Publisher Wiley Business Finance has released a new book, Gold: The Once and Future Money by Nathan Lewis. Jim Puplava interviews the author on a wide-ranging podcast. Author Lewis displays a tremendous ability to translate economic concepts into very accessible terms. Their discussion covers inflation, deflation, Say’s Law, the history of sound money, the effects of taxation on production, the division of labor, floating currencies, and a response to some of the fallacious critiques of gold as money.
Source link: http://blog.mises.org/7325/gold-the-once-and-future-money/
Gold: The Once and Future Money
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Libertarians should not be advocating a gold standard, or any other standard. If my bank wants to issue paper dollars that are convertible into 1 ounce of silver, and I want to accept them, that’s between me and the bank. If the bank wants to sell off most of its silver in exchange for an equal value of interest bearing bonds, and if I agree to it (probably because I’ll get part of that interest), that’s also between me and the bank. Libertarians should be advocating the real bills doctrine, not this gold bug nonsense.
> Libertarians should be advocating the real bills doctrine, not this gold bug nonsense.
By your own definition, it’s just fine for “Libertarians” to be advocating this gold bug nonsense, since it’s between themselves and the bank.
Gold is just a convenient metric by which to argue for a separation of Economy and State.
I’ll agree with Curt.
Advocating a Gold standard is more important in the purview of a government entity.
If the government weren’t in charge of the money people should theoretically gravitate to a gold standard if shown the alternatives.
I think a gold standard is paramount in controlling central government. Fiat money allows a state to spend as it wishes with out regard to the peoples purse. The theory that gold is barbarian is wishful thinking. Fiat money has allowed out nation to move from a people that had sacrificed and shouldered their own weight to a people that have waged war across every continent and sought to liberate people into our own image instead of allowing people the responsibility of being the makers of their own destiny.
Further since most of the constitutional amendments that we have added were originally proposed by our nations founders we should think seriously again on the notion that they were antiquated and backwards old men.
Our nation was conceived in the frontier wilderness while our birth nations fought the 7 years war which was paid for in fiat money. They knew that to put a standard (gold or other wise) on our money would be a secondary check against ‘do-goodery’ and military campaign.
“Libertarians should be advocating the real bills doctrine, not this gold bug nonsense”
Hey genius, in case you haven’t observed the real world, we are actually functioning under defacto RBD today…and have been so since the early 1980s…that’s why we are having a financial crisis and have been in a secular bear market since 2000-1.
Oh yes every libertarian should celebrate the RBD, only because they probably made good money shorting tech stocks in 2000, going long commodities since 2001, and are currently shorting mortgage backed trash.
RBD was John Law’s baby…there really is nothing more to say. How can anyone still peddle this nonsense?
Don’t feed the trolls
I think “the” libertarian position would be to deprive government of its claimed monopoly to issue money AND on its propensity to violate contracts denominated in gold (including those to which it is party). Then, getting government out of the money-production business would be nice (economical), but not necessary – it would be driven out by the competition, and SO easily!
Gold has a pretty good record, and I would expect the above development to lead to adoption (NOT by any government) of an international gold standard, but let those cards fall as they may, from the standpoint of principle.
Mike Sproul is not a troll, Peter.
And, I think Mike’s point is that libertarians should not be advocating using the law to coerce everyone into using the gold standard. However, he mucks his point up a bit by seemingly implying that they should be advocating using the law to coerce RBD.
The proper position for a libertarian is to advocate the freeing of the provision of money so that people can freely contract on whatever basis they decide to do so- be this based on gold, paper, or little imaginary pebbles.
I am with Yancey and Mike. Allowing people to contract in whatever currency they desire would limit the government’s ability to tax and collect.
Curt and Anthony:
Libertarians are free to advocate jumping off cliffs if they want to, as long as they don’t drag me along. When Blumen argues for a return to gold money, he should leave room for those of us who want to use some other money–even federal reserve notes.
N. Joseph Potts:
Yes on all points. For example, the government should not prohibit private banks from issuing paper dollars. Once wells fargo can issue paper dollars, we might not feel any need to hold federal reserve dollars, and the fed can quietly become irrelevant.
Antal Fekete is the the best known advocate of RBD.Yet he is also a gold bug.Read some of his stuff at 321gold.com. I don’t agree with everything he says.(Robert Blumen has done an excellent job refuting his more far-fetched theories.)The RBD does have some merit.Real bills do facilitate clearing.However Real bills do not fund expansion of capital, nor does any other form of money.
I don’t think we should restrict money to gold only backing. However, one of the first questions we should ask when thinking of eliminating the federal reserve is “with what do we want the government using when it pays back its debts?”, and for this I would prefer gold. For citizens I think anything is acceptable as long as it is acceptable to both parties.
However, I want the government not to repay any of its debt.
Any market determined monetary system would, by definition, have no legal tender laws. Arguably, legal tender laws are the major reason why money has devolved into fiat money.
