Financing the Empire
The adoption of the Federal Reserve central bank, the breaking of the last linkages with gold, and the further dollarization of the world banking system has only enhanced the economic arm of US imperialism. Nowadays, the US Treasury can issue bonds in astronomical amounts only to be absorbed seemingly harmlessly by the Fed and central banks around the world. For its part, the Fed pays for the bonds with a simple electronic bookkeeping entry in its accounts and no one is the wiser. FULL ARTICLE
Comments (128)
Cyd Malone
Outstanding column. If nothing else, the fact that the gold standard (not the gold "exchange" standard which held sway during the 1920s and early 1930s) tends to keep the politicians' swords sheathed is more than enough reason to re-introduce it.
However, Mr. Thornton's urge that "the people" must understand what the destruction of the gold standard means for them is off the mark. "The people" don't give a hoot for economics and never did. They only cared for the gold standard because at that time they happened to be living in a gold standard world and were afraid of change. It is the intellectuals - who set the tone that the masses follow - who must understand what the gold standard means for all of us. That is the road to victory.
Published: November 9, 2006 8:54 AM
RogerM
Someone enlighten me, please! What monetary standard existed when the English and French conquered territory in the 18th and 19th centuries and established their empires, which were real, land-grabbing empires unlike our paper empire?
Besides, you guys are giving imperialism a bad name. India would likely resemble Africa today if it weren't for the British Empire. And the French did a lot for North Africa, too. Imperialism had its good and bad points, but I think the benefits to the conquered people outweighed the bad.
Published: November 9, 2006 9:14 AM
M E Hoffer
"but I think the benefits to the conquered people outweighed the bad."
Less expensive than Ambien, I suppose.
Published: November 9, 2006 9:31 AM
Jonathan
Within a generation or two the odds are high that technology will allow the synthetic creation of elements, including gold. This is not wishful thinking but fairly predictable outcome if one looks at the pace of change in nano-technology etc.
In such a world I am not sure what one would link money to. Nothing would be without limit?!
Anyone got any ideas for a plan B?!
Published: November 9, 2006 9:40 AM
Dr. Mark Thornton
People might not give a hoot about economics theory in general, but they do give a hoot about their own economics (i.e. their wealth and income). Austrian economics is the road to victory!
Published: November 9, 2006 9:43 AM
Dr. Mark Thornton
I think the literture has confirmed that India would be far better off today if GB had not taken over control of India.
Published: November 9, 2006 9:46 AM
Dr. Mark Thornton
The market always has a Plan B, Plan C, etc.
Nano technology does not eliminate scarcity, it just introduces new technology. Perhaps a particular element would be the best basic material for nanoconversion and hence attain the characteristics that would make it the market's choice for a new money.
Gold-pressed latinum anyone?
Published: November 9, 2006 9:52 AM
RogerM
Mark:"I think the literture has confirmed that India would be far better off today if GB had not taken over control of India."
Interesting. I've seen literature that said the opposite, some even from Indian's. What literature would you suggest?
Published: November 9, 2006 9:53 AM
N. Joseph Potts
I recently participated in a discussion among gold bugs, as they're called, and their opponents, and it so appeared that I favored the gold standard that one participant said that I did.
I denied it. I said that I favored the expulsion of government from the creation of money (a phrase that whistled right over the heads of most of the participants). I also admitted that it LOOKED to me as though a resurrection of some sort of gold standard seemed most likely at least at first in the aftermath of the granting of my wish, but that I truly didn't care, as long as each of us was free to adopt whatever money we could get others to exchange with us in trade.
And Jonathan, there's the answer to your problem (synthetic gold): as (initially very expensive-to-produce and very-rare) synthetic gold began coming into the market, people (or the system, if you prefer to emphasize the network qualities of money) would exercise their right to use whatever suited them for money. If gold for any reason no longer suited, they (we) would switch to something else.
It doesn't matter what - if technology is advanced enough to produce gold, it surely will be advanced enough to invent something that will serve as well (or better) as it did for money.
Published: November 9, 2006 9:55 AM
Mark Brabson
I now interupt this discussion, for a brief message of common sense.
Nano technology, or any other technology will never create gold or any other element. Only a nuclear fusion process can create gold. Anybody who says that gold can be created apart from nuclear fusion is feeding you the biggest pile of bullsh*t in history. Alchemy died out in the middle ages.
I now return you to your regularly scheduled discussion, already in progress.
