Replies

M1 consists of debt.
M2 consists of debt plus more debt.
M3 consists of debt plus more debt plus more debt.

The basic unit of account is a debt. Your assets are debt. Your liabilities are debts for debt. When individuals and institutions lose their ability to pay their debts then it starts a chain reaction and cascading debt defaults occur. The government tries to fix the problem by borrowing debt from the the central bank, renaming that debt money, and spending it. Sometimes the money can't be spent faster than the defaults. So the amount of money seems to decrease. What is really happening is that debts are going bad and folks are becoming insolvent. Insolvency leads to repossessions and foreclosures. The debtors get to move back in with mom and dad and the bank gets the house and car.

In the old days debts had to be repaid in gold and silver coin, because this is how the U.S. Constitution, in Article 1, Section 10, Clause 1 said it has to be.

Later, when it was ok to ignore the Constitution, it was sufficient to repay a debt with a piece of paper that promised gold or silver coins when redeemed, because that is how the Legal Tender Laws of Febuary 25, 1862 said it would then be. People didn't bother to redeem the pieces of paper and slowly forgot why the founders thought it was important to settle debts in gold and silver coin. Since paper could proliferate and contract violently under these conditions, booms and busts happened and were blamed for hard times.

Later yet, it was sufficient to repay a debt with a piece of paper that promises nothing, since the Federal Reserve and Congress decided that is how it will be. The justification for the federal reserve was to smooth the booms and busts of the period prior. Never mentioned was that the booms and busts happened after the Legal Tender laws were passed. So the federal reserve was a false solution to a problem that began with the legal tender laws. But sssh don't tell anyone.

It is this last kind of debt that is the essence of our unit of monetary account. It is M1. Cash; dollar bills or numbers on the statement from your bank, are debt some individual borrowed or your government borrowed in your name, that circulates as money. The coins are mere tokens. Pennies are not copper, I don't know what nickels are made of but probably not nickel, dimes and quarters and half-dollars, and dollars are not made of silver. Tokens, all of them. I think of this kind of money the way I think of negative numbers, it has a negative quality, anti-wealth, because someone somewhere owes money is the reason you have it.

Real coins are in coin shops with premiums for rarity and good condition. I think of real coins as I think of a positive number, not debt, not negative. They are wealth. When so worn that no one would think it cool to have any individual silver coin, they are sold for their junk value of silver in bags. Example a $1000.00 face value bag of quarters or dimes containing about 715 Oz of silver costs !4,276.00 FRN--at today's prices. Proper paper money is also in the coin shops. They were like warehouse receipts for gold and silver coins and were honored at one time. They did not have the negative debt quality that modern money has though it was not quite as positive as holding the gold coin, it still required trust and confidence. Now the old silver and gold certificates only have historical interest to collectors and no one is there to honor them in a literal way.