When my brothers and I were very young, one of our neighborhood friends taught us a wonderful, new word: ALLOWANCE. To our amazement, we discovered that a boy who lived near us was given money once a week so he could buy stuff! Without parental supervision!

As we sat at the table for lunch, we presented this great idea to our parents, who listened patiently (no doubt, trying to suppress their laughter) as we outlined our youthful financial hopes and dreams.

We were told that IF we were granted an allowance, we must learn to “spend our money wisely” otherwise our bubble gum bonanza would end. Wisely waiting until we finished our vegetables, Mother announced that we would give the new system a try, and Dad produced one crisp dollar bill for each of us. We rushed out the door, mounting our bicycles like motorcycle cops in hot pursuit of a race car in a school zone. My mother yelled after us, “Where ‘ya goin’ in such a hurry?!” With complete candor we shouted back, “To spend our money wisely!”

Sadly, most adults don’t understand money better than the average pre-teen. The old joke about “I can’t be overdrawn. I still have checks left.” is not far from the truth. Consumer debt in the United States increased 41% during a recent five year period, and personal bankruptcies have doubled during the last decade, according to some Internet sources.¹

John Adams wrote to Thomas Jefferson saying, “All the perplexities, confusion and distress in America rise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation.”

A logical first step in correcting our downright ignorance would be to ask the question, “What IS money?” My answer to that is “bartering made easy”. Originally people would meet at a convenient market place, not too unlike our modern day swap meets. One person might bring chickens, another would bring bushels of corn, while still another would bring recently baked bread. Trading chickens for corn or bread presents both buyer and seller with the age-old dilemma of comparing apples to oranges.

Money solves the barter problem by reducing fractions of a commodity to their lowest common denominator. It is not immediately obvious that ONE / LOAF of BREAD is equal to TWO / THIRDS of a CHICKEN. Converting both commodities to their lowest common denominator – perhaps ounces of silver – we might find that the LOAF cost two ounces of silver, whereas the CHICKEN costs three ounces. When everything is measured in the same, familiar units, calculating our transactions is faster and easier, and giving change isn’t nearly as messy. (Who wants to put wet chicken fractions in their pocket?)

If we agree that money is a huge improvement over direct barter, the next question to ask is, “What could we use for money?” Fortunately, history has already answered this question for us. Nearly every culture has settled on gold and silver at some point. But why?

Part of the answer is because it is scarce. Scarcity makes it inherently desirable, and therefore, inherently valuable. The adage that demand is inversely proportional to supply is demonstrated by the “Tickle Me Elmo” phenomenon:

In 1996, the Tickle Me Elmo was the “must have” toy. Many parents literally fought other parents in North American toy stores to purchase one of the toys for Christmas. The short supply of the toy, due to unexpected demand, meant that stores hiked the price on the dolls drastically. Newspaper classifieds even sold the plush toy for hundreds of U.S. dollars. People reports that the US$28.99 toy fetched as much as $1500.²

Another reason cultures have selected gold and silver is because these materials are easily stamped into coins of uniform weight. Different size coins make fractionalizing commodities even easier. The Spanish milled dollar was often cut into eight pie-slice pieces called bits as a way of making change. Hence, two bits are equal to a quarter dollar.³

Not surprisingly, our Founding Fathers were eager to establish a strong economy in our new nation. Therefore Congress was granted the power and responsibility…

Since an ounce of gold was “regulated” to an arbitrary number of “dollars”, the power to “fix the standard of weights and measures” was necessary to define and establish an official “ounce”. The phrase “to coin money”, also implies the use gold and silver, whereas the States are explicitly forbidden from using anything else.

There are very few crimes identified by the Constitution. Even murder is left to the individual states to punish as they see fit. However Congress does have the power:

Counterfeit is an imitation intended to be passed off fraudulently or deceptively as genuine. If you and I were to spend the afternoon printing twenty dollar bills “out of thin air”, we could trade our phony money for corn or bread, even though we never traded chickens for them in the first place. When the Federal Reserve creates money “out of thin air” it is worthless, and the money you have in your wallet becomes worth less.

My brothers and I eventually learned to spend our money wisely – the moment we joined the workforce and had to MAKE the money. Our economy has already started to fail. Our response should be to eliminate the Federal Reserve System that has a monopoly on counterfeiting our money. Americans should grow up and learn the lessons our Founding Fathers taught us – lessons conveniently documented in the Constitution.

1 http://moneycentral.msn.com/content/SavingandDebt/P70581.asp
2 http://en.wikipedia.org/wiki/Tickle_me_Elmo
3 http://en.wikipedia.org/wiki/Two_bits