Published: November 9, 2006 10:08 AM
Eric
To the question about England and France, I believe England, at least, finanaced it's empire using the Bank of England, the first of the central banks.
Don is quite right. If a huge gold find in Canada were to occur, this would probably have the same effect as when the Spanish "removed" the gold from the New World. The result was that Spain became wealthy at the expense of the rest of the Old World similar to how the FED's closest friends get rich at the expense of others - that is by inflation. (Funny how that fact is seldom mentioned in the history books.) Still, even then, there was a cost to Spain to transfer the gold from the Americas back home, which, as in a gold mine, limits the effect. And today, it is unlikely that any gold is simply lying around under the surface waiting to be picked up.
But what else is there? Surely fiat money and central banks consrained by laws doesn't work. Any inflation calculator shows that. Compare 1800-1913 (birth of the FED), to 1913-today.
Published: November 9, 2006 11:13 AM
Jonathan
Mark you say 'Nano technology, or any other technology will never create gold or any other element. Only a nuclear fusion process can create gold. Anybody who says that gold can be created apart from nuclear fusion is feeding you the biggest pile of bullsh*t in history. Alchemy died out in the middle ages.'
I believe nuclear fusion is technology and if at some point it will be able to create gold (a collection of atoms no?) then we have alchemy. You contradict yourself. Why do people continue to doubt technology's ability to advance in the face of overwhelming evidence daily to alter the material world?
Published: November 9, 2006 11:22 AM
Mike Sproul
"the government is allowing itself to break the law against counterfeiting"
The Fed is not a counterfeiter. Does a counterfeiter put his name on his bills? Does a counterfeiter recognize those bills as his liability and publish his balance sheet? Does a counterfeiter stand ready to use his assets (bonds, etc.) to buy back the money he has issued?
Check out:
www.geocities.com/sproulmike/nofiatmoney.doc
Published: November 9, 2006 11:32 AM
Mark Brabson
Jonathan:
It wasn't a contradiction, but rather a poor choice of words on my part. Of course, applied nuclear fusion is a "technology". I am referring to the reference to nano technology. To imply that you could make a nanobot that could pluck neutrons and protons from an atom of a heavier element to make gold, or add neutrons and protons to a lighter element, is absolutely absurd and preposterous.
Yes, a controlled fusion process could be used. It would be sort of like setting fire to your house on a cold winter night to keep warm. To use fusion for anything other than as an energy source would be completely unpracticle. Even in a star the production of heavy elements is extremely low. So lets forget the gold from straw idea. Ain't gonna happen.
Published: November 9, 2006 11:52 AM
David
Jonathan said:
Within a generation or two the odds are high that technology will allow the synthetic creation of elements, including gold. This is not wishful thinking but fairly predictable outcome if one looks at the pace of change in nano-technology etc.
In such a world I am not sure what one would link money to. Nothing would be without limit?!
Anyone got any ideas for a plan B?!
No plan necessary. Gold emerged in the past as a convenient medium of exchange because it had th eappropriate characteristics for portability, divisibility, durability, scarcity et al. But theres no reason in principle why something else shouldn't be used, the only important element being that it should be limited in supply, or rather that it should at least entail some meaningful level of cost of production to bring more into circulation.
Leave it to the market and the free interactions among people for appropriate alternatives to emerge. Indeed, why should it only be one thing? multiple moneys can co-exist and their respective shifting supplies and demands would merely reflect in changes in their exchange rates. whats wrong with that, other than the element of choice?
But lets face it, if the superabundance you posit from nanotechnology comes to pass, and anything could be made, why would there be any point in money at all? I can't see this happening ever, because even then, exercising the nanotech must involve some cost in terms of effort or energy.
?
Published: November 9, 2006 12:01 PM
Mark Brabson
To ponder further on the matter of gold.
In the normal course of the life of a star, nuclear fussion proceeds first to the fusion of helium from hydrogen, then to heavier elements such as carbon and then eventually to iron, once iron has been reached, standard fusion can no longer continue and the star collapses. If the star was large enough a supernova is created. It is in this catyclimic event that the heavy elements, gold among them, are created. There was of course also gold and other heavy elements created at the origin of the universe. Most of the gold present on earth today was created in a past supernova.
In a controlled nuclear fusion process, over a long term, you are probably going to produce less than one bar of usable gold bullion in a decade and that is probably a vast overstatement. Remember, you are going to get all sorts of elements produced in this process. So you have to extract the gold from that. Then you have to separate radioactive isotopes of gold from the regular isotopes. By the time you actually produce a few flecks of usable gold you will have gone to incredible cost and expense.
