Charles Holt Carroll defended sound money in a blazing series of essays appearing in the latter decades of the 19th century. They are collected in the book, Organization of Debt into Currency and Other Papers–newly online. Here we discover his steadfast devotion to hard money and his unwavering rejection of fractional reserve banking in all its forms, as Rothbard points out. Robert Blumen writes the review. FULL ARTICLE
Source link: http://blog.mises.org/4951/the-organization-of-debt-into-currency-on-the-monetary-thought-of-charles-holt-carroll/
The Organization of Debt into Currency: On the Monetary Thought of Charles Holt Carroll
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What’s the Austrian explanation of Gibson’s Paradox?
I wonder how CD’s, lenders such as GE Capital and mutual funds have changed the situation. Until the 1970′s financial deregulation, almost all loans came from banks. Today, banks have about 30% of the lending market. Companies like GE Capital don’t take deposits, so they don’t engage in fractional banking. CD’s and mutual funds limit when people can have access to their funds, therefor limiting the problem of two people having access to the same money. Maybe the financial deregulation of the 1970′s is more responsible for dampening business cycles than anything?
Banking and the whole “financial industry” is vastly complicated. Any description of it is liable to bog down.
However, the basic truth (which Charles Carroll understood and Robert Bluman understands) is that lending should be no greater than real savings (i.e. income that people have chosen not to consume and have, instead, handed over to be lent out).
Any effort to extend lending (by any one of the many methods that have been invented)so that it is greater than real savings (it will not be greater than “savings” – because people in positions of power have long redefined “savings” to mean just the other side of their balance sheet)will lead to trouble.
Government supports the extention of credit in various ways – the Federal Reserve System, Deposit “insurance”, and (older and more basic) the legal doctrines that hold that the book keeping tricks needed to follow a policy of credit expansion are not fraud.
As for the modern situation.
Well, the Dollar is not a certain weight of gold anymore (or a certain weight of any commodity) – so the expansion of the money supply can not be a matter of more gold being mined.
Yet the money supply is increasing and has been increasing (at a high rate) for many years.
Is this all government printing press work?
Clearly not – as if it were the rate at which MB-M0 (basically the notes and coins, plus a few other things) expands (which is basically the work of the printing press) would be the rate at which M3 (a measure of money that includes much credit) expands.
And M3 has tended to increase faster than the monetary base (the notes and coins).
So there is a credit bubble out there.
We can also see asset price inflation (for example in the stock market and in real estate) – a classic sign of a bubble.
When is the bubble going to burst? If I could give you all a day I would be a rich man.
But (like Mises, Hayek and others in the late 1920′s) all we can do now is say “it will burst”.
What will the reaction to the economic distress be?
Will it be (like in 1921) a matter of allowing prices and wages adjust – in which case the ecomomy may well recover.
Or will it be (like in 1929) a desperate effort to try and prevent wages and prices adjusting – and endless other government interventions (first under Hoover and then under F.D.R.).
If that is the case grim days are ahead.
For (although not many may believe it) the basic economic structure is actually weaker now than it was in 1929.
It is not just a matter of manufacturing industry being basically good shape then (subject to the inferior technology of the time of course) rather than being the union and regulation bound mess that it is now. There is also the point that there were not vast and unsupportable “entitlement programs” in 1929.
The only crumb of “comfort” for Americans is that some other countries are going to be in an even worse mess.
Take the example of Britain (I am British and I am writing from Britian) – there is an even bigger credit bubble here (relative to the size of the economy) than in the United States.
And (although the gap is smaller than most people thing) Britian is even more Welfare State dominated than the United States.
The majority of British people depend on government for either employment or benefits (often called “tax credits” which, like in the United States, often go to people who do not even pay income tax), and many other people work in the financial services industry (i.e. what is now a vast credit bubble).
One big difference with the United States is that than people here are no longer that concerned with the problems of manufacturing industry – but that is only because there is little manufacturing left in Britain.