Also, the issuing of fiduciary media by a bank leaves the bank subject to runs and insolvency, or the market’s discounting of the fiduciary media relative to face value. A major reason for the creation of the Federal Reserve was the issue of bank runs, and one important function of the Fed is to require all member banks to inflate at approximately the same rate so as to drastically reduce the runs that individual banks inflating at different rates would experience.
Mike Sproul is not a troll, Peter.
You don’t think so? He only ever shows up to bash everyone for not supporting the RBD, and/or how there’s no such thing as fiat money; he’s been doing so for years, never adds anything new, and has heard all the arguments against his views. Smells exceedingly trollish, to me.
I feel that I should chime in here since the discussion has gone a bit far afield from my original post. First, by posting an article about gold as money I don’t intend to advocate a government-run gold standard. In point of fact, my blog post was not advocating anything in particular, other than that people listen to the podcast and read the book. It was posted more in the spirit of alerting the community that reads this blog to a resource that might be of interest. In any case, whether one is in favor of a government-run gold standard or a decentralized monetary system, with or without real bills, with or without 100% reserves, many of the monetary-theoretic and practical issues that need to be solved are similar. I am of the opinion that the issues that Mr. Lewis discusses in the podcast, many of which concern not the future of money, but the past, are vital issues in understanding how any future monetary system should work. In summary, I hope that my blog post has inspired some people to go listen to the podcast and perhaps buy and read the book.
Peter: You’ve just described TokyoTom on global warming, and me on IP. Just because someone posts almost exclusively on one issue and argues the same thing, does not make them a troll.
Mike_Sproul is at least right that people may not want their money to have gold’s volatility and may instead prefer that their money’s value fluctuate with a much broader set of assets so as to minimize this volatility. So it’s far from obvious that the market will choose gold-backed money.
P.S.: Since I’m no longer a mysterious character, does anyone mind if I quit putting underscores in names?
P.S.S.: What’s with “the once and future money”? Is that supposed to be like “the once and future king”?
Gold will cease being volatile when it is remonetized.
Yancey:
I hope I didn’t give the impression that I favor using the law to coerce the RBD. I wouldn’t advocate laws coercing belief that the world is round, and I wouldn’t advocate laws forcing the use of the RBD. I would say that if libertarians want to advocate good policies, then they should advocate free trade in all its forms, including allowing (not forcing) banks to operate on RBD principles. No rational banker would ever fail to use the RBD, since no rational banker would ever issue a dollar without getting a dollar’s worth of stuff in return. But rational bankers would like to issue dollars without being forced to maintain government-mandated reserves, and they would like to be able to issue paper dollars without being thrown in jail.
Mikey:
The difference between my version of the RBD and anyone else’s is that I advocate what might be called the “Backing version” of the RBD, which says that as long as a bank gets a dollar’s worth of assets for every dollar it issues, then each dollar will be adequately backed, and therefore dollars will not lose value as more of them are issued.
The traditional view of the RBD, which I think includes Fekete’s view, is that banks should only issue money to those who have “productive” uses for that money. It’s OK to issue new money to a carpenter, but not to a gambler on his way to a casino. The supposed result would be that new money will only be issued when new goods are produced, so the supply of money moves in step with real output of goods. I believe this view of the RBD is incorrect, and it has been rightly rejected by everyone from Henry Thornton to Lloyd Mints.
MSproul> Libertarians should not be advocating a gold standard, or any other standard.
Exactly, and this has been told to you many times. But that is contigent upon the possibility that “no standard” can actually be practiced. It can’t because of government interference in the market for money. The general call for putting the government bank on some standard is to handcuff the government. There is no other reason. The best thing is to have no government bank declaring X to be fiat money. Short of that, the next best thing is to handcuff the central bank. The matter is a comparative one, not an absolute one. The more chains that can be strung around Frankenstein, the better.
Robert, I listened to the podcast and found it interesting. Most of the ideas are ones I have heard before. He did mention one thing I have never heard before and wonder if you know or have any further insight into. That is the idea that the founding fathers may have been influenced by the American Indians to create a taxless society. I wonder if this is only speculative theory or if there is more substantive documentation that would indicate that this is correct.
Mike Sproul,
I understood what you meant since I have read your comments before and know your stances on such matters, but it could be read as an advocation for law-based RBD.
Peter: You’ve just described TokyoTom on global warming, and me on IP.
Yes.
Well, TT doesn’t strike me as so much of a troll.
Just because someone posts almost exclusively on one issue and argues the same thing, does not make them a troll.
They say the definition of insanity is doing the same thing over and over again and expecting different results.
P.S.: Since I’m no longer a mysterious character, does anyone mind if I quit putting underscores in names?
Mind? I wish you’d stop it. Do you actually have some sort of “reason” for doing it? Is it a requirement of being a “mysterious character” that nobody told me about, or something?
Peter: “Well, TT doesn’t strike me as so much of a troll.”
Yeah, I know your name-calling is arbitrary.
