’t eat, they get deeply unhappy.  Unpaid soldiers have a nasty habit of slipping away in the night and disappearing.  So they had to be paid, with Money that would be recognized and accepted by others with whom the soldiers would want to trade.  In ancient societies, soldiers were paid in coin.  When the Treasury of the Ruler was low, he would order his minions to shave slivers of metal off the coins, then melt the shavings down to forge new coins.  The coins of the realm tended to get smaller and smaller and people would notice and feel they were being defrauded.  And of course, they were.  By the Ruler, who was trying to expand his Money supply the only way he knew how.  When Rulers figured out alloys, they would instruct their keepers of the Treasury to mix base metals with the precious metal, again in an effort to take the existing amount of gold or silver and make it go farther by cheapening it.  When people felt they were being cheated, they demanded additional coins in payment to make up for the parts shaved off, or the new alloy coins.  They started making etched ridges along the circumference of the coins, so that if any shaving of the edges was attempted, they would know it because the ridges would be missing.  All through history people everywhere showed a basic desire to keep what was theirs, and all through history they tended to distrust their Rulers intentions with their money.  And with good reason.  The Rulers treatment of their Money was the equivalent of a cheating pair of scales.

Over the millenia, nothing has really changed very much.  With the advent of the printing press, it became a lot easier to steal from one’s subjects.  Until shortly after World War I, the currencies of the world’s governments continued to be pegged to gold as a means to facilitate trade between nations on an objective standard.  Because the rest of the modern world had been decimated by the ravages of what had come to be known as The Great War, the American dollar had become the currency of the world; in other words everyone was willing to be paid in American greenbacks because it was agreed that those dollars could be redeemed in gold on request from the American Federal Reserve, our central bank.  Because there was a steady loss of gold over the years from the American Treasury, President Nixon unilaterally decided to take the American dollar off the gold standard in 1971.  Confidence in the American dollar was waning, and foreigners wanted the gold instead.  Well, no more.  The Law of Unintended Consequences prevailed, as always.  In today’s world, when foreign governments acquire larger quantities of another nation’s currency than they are comfortable with, they sell the undesired currency on world markets.  You see, paper money, like gold, oil, cotton, grain, or cattle, can be sold in markets created specially for the purpose.  Currency is bought and sold on what is called a Foreign Exchange market, or FOREX for short.  Well, after Nixon took us off the gold standard, foreign governments rushed to get rid of their dollars by dumping them on the world market, exchanging dollars for other currencies then considered more valuable.  When there are more sellers than there are buyers, the price of a commodity goes down.  The dollar is a commodity, and the price of the dollar went down.  Now let’s make this next connection in a flying intuitive leap:  A paper dollar unattached to an objective gold standard has no value in and of itself.  It represents only the faith of the people who use it.  When it is obvious that governments are trying to unload a lot of dollars, it quickly erodes people’s confidence in that dollar.  When the confidence in the value of the dollar goes down, what the dollar is able to purchase goes down also.  When it takes more dollars to purchase the same item than it used to, you have inflation.  The same thing has happened as when an ancient Ruler mixed other metals with gold in order to create more of it.  The purchasing power of the unit of currency goes down when people don’t trust it; so they want more of it in payment than they used to.  Prices go up.  If you have the same quantity of a currency as you had before, but the purchasing power of that currency has done down, you have just become poorer, as surely as if someone had robbed you during the night.

When Rulers, or governments, for whatever reason, add to their Money supply, you have more money chasing the same goods, which means the purchasing power of the unit of currency goes down, which is just another way of saying the price went up.  The price is nothing more than how many units of currency are required to purchase an item, any item.

The American consumer nation became an empire of debt in order to pay for all the goodies it imported from foreign nations.  America paid those nations in dollars, and by 2001 almost 80% of all dollars in existence were held by foreigners according to Bonner and Wiggin in Financial Reckoning Day Fallout.  Under normal circumstances foreigners can get rid of dollars by buying American goods in return, and this keeps foreign currencies in balance.  That didn’t work because we were importing way more than we were exporting, so the imbalance grew.  Foreigners could have once again dumped their excess dollars on the foreign exchange market, which would have driven the value of the dollar down, which would have made foreign goods more expensive, and our exports cheaper.  That would have reduced demand for foreign goods, and reduced their sales to us.  They wanted to keep their factories going at full production, and that meant continuing to sell to America at maximum levels.  So instead, what did the foreigners holding excess dollars decide to do?  They decided to get rid of those dollars by buying up American assets, including businesses, real estate, and financial investments.

But the plot thickens.  At about the turn of the millenium, America was in the throes of a recession.  The Federal Reserve, determined to make this go away, decided to make credit cheaper by lowering interest rates to unheard of levels.  They wanted Americans to buy, and they figured the best way to do this was to make money cheap.  Cheap credit, combined with government incentives to lenders to make residential mortgages available to people unlikely to pay those mortgages, resulted in a lot of toxic mortgages out there.  Because money was cheap and easy, demand for residential real estate went through the roof, and that of course, caused the prices for that real estate to go through the roof as well.  So prices of real estate are spiraling up, money continues to be cheap and easy, there are a flood of unworthy mortgages.  Now for the rest of the story.  The flip side of cheap money is that lenders, who make their profits off of interest they charge, now have sharply reduced profit margins because their product, money, is too cheap!  They are practically giving it away!  What to do?  Simple:  slice and dice these toxic mortgages that everyone knows are going to result in default by the borrowers, repackage them, take them off the lenders hands, and sell them to ????  Why the foreigners who are holding more dollars than they know what to do with, and let them buy them at outrageous premiums!  And why would they do so?  Why, because the prices of real estate have been spiraling upward like the forced steam of a 19th century locomotive.