We have “entered the post industrial age” the government here says. But an age that depends on government pay cheques and subsidies and on a vast credit bubble is not going to last very long.
“When will the British credit bubble go pop?” – same reply as to the American one.
But I will stick my neck out and say it will be soon (whatever short term schemes Mr G. Brown comes up with). As statism has an intense ideological hold here (greater than the United States – for example the memory of President Reagan is respected in the United States, whereas Lady Thatcher is a hate figure for most British people) there is little hope that slump will bring free market reform – in fact statism is likely to get worse.
By the great Games of 2012 the popping of the British credit bubble will be old news. And what an “interesting” (in the Chinese sense)sight Britian will be by then.
The introduction is a wonderful effort by Professor Simmons! I am very impressed with his research into Charles H. Carroll’s life. I agree that there are more questions that need to be addressed as well. Many of the hard-core free trade democrats would write periodically in the London Times (occasionally in The Economist–I wouldn’t be surprised to see a connection with Thomas Hodgskin) as well as here in the U.S. (a good many were transatlantic in their vision) and there may be a wealth of information on Carroll in places that are not yet accessible to regular research and may not be available until more is available through online services. As I recall, Benjamin Tucker mentioned him (or possibly his son in New York) very highly in his periodical, Liberty.
Just a thought.
Just Ken
kgregglv@cox.net
http://classicalliberalism.blogspot.com/
Ken, could you tell us what Tuckker said of Charles Caroll? I took note of this article, since J. Greevz Fisher (whom Rothbard mentions in the opening article of the present JLS) accused Tucker of wanting the monetarisation of debt.
Richard
Being a student of Economics and Capitalism I find many projections of doom and gloom over fiat currency vs. a gold standard. The USA has been off the gold standard for many decades, no other countries I know of use the gold standard. I am confused concerning why the world economies have not yet collapsed.
With the advent of China and India growth I can see where if either actually went to the gold standard most of the rest of us would be in serious trouble.
JimT
My error. After double-checking, it was Charles O’Conor that Tucker mentioned. See http://www.newadvent.org/cathen/11202a.htm for more information on O’Conor, a libertarian that Murray mentioned from time to time.
Best to you,
Just Ken
I found this article trying to look up writings on currency as debt. I am now of the belief, based on reading what is here, that currency is nothing more than a delay of payments. As I see it, a delay of payments is debt. Debt can be secured by something, like land or gold, or be unsecured (fiat money system). I would even press further to say that gold and silver end up act as currency when they also able to be accepted as delay of payment. In short, I see money as nothing more than a bunch of IOUs that society uses so it can get a portion of a cow, in exchange for something else at a later date. Or they give up a portion of a cow now, so they can get something else later.
Is anyone trying to model the economic activity that occurs underneath the use of currency?
@Rich
The Austrian writers emphasize the money is a good. Money is the most marketable good. People acquire it in order to exchange it later for another less marketable good. If you own money, then you own a good, not an IOU. Money provides purchasing power, while you hold it.
An IOU is a claim for a specific good to be returned to you at some time in the future by a particular person or organization. The term “wildcard IOU” is good as a metaphor for explaining what money does, but you can’t take metaphors too seriously: a metaphor is not reality, it is only a way of explaining something.
I’m not sure what you mean by “economic activity that occurs underneath the use of currency”.
What I meant by “economic activity that occurs underneath the use of currency”, is everything that happens outside of the use of currency. It is about looking into how items are used, and produced, and what is consumed in the process. it is the actually demand for resources and services that is demanded in the market. Replace “underneath” with “outside of” and I believe there is something there.
I believe more needs to be look at in this area. Apparently politicians, economists and so on generally believe all problems are due to issues with money. So, you just tweak tax rates and other factors relating to money, and everything would be ok. Well, the case of hyperinflation in third-world nations shows that this is NOT the case. There are other things besides money that are at issue, like a lack of education, and infrastructure, and private property rights that need to be resolved. I would say try to model these, and the flow of goods and services, and see what you find… and do it without the introduction of money into the equation.
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