The Elastic Standard

Column by Paul Hein.

Exclusive to STR

The needle is approaching “E.” Not to worry; there’s a gas station in the next block. Your car’s owner’s manual gives the gas tank capacity as 20 gallons, but when the pump finally clicks off, you find it’s taken 500 gallons to fill your tank. Well, that’s not surprising. Your car is nearly ten years old, and additionally, today’s gas is different from the gas of ten years ago. Things change.

You stop at the grocery store on your way home to pick up a gallon of milk. After a prolonged search through the multiple varieties of liquids called “milk,” you finally find a gallon of just plain milk: not skim, not 2%, not low-fat, not soy, but just milk. The gallon container is about the size of the small half-pint containers that once contained a now nearly extinct dairy fluid called “cream.”

At home your wife is preparing your dinner: roast beef, approximately ten pounds. It will feed both of you, albeit sparingly. No leftovers. Oh well, nothing remains the same. You must adapt to changing times.

If the episodes described above actually took place, there would be no “oh well.” Just the opposite. Terms like “gallon” and “pound” don’t vary in meaning from time to time; chaos would ensue if they did. On the contrary, there are men and women who are paid to periodically check scales and gasoline pumps to be sure that they deliver what they are supposed to deliver. What’s the point of a standard if it’s not standardized and maintained at the standard level?

With a notable exception, at least as significant as the fictional ones above.

Go to the U.S. Mint’s website. If you’ve never visited it before, you might find it interesting and educational. The Mint coins gold, silver and platinum in dollar denominations, as you might expect. What would catch your attention, however, is that a newly-minted dollar coin of silver will cost approximately $50. A circulated dollar of silver from a coin dealer might cost half that.

Wait a minute! If a pound is a pound, and a gallon a gallon, isn’t a dollar a dollar? If it is, why does a $1 coin cost $50? If it isn’t, then what in the world IS a dollar? A common definition is that it is a monetary unit in the United States. And a unit is defined, among other things, as a standardized amount used in measuring, as in a pound of butter, or a bushel of wheat--but, amazingly, not a “dollar.”

If you think about it--sadly, few do--you might find yourself asking, “Why would anyone sell a dollar?” Who would pay more for a dollar than a dollar? Who would sell a dollar for less than a dollar? The only answer that makes sense is that there are dollars, and there are dollars. Some are more valuable than others.

The importance of this is widely and completely overlooked. Consider taxation, for example. You are taxed on the value of your home and your automobiles. How is their value measured? In dollars, of course. Which ones? Don’t ask the assessor; he won’t answer. (I’ve tried it.)

And what about your income? Assume an income of 100,000 “dollars” received in the form of checks, which are neither legal tender, nor redeemable in anything but another form of IOU, such as Federal Reserve notes. The silver dollar coins obtainable from a coin shop conform to the last legal definition of dollar. Your $100,000 income, in terms of such coins, would be about $4,000. Can you use such genuine dollars to indicate to the government your income?

About 40 years ago I asked the IRS for the definition of “dollar.” Their reply was that the term was not defined in the Internal Revenue Code. That’s rather surprising, since that code runs to millions of words, none more important, it would seem, than “dollar.” (For that matter, the Code doesn’t define “income,” either.) But you must declare, under penalty of perjury, the “true, correct and complete” value of your “income” in terms of “dollars.” So you would think that “dollar” would be defined, as well as income.

In the absence of a definition in the Code, could you use the last available definition, from the Coinage Act of 1792? Try it with the taxing authorities, and be prepared for astronomical legal fees when you’re charged with some tax “crime.” The tax on an income of $4,000 would be smaller, and at a lower rate, than the tax on an “income” of 100,000 “dollars,” so measuring income in terms of actual, instead of fictional, dollars would be a boon for the taxpayer, if not for the government. And government does exist for the benefit of the citizen, doesn’t it? Oh, sure!

So why, you ask, does such a ridiculous situation exist? Because if the only dollar was the dollar of silver, weighing 412.5 grains of standard silver, the banks could not create “dollars” out of thin air, as they do now, and get away with it for long, as depositors would demand the redemption of their holdings in real money. The fictional “dollar” makes modern big government, with its wars and welfare, and foreign aid programs, possible.

We sure wouldn’t want that to stop, would we?