True, but you do not want gold. If you had a ton of gold on a deserted island all that "proof of worth" is worthless. The same would not be true of a boat or a fishing net, for instance.

I hope you don’t regret this as you make an important point.

Money came about in two phases. Initially the idea of having something that was a store of value for later trade drove people to collect that store of value until such time as there was something needed. Dale’s example of the rancher, baker, and butcher etc. show the need for something that could facilitate trade (a medium of exchange) that also would serve as a store of value because you might not want all your bread right now. The third function of money, being a unit of account, happens because people come to agree that so many sea shells are worth a loaf of bread and if a loaf of bread is worth 1/300th of a cow, we can figure how many sea shells it would take to exchange for the cow.

People gradually began to use gold as money because of its scarcity. It took actual work to bring gold to the market and that is quantifiable. I do not mean to imply that everyone figured out that 40 hours of digging would produce 1 oz of gold so 1 oz of gold was worth 100 loafs of bread – those sort of valuations evolved over time based on people’s preferences.

If we used gold as money we would still have to account for both fractional reserve banking and velocity. There was fractional reserve banking even when gold was money. The amount of money in circulation is also nudged along by the velocity with which it changes hands. If you keep yours under your mattress there is less circulating then if you spend it as soon as you get it.

Where it goes wrong now is the government issues paper receipts instead of gold and there is no practical limit to the supply of paper. Until Nixon took us off the gold standard completely, paper currency used to say it was redeemable for legally defined money (i.e. gold or silver). If you can find a silver certificate or an old Federal Reserve note you will see an explicit statement of its redeem-ability. Pre Nixon, Federal Reserve Notes had this statement in the upper left, just above the designator of which bank issued the note:
“THIS NOTE IS LEGAL TENDER FOR ALL DEBTS PUBLIC AND PRIVATE AND IS REDEEMABLE IN LAWFUL MONEY AT THE UNTIED STATES TREASURY, OR AT ANY FEDERAL RESERVE BANK.”

Post Nixon the text was enlarged so as to occupy the same space on the note and a period was placed after private. i.e.
“ THIS NOTE IS LEGAL TENDER FOR ALL DEBTS PUBLIC AND PRIVATE.”

This is when paper money became an IOU without a claim on anybody – the “I” was the Treasury or the FED, but now there is no “I” so you really can not say the paper in your wallet is an IOU. The redeemers of paper currency are the stores, service providers, etc. who accept it in exchange for their goods and services. In other words, our government has perpetrated the greatest Ponzi scheme of all. It works because we need something to make the everyday exchanges we need to survive and the transition was accomplished so stealthily that only a small percentage of us are aware it happened. So keep this to yourself. If everybody figures it out people will start demanding something of real value!

As I show in the article an IOU becomes generalize when people are willing to generally accept it. That is all banknotes are an bearer IOU.

I agree. At any given time there is more "money" out there than there was before. The amount of goods that the money can buy meanwhile stays the same, so the prices go up. inflation....

There is a subtle but real difference between something one accepts in exchange because he believes it will be of value to someone else in voluntary trade, and something one accepts because it is a debt instrument – a claim for goods and/or services against a specific legal entity (such as a person, corporation or nation). A debt requires a creditor (one who owns) and a debtor (one who owes).

In your example of the rancher who pays the doctor with the baker’s IOU, the baker’s IOU is in this instance a medium of exchange. But this does not lead to the conclusion that all media of exchange are IOUs. The fact that gold and IOUs can both be used as money does not mean that gold is a type of IOU. Most people accept money because they believe it can be exchanged for other goods and services, not redeemed for them. Exchange and redemption have some attributes in common – redemption is a form of exchange – but they are not equivalent concepts.

“Gold money is a tangible value in itself and a token of wealth actually produced. When you accept a gold coin in payment for your goods, you actually deliver the goods to the buyer; the transaction is as safe as simple barter.” -- Ayn Rand, “Egalitarianism and Inflation”.

the police dont protect you now. they just come after the fact (eventually) to clean up the mess and spend money trying to catch the perps. whatever you have lost, you lost.

I have a problem with some of this.
"Currency" is a token of "work". Just like Bitcoins, when a bitcoin is mined there is "proof of work" to its existence.
Gold, is proof of itself, it had to be physically mined for it to come into existence.
I trade my labor of raising beef, for your labor of making bread - both proof of work.
We can assign value to each, and use the other as a means exchange.

"Dollars", exist because the Federal Reserve wills its. When they print more, backed by nothing, it devalues/dilutes our labor.
There is no "asset" the federal reserve backs the dollar with (other than faith and credit).
When the Federal Reserve creates new dollars, they are tokenizing future labor, not realized labor.

But isn't the act of prospecting and mining the gold in the first place also such an act of speculation? The difference is that the person doing the mining actually expends effort to obtain the gold. Thus the gold actually becomes a symbol of expended work - not merely a claim on future work. I would also point out that a claim on future work is either speculation or usury. Purchases only involve a trade of value for value - past work for past work.

Who is the I in IOU? Who owes? By your definition of debt, anything that can be exchanged for anything else is an IOU. A debt is a contract, a promise to repay in the future for money, goods, or services extended today. Just holding gold does not give the holder a "claim" against anyone for future goods or services, unlike a debt contract. The term "generalized IOU" is meaningless. One cannot have an IOU against everybody, especially when nobody has explicity recognized that claim and nobody has received anything for which they have chosen to recognize that claim.

I know I am going to regret posting this.

This covers the first level of fractional reserve banking. But then the bank has the farmer's deposits to loan to the next guy. That guy then deposits his loan and the bank can loan it out again. I have seen calculations that show with a 10% reserve, the bank can expand the original amount to 9 times that amount. That would seem to add enough money to the supply to have inflationary effects.

Well said, and I totally agree! Stockpiling ammo for those guns is critical too. The police will not protect you if anarchy comes.

I can see this discussion spiraling downward quick!
Who is to say what anything is worth?
I have thought a lot about the SHTF condition and what I would be able to carry. It keeps going right back to guns and ammo. I think every body and his brother are going to want what ever you have, gold, money, water, food and shelter so you better have a gun and some ammo to protect it. No one here is still alive who has ever seen it in this country but put yourself with your family in the middle of Aleppo and then think about what you really need.

The gold you have kept is not money yet. Money is a medium of exchange. Now once the gold is used as a medium of exchange, then the person taking it is only taking it because they believe it will be a claim against future goods and services. They have no other need or use for the good. That is exactly what a generalized IOU does.

Re: “Since all money is essentially an IOU, all money is created by a debt, i.e., a claim to future goods and services.”

I dig some gold out of my mine. I take the gold to a private coiner, who turns it into gold coins, keeping a small portion of the gold as a coining fee. I then take the coins to a merchant and exchange them for goods and services. Where’s the debt? Who owes who what? The fact that the gold coins can now be traded by the merchant for other goods and services doesn’t make them a claim against anyone for anything.

Exactly. Thanks for the article.

True. The way they did this was with legal tender laws

In the beginning, the free market created money as a tool for trade. Then men used the power of government to pervert the tool for looting.