Now to put this in perspective, if you got a twenty-dollar bill from an ATM machine, and then went to the grocery store to make a purchase only to find your twenty-dollar bill is counterfeit, what would or could you do?  The bank won’t take it back, and the grocery store won’t accept it as payment.  The one last holding the counterfeit bill takes the hit.  That would be you.  You are out $20.  Unless of course you go up the street to McDonalds or Starbucks and use the same bill to make a purchase, and get change in non-counterfeit denominations.  You have successfully handed off your risk of loss to someone else.  This is what the lenders and Wall Street did with the toxic mortgages.  They pawned them off, at exorbitant profit to the first suckers they could find–the foreigners looking for a place to put their excess holdings of American dollars.  Foreigners such as foreign central banks, for example.

The rest, as they say, is history.  The bubble price level of real estate popped, the mortgages were much higher than the value of the properties that collateralized them, the foreign holders of these toxic repackages had a fit, American lenders who didn’t leave the party early enough got stuck with a lot of non-performing loans, which meant that they no longer had sufficient reserves on hand to cover their exposure to those bad loans (which meant they were insolvent and a prime target for a run on them by their depositors.)  Then there were the insurors of these toxic assets who were extremely overleveraged and ready to go under, starting with AIG.  The American government came to the rescue, and bailed out the banks, the insurors, the foreign central banks.  How did they pay for all this?  At the heart of it all is a defective product–the toxic mortgages and the packages they became a part of.  There is no market for mortgages worth 30% less than the homes that are the collateral.  And to make matters worse, the prices continue to drop, and no one really knows how to determine what these properties are worth, other than to put them out to sale in a market where no one is buying.  So the Federal Reserve decides to buy the toxic financial instruments at prices that are made up, pure fiction.  And the Fed buys these mortgages with more fiction, pretend money.  Money created by making  book entries in digital ledgers.  The banks receive the digital money, their reserves are stabilized, and they are removed from the Endangered Species list.

There is only one problem.  The Fed, when they came to save the day, expanded the money supply of the world’s largest debtor nation to a degree unprecedented in history.  The whole world’s financial system continues on life support, and the machine is making disturbing noises.  You see, there is one minor detail everyone seems to be forgetting.  There are only two ways to acquire wealth:  produce value, or steal the value produced by someone else.  This nation’s value comes from its manufacturing plants, research and development departments, its science labs and production facilities.  There are no current economic indicators that reliably tell us these numbers are improving.  So can we print our way to recovery and prosperity?  Ben Bernanke says we can.  Tim Geithner says we can.  The President says we can.  In time, all that wildly inflated Money supply is going to work its way out into the economy, which means the purchasing power of the dollar is going to drop.  When ordinary people sense in their gut that the value of their dollar is dropping, they will rush to get rid of their dollars, just like foreign governments did in the last ten years.  But who will take them?  As the floor drops out of the dollar, we will rush to spend them in the morning, because they will be worth less by the evening.

Will the government’s debts be honored?  Of course.  Everyone who is owed will be paid.  With currency devalued to a fraction of its face value when it was borrowed.  But who can argue?  Everyone can see the numbers printed on the paper.  We will all be poorer, except those favored few who are in on the insider trading, who get rid of their money first. 

The remainder of the burden will be borne by the taxpayer.  Isn’t it amazing how much better we can feel, knowing we are taxpayers and not slaves?  Would we ever agree to becoming slaves?  Of course not.  At exactly what point does a taxpayer subjected to Washington’s gang warfare become a servant of the State? 10%?  25%?  50%? 75%?  Are we perhaps like Cleopatra, passively accepting our vassal state, as long as we are allowed to pretend we are still a free people?  Do you think Cleopatra felt better knowing that her country’s production of grain was being confiscated for the “good of society”, society as defined by her captors?  Roman society?  Like every other tyrant cum Benefactor in history, Cleopatra eventually got what she deserved, for she also was one of them.  She too had been one of the Gods. 

The claim of governments to control over money has no basis in nature or any rule of law recognizing individual rights and private property.  Statists all believe in the moral superiority of the collective; for them the sovereignty of the State trumps the sovereignty of the individual the State supposedly serves.  It is not hard to figure out which philosophy prevails in our culture.  The well funded collectives who contributed heavily to the campaigns of our politicians have been generously rewarded.   And what of the well-heeled financiers, bankers, stockholders and managers of the insurance companies, the foreign central bankers, and our own professional bureaucrats who created this problem?  They are the very ones selected to be bailed out or worse, chosen to correct it!

We, the individuals, the smallest and most unprotected “group” in the nation, will foot the bill.  Between inflation and taxation, dear Reader, it is our wealth that will be confiscated or destroyed.

Perhaps, like Cleopatra, we too have been given an invitation we cannot refuse.

The gods are still among us.

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