Bottom line is that the value of gold is not in danger from created gold.
Published: November 9, 2006 12:23 PM
RogerM
Eric:"To the question about England and France, I believe England, at least, finanaced it's empire using the Bank of England, the first of the central banks."
Right! They were on the gold standard, but the government could borrow money from citizens to finance its empire building. Venice did the same thing. A gold standard doesn't stop empire building. Only the citizens can stop it by refusing to buy gov bonds. But that isn't a certain block to government because most of the English bonds sold to finance war in the 17th century were purchased by wealthy Dutch investors. If governments want to pursue empire building, they'll find a way and a gold standard won't stop them.
"If a huge gold find in Canada were to occur, this would probably have the same effect as when the Spanish "removed" the gold from the New World."
Not necessarily. The Spanish economy, being highly controlled by the state, had no productivity growth and was stagnant. Therefore, an increase in money did create inflation. A discovery of gold in North America today would have to be huge in order to cause inflation in the US because of our productivity growth and the size of our economy. Under a gold standard with 100% reserve banking, our economy might grow at 6% annually instead of the current average of around 3%. 6% of our $15 trillion economy is $900 billion. That's how much gold we would have to find each year in order to prevent price declines. The annual discovery of gold would have to exceed $900 billion worth in order to create inflation.
Finally, why did Spain, with all of its gold and silver that it stole from the Americas grow poorer during the 17th century while the Dutch grew richer? The Dutch ended up will most of Spain's gold. That paradox gave birth to economics as a specialized field.
Published: November 9, 2006 12:38 PM
M E Hoffer
Jonathan,
"Anyone got any ideas for a plan B?!"
If you "step" back far enough, you will, eventually, see the Earth as a unitary form.
Pick a # for the "money supply", total quantity thereof, fix it & forget it.
Published: November 9, 2006 12:50 PM
David White
Since the subject of technology and scarcity has come up, let me jump in with both feet, throwing money into the mix:
Both fiat currencies and technology are growing hyperbolically, the former causing inflation, the latter causing deflation. And as each is somewhere in the "knee" of their respective -- i.e., opposing -- hyperbolic curves, each is approaching (or just past) the point of intersection, beyond which they will race away from each other "to infinity."
Now, while it is obvious that fiat currencies can (and indeed inevitably must) reach infinity (in this case, zero, as in complete worthlessness), two questions remain: (1) can money itself reach infinity -- i.e., become worthless because it is simply no longer needed, and (2) can technology reach infinity -- i.e., achieve maximum value because no more value can be added?
My answers are yes and no, respectively:
1) Because "GNR" -- genetics, nanotech, robotics -- has the potential to overcome scarcity ("the economic problem"), it has the potential to preclude the need for economic exchange and thus of media of exchange, i.e., money (including gold).
2) As humanity's desires are infinite, so must the technologies be to supply them, there being no limit (so far as we know, at least) to what a (superintelligent) human might desire (e.g., one who has transcended his biology and is now, say, exploring the solar system).
Sounds absurd, I know (as it once did to me), but having read numerous books and articles on the so-called technological "Singularity" and watched all THREE HOURS of discussion on the sujbect this past Sunday on C-SPAN2 -- http://www.kurzweilai.net/news/frame.html?main=/news/news_single.html?id%3D6075">http://www.kurzweilai.net/news/frame.html?main=/news/news_single.html?id%3D6075">http://www.kurzweilai.net/news/frame.html?main=/news/news_single.html?id%3D6075 -- I for one look forward to the day when humanity solves the economic problem, not least because in so doing it will at long last vanquish its foremost adversary. For with no need for thievery (what's the use in stealing free goods?), there will be no need for thieves and thus no need for the foremost of among them: the state.
Published: November 9, 2006 1:31 PM
Reactionary
Yes, Dr. Thornton, and just wait until the US tax and economic base gets beefed up with another 20 million Third World workers and their brand new US citizen offspring. Mass immigration provides us with the best of all worlds for an imperialist: a multicultural empire that doesn't have to be maintained abroad.
Published: November 9, 2006 1:32 PM
M E Hoffer
DW,
Before you get even further jacked-up on the wondrous potential that lies ahead, you may want to understand the wondrous potential that has been successfully bottled-up by the "State" that you think will evaporate in face of cornucopia provided by "GNR".