“They say the definition of insanity is doing the same thing over and over again and expecting different results.”
Haha! How clever!
Too bad you were calling people *trolls*, not *insane*.
“Mind? I wish you’d stop it. Do you actually have some sort of “reason” for doing it? Is it a requirement of being a ‘mysterious character’ that nobody told me about,”
Yes.
“The difference between my version of the RBD and anyone else’s is that I advocate what might be called the “Backing version” of the RBD, which says that as long as a bank gets a dollar’s worth of assets for every dollar it issues, then each dollar will be adequately backed, and therefore dollars will not lose value as more of them are issued.”
And this is different from today’s fed repos on mortgage-backed and other various bank loan collateral how…?
My goodness, how can anyone be so blind as to not see the presence and failure of the very thing they think is some revolutionary reform?
‘as long as a bank gets a dollar’s worth of assets for every dollar it issues’
An asset cannot be worth a dollar if the fed creates it out of thin air.
A dollar cannot be worth a load of bread and nothing at the same time…sorry this is patently absurd.
But in your case, Person, “insane troll” doesn’t seem too far out of line
Robert Blumen thank you for referring to Nate’s book. Too many people today have no idea what a gold standard actually is. Many equate it with late-night-infomercials.
Mike Sproul’s opening salvo is a good example of how ignorant we are today concerning the gold standard. A gold standard is not something that is imposed on us by government. I would suggest to Mike that he read the book before commenting on it.
Nate’s book gives an outstanding education on what a gold standard actually is and if you grasp the concept you will understand why government hates the gold standard. The book is very readable but it is also a strongly academic exposition of the gold standard. He give us much detail on such things as the gold standard and the Great Depression of the 1930s and the gold standard and the Great Inflation of the 1970s. If you think you know what a gold standard is I suggest you read the book because you will be surprised by how much you don’t know.
For full disclosure Nate is a friend and we have discussed these issues at length over time, but even at that Nate revealed things that I never knew.
I would like to hear from others who have read the book.
Perhap this bloke helps clear up the issue of money:
http://www.youtube.com/watch?v=1w0LOtWmy_o
maybe?
There’s a review by a Nick Adama here.
a classic Real Bills misunderstanding of money.
Banks can’t take an IOU and print a receipt which reads: “pay bearer on demand 100 dollars.” It would be fraud! Dollar (thaler) is just a name for a unit weight of silver which is one of two monies that have displaced all other moneys on the marketplace. Money is equal to a bond maturing today. All the bank can do is issue a receipt reading: “pay bearer on demand one US Treasury bond maturing 6/30/2037 5%”
If this receipt is acceptable as money on the marketplace it will be accepted by someone looking to lend 100 idle thalers to the US government.
Greg:
“The general call for putting the government bank on some standard is to handcuff the government. There is no other reason. The best thing is to have no government bank declaring X to be fiat money. Short of that, the next best thing is to handcuff the central bank. The matter is a comparative one, not an absolute one. The more chains that can be strung around Frankenstein, the better.”
I’d start by saying that there is no such thing as fiat money, and if you want, you can google my paper of the same title, but right off the bat this gets us talking at cross purposes. Suffice it to say that I think a positive step in the right direction would be to lift the prohibition on private banks issuing paper money. Not just paper dollars. They could issue paper pesos if they wanted. If that private paper money is better in some sense than fed paper dollars, then people will use them, and the fed will quietly become irrelevant.
Barring that, the Fed is currently in control of our money, and chaining Frankenstein runs the risk of depriving us of fed dollars without giving us some substitute to use instead.
Nathan Meyer
“Banks can’t take an IOU and print a receipt which reads: “pay bearer on demand 100 dollars.” It would be fraud!”
It’s not fraud if the bank and the customer agree to it. I might deposit 100 oz with my bank and get 100 IOU’s in exchange, each of which says “redeemable for 1 ounce during business hours, unless the bank goes broke, in which case bearer agrees to get in line at bankruptcy court” If I accept those IOU’s because I think the chance of bankruptcy is low, and because the bank pays me interest as a reward for my risk-taking, then it can’t be called fraud.
Mike:[1]
You forgot to add that
-another condition of failure to pay would be illiquidity of the bank’s portfolio, meaning it may be unable to pay even if it has assets equal in value to obligations
-the whole point of a bank using the RBD is that it doesn’t have to redeem in gold on demand
[1]See, no underscored full screen name!
“It’s not fraud if the bank and the customer agree to it.”
No, it’s only fraud once the customer spends the fraudulent dollar, as above.
Nathan:
Spending a dollar isn’t fraudulent either, as long as the recipient agrees to it.
It is if you call it a dollar (ie a standard unit weight of silver).
you have to call it: “Bank of America receipt: ‘US Treasury bond maturing 6/30/2037 5%’”
http://video.google.com/videoplay?docid=-9050474362583451279&q=paul+grignon&total=9&start=0&num=10&so=0&type=search&plindex=0
I also found the above to be quite good.
Good video, that.
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