Money gives power to a secret self, enabling it to pursue its own self-gratification, the ability to acquire things that satisfy the imagination, to fulfill elaborate fantasies of selfhood, a visible statement of who-I-am, and or, who-we-are.

The money illusion is ancient and universal, present in every transaction and absolutely necessary to every exchange. Money is worthless unless everyone believes in it. A buyer could not possibly offer a piece of paper in exchange for real goods, if the seller did not also think the paper was really worth something.

This shared illusion - the power of money illusion - is an old power, universally conferred by every society in history on any object that was regarded as money.

Modern money, requires the same leap of faith, the same "social consent" that primitive societies gave to their money.

Over the centuries, the evolution of money, in human societies, transferred money faith, step by step farther away from real value and closer to pure abstraction.

The money illusion is now refined to a new level of abstract faith, visible only if we consciously pause to consider, how the money process has evolved. At each stage of history we see money retreating from concrete reality, to pure abstraction.

Paper money, originated with the goldsmiths of Europe who held the private gold hoards, deposited by wealthy citizens for safekeeping. The goldsmith issued a receipt for the gold deposit, and over time, it became clear that the receipt itself could be used in commerce, since whoever owned that piece of paper, could go to the goldsmith and claim the gold.

Modern banking originated in the gold smith´s discovery that they could safely write more receipts and lend them to people, exceeding the total gold that was on hand, so long as they always kept a responsible minimum in reserve, to honor withdrawals. This was the origin of fractional-reserve banking and the bank lending that created money.

This private money system endured for centuries and was inherited by the American Republic. Privately owned banks created money by issuing paper bank notes, paper backed by a promise that at any time it could be redeemed in gold.

In nineteenth-century America, the money in use consisted mainly of these privately issued bank notes, backed by gold or silver guarantees. The money´s value was really dependent, on the soundness and probity of each bank that issued notes.

Ambitious bankers, eager to make loans for new enterprises, sometimes printed paper money that had no gold behind it. Governments imposed regulations to keep banks honest. When banks failed, their money failed with them.

The money illusion was transferred to a new object with the rise of demand deposits, better known as checking accounts. Instead of currency, the paper money created by banks, people hesitantly came to accept that money also existed simply as an account in the bank´s ledger, redeemable by personal drafts or checks.

It took generations for the public to overcome its natural distrust of checks, but by 1900 most people were persuaded. Personal checks, written by the buyers themselves, were accepted as just as valuable as dollar bills. Currency remained in use, but demand deposits were by now the bulk of the money supply. The nationalization of currency issuance completed this arrangement, with the creation of the Federal Reserve in 1913.

The last money illusion was kicked away in this century: the gold standard was abandoned. Demand deposits had been backed by the same promise that applied to currency - any private citizen could, in theory, go to the bank and redeem his money in a quantity of gold. Without the gold guarantee, money is only money - "legal tender for all debts, public and private," as it says on every Federal Reserve Note.

The United States suspended the right of gold convertibility in the financial crisis of 1933. Until then, citizens could turn in their Federal Reserve Notes for an appropriate quantity of gold. After 1933, the Fed´s paper money would be redeemed only with more paper money.

Without the gold standard, money must be managed. Its true value ultimately determined by governments, and monetary policies of central banks like the Federal Reserve.

Now the paper itself disappears. Money becomes truly invisible. Americans are now in the midst of this great transition - transferring their money faith again. Commerce relies increasingly now on transactions in which the social trust is conferred upon plastic cards. The plastic cards will, displace, both check and currency as the medium of exchange. The pieces of paper will all but disappear, no longer needed to represent real value.

When money is no longer represented even by paper, it becomes a pure abstraction. Money has been reduced to nothing more tangible than "electronic impulses."


~~From the book: "Secrets Of The Temple How The Federal Reserve Runs The Country