Nasty memes, like "suppression", and "censorship", aren't oft discussed over cocktails, true, but, sadly, it doesn't make them any less a part of the Reality we are dealing with.
As well, remember "money", itself, is not wealth, at least Today, merely a vehicle of conveyance, a "service" to bridge the dilemma of "Double coincidence of wants". Now matter the harvest afforded from "GNR", it is unlikely that one will have everything, everywhere, at anytime. The "need" for "money" no matter its intertemporal extent, will still be with us.
Published: November 9, 2006 1:47 PM
George Thomas Kysor
Michael F. Sproul:
Given that the Fed issues dollars in return for interest paying bonds, then where do the dollars come from to pay the interest on those bonds?
Published: November 9, 2006 1:52 PM
David White
M E Hoffer:
ME Hoffer
I assure you that I am all too aware of the "wondrous potential" of the state to suppress technology and in fact posted this elsewhere this morning:
"While the state will do (is doing) everything in its power to continue the fiat hyperbola, it is schizophrenic when it comes to the technology hyperbola. Why? Because of the ongoing battle between the fundamentalists and the secularists to control the state, the former wanting to suppress "God-like" technology, the latter wanting to control it for its own purposes. Think stem cell research, though what the fundamentalists might think of, say, the robotization of the solder, which DARPA is deeply involved in (http://www.globalresearch.ca/index.php?context=viewArticle&code=JEN20041010&articleId=582), is unclear. (Or is it, as the fundamentalists don't seem to have any qualms about "dropping the Big One" on their religious counterparts elsewhere.)"
Which is to say that the only thing standing between humanity and the Singularity is the state, as it is by its very nature an antisocial, thus anti-progress, thus anti-human institution.
Published: November 9, 2006 3:13 PM
Mike Sroul
G. Kysor:
"Given that the Fed issues dollars in return for interest paying bonds, then where do the dollars come from to pay the interest on those bonds?"
It's not necessary for the interest to be paid in dollars. If dollars are in short supply, interest can be paid with gold, wheat, land, etc.
Bonds and interest are not the problem. The fed could just as well issue dollars by buying desks, stocks, land, etc. If the Fed then sold off any of those things, the dollars it gets in exchange could be retired.
As I said: the Fed stands ready to buy back the dollars it has issued. No counterfeiter does that.
Published: November 9, 2006 3:21 PM
banker
For the millionth time, dollars ARE NOT liabilities for anyone! The dollar is the currency in which entities measure their assets, liabilities and equity. The Federal Reserves balance sheet is a total farce and utterly useless.
Balance Sheet: keyword is BALANCE
If the Fed can print as many dollars as they want that is a one sided transaction. You CANNOT have bonds (asset side) denominated (interest and principle paid) in dollars AND have dollars on the liability side. It does not work. If the bonds were denominated in another currency such as yen or gold oz then you could use dollars as a liability. In this case the dollar becomes more or less a receipt for yen, gold, or other currency.
Basic Accounting: DOUBLE entry accounting
The emphasis is on the DOUBLE in DOUBLE entry accounting.
Please tell me how printing money fits into that?
Published: November 9, 2006 4:06 PM
Mike Sproul
Banker:
"dollars ARE NOT liabilities for anyone!"
Then how do you explain the fact that the Fed can and does use its bonds to buy back the dollars it has issued? If the Fed wanted to, it could use its assets to buy back every FR note it ever issued. Do you deny that there is this much of a difference between the Fed and a counterfeiter?
Published: November 9, 2006 4:29 PM
Paul Marks
The mixing up of commodity money and imperialism is unfortunate.
The Roman Republic (and many powers before it) managed to take over vast areas without credit-money expansion or even debasement (that came with later rulers).
The British Empire was largely created by private people (such as Clive of the East India Company in India in the 18th century, and Lugard in East and West Africa in the 19th century).
The story of the British Empire (like so many other empires) is a mixture of good and bad (with such men as Raffles and and Lugard being the good side).
As for the "American Empire" - actually although it may be quite wrong headed to try and spread democracy by various wars it is not an empire.
If the democratic government of any nation asked the evil Bush-Hitler (as the left like to call him) to pull out American forces he would do so.
Bush may be misguided (wildly misguided) but he is not actually evil, nor is he an imperialist.
To cite Rothbard on these matters is normally a mistake. For example, he wrote against American intervention in World War II (without which Nazi Germany would have won - as American aid, even leaving aside American fighting men, supported those opposing the real Adolf Hitler).
Then there was of course the absurd "join hands with the left" idea of the Cold War period.
It might well be the case that had the Marxist powers taken over the world they would still have eventually collapsed (due to the Ludwig Von Mises calculation argument), but this would be rather too late for the population of the world.
Generally Rothbard followed the line of interpreting all American actions in the Cold War in the worst possible light.
Karl Hess in the late 1960's had an excuse for this "join hands with the left" stuff (as he admitted, he was using a lot of drugs at the time). But Rothbard had no excuse for just accepting disinformation as the truth.
Turing back to the meat of the article.
Yes it is vital for real commodity money (whether it be gold, silver or any other commodity) that there not be a vast credit-money bubble on top of it (whether supported by the Federal Reserve Board, or the National Banking Act passed during the Civil War - or any other way). Otherwise many of the good economic effects of commodity money are negated.
Published: November 9, 2006 4:45 PM
Paul Marks
However, attacked Rothbard's views on the actions of the United States overseas, I should point out that his "Panic of 1819" remains a classic in showing how government (by negating the basic principles of contract) can help generate a credit-money bubble - and how such bubbles create the boom-bust cycle.
As Mises and Rothbard said endlessly - if you really want to prevent the bust (recessions, depressions - whatever words you want lose) then prevent the credit-money boom.
Loans must be financed by real savings (i.e. money that people choose not to spend) and in no other way.
The vast numbers of ways that people try to "expand credit" (so that loans are greater than REAL savings) or "reduce interest rates" always have unfortunate consequences.
If someone wants a loan someone else must sacrifice consumption (to the full amount). Any effort to get round this rule is a terrible error.
Published: November 9, 2006 4:56 PM
George T. Kysor
Michael F. Sproul:
"The fed could just as well issue dollars by buying desks, stocks, land, etc."
Say the Fed were to issue one trillion dollars by buying all the farmland in Kansas, Nebraska, Iowa, South Dakota, North Dakota, Missouri, Arkansas, Louisiana, Colorado, New Mexico,
Montana, Wyoming, Oklahoma and probably Texas too. Wouldn't that be great? The Federal Reserve would finally have a source of legitimate income; and the Treasury Dept would finally have a (taxable) source, in the sellers of the farmland, for those dollars that must be paid for interest on its bonds.
Published: November 9, 2006 4:57 PM
Björn Lundahl
100% gold reserve money standard versus 100% silver reserve money standard.
As governments especially after World War II have had such love affairs with the money printing press, I think the adoption of a 100% silver reserve money standard would be much easier than an adoption of a 100% gold reserve money standard.
I know that gold has a special attractiveness for you Americans, but I do think that silver can do the trick as well when it comes to hinder any increases of the money supply.
The adoption of a silver money standard is also just as market oriented and libertarian as the adoption of a gold standard.
As Murray Rothbard puts it in his book For a New Liberty:
“Markets have universally found gold or silver to be the best standards whenever they are available, the natural course of these economies is to be on the gold or silver standard”.
http://mises.org/rothbard/newliberty9.asp
Some information about the huge increases of the money supply since 1959:
http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt
Björn Lundahl
Göteborg, Sweden
Published: November 9, 2006 5:06 PM
banker
"Then how do you explain the fact that the Fed can and does use its bonds to buy back the dollars it has issued? If the Fed wanted to, it could use its assets to buy back every FR note it ever issued. "--
Um, like the supermarket buys dollars and sells apples? Usually, in common English, the word buy means to give up currency in exchange for something. Selling is the opposite. Since bonds are not currency the proper usage is that the Fed SELLS bonds using dollars. The Fed does keep an inventory of bonds, but that does not mean this counts as a balance sheet.
By the way, when the Fed "buys" back dollars it does not destroy those dollars, it also keeps those in inventory. Check the federal reserve website for yourself.
Note 2: If the Fed sold its entire inventory of treasury bonds, naturally by supply and demand, the prices of the bonds would plummet. Considering that the price of a bonds is the present value of the promised cash flows this would imply interest rates sky rocketing. I don't think in the history of mankind has any central bank entity ever destroyed their own currency as this would defeat the purpose of having a central bank in the first place (to inflate).
Published: November 9, 2006 5:59 PM
M E Hoffer
DR,
WTFRUTA?
or, in other words, you offer: "I can only take your wholly incongruous post....", yet explain, not, why it was, or, at least, you thought so.
Maybe in exchange for this:
Don Robertson, The American Philosopher
Limestone, Maine
An Illustrated Philosophy Primer for Young Readers
Precious Life - Empirical Knowledge
The Grand Unifying Theory & The Theory of Time
http://www.geocities.com/donaldwrobertson/index.html
Art Auctions:
http://www.artbyus.com/auctions.php?a=6&b=4807
you'd be so kind to do so.
Published: November 9, 2006 7:25 PM
Mike Sproul
G. Kysor:
"Say the Fed were to issue one trillion dollars by buying all the farmland in Kansas, Nebraska, Iowa, South Dakota, North Dakota, Missouri, Arkansas, Louisiana, Colorado, New Mexico,
Montana, Wyoming, Oklahoma and probably Texas too. Wouldn't that be great?"
In principle, I could do that too. I could just print up IOU's and give them to the farmers for their land. My balance sheet would show $1 trillion in land as an asset, and $1 trillion in IOU's as my liability. Once you realize that there are limits to how many of my own IOU's I can circulate, and how much land I can put to good use, you'll realize the limits of this scheme. Once you realize that the Fed would be doing nothing different than what I did, you'll see that there are limits to the Fed's actions too.
Published: November 9, 2006 8:49 PM
Mike Sproul
Banker:
Repeat: Do you see no difference between the Fed and a counterfeiter? Because I see lots of them.
Published: November 9, 2006 8:51 PM
N. Joseph Potts
The Fed is not allowed to create dollars by itself, nor for the government. What it does is it enables BANKS to create dollars by extending loans of money that it's LIABLE to pay out "on demand" to accountholders.
The Treasury (not the Fed) sells bonds for dollars TO the Fed, which holds dollars deposited by banks (remember the banks?) as reserves. It is the banks' bank, and it ALSO loans money (to the government) that it's LIABLE to pay out "on demand" to banks (its accountholders).
Are you following this? Most people aren't, and no mystery about that.
Now, merging the Fed and the Treasury into "the government" (quite realistic), here's what the government sells for dollars: a promise the repay the dollars in the future, and along the way, to pay interest on said dollars in . . . dollars! Do you see the theme here? The government is purchasing the use of today's dollars with future dollars.
Plenty more where that came from, eh?
Published: November 9, 2006 9:37 PM
Eric
Mike:
The fed is not a counterfeiter, because that is a legal issue. The fed can create all the money they want legally, and with the legal tender laws, they can force their money to be used. If someone sues and wins, they can be awarded only federal reserve money, even if the contract said the payment would have to be in gold.
While it is true that the fed can retire money, the results since 1913 show that they never do this (over a period of time) as the inflation rate clearly shows.
When the economy grows, say 5%, and the fed inflates by 5% resulting in prices staying the same, this is still theft (or taxes if you prefer) since w/o the fed's money inflation, prices should have dropped 5% due to the extra "stuff" created.
Published: November 9, 2006 9:51 PM
Mike Sproul
Eric:
"When the economy grows, say 5%, and the fed inflates by 5% resulting in prices staying the same, this is still theft (or taxes if you prefer) since w/o the fed's money inflation, prices should have dropped 5% due to the extra "stuff" created."
That would be true only if the Fed were in fact no different from a counterfeiter--and I don't mean just legally. If the economy grew by 5% and counterfeiters added 5% to the existing supply of Federal reserve notes, then I think we'd all agree that there would be no price inflation and the counterfeiters would have committed theft. But counterfeiters spend the money without recognizing it as their liability. The Fed prints it and DOES recognize it as its liability. As the Fed adds 5% to the money supply, the Fed's assets also rise 5%, and the Fed also stands ready to sell those assets back in return for the 5% addition to the money supply. Austrians make a huge mistake when they refuse to recognize a REAL difference between these two cases.
Published: November 9, 2006 11:11 PM
M E Hoffer
Don Robertson, The American Philosopher
Limestone, Maine
An Illustrated Philosophy Primer for Young Readers
Precious Life - Empirical Knowledge
The Grand Unifying Theory & The Theory of Time
http://www.geocities.com/donaldwrobertson/index.html
Art Auctions:
http://www.artbyus.com/auctions.php?a=6&b=4807
Posted by Don Robertson at November
DR,
I'm guessing you're not America's Reader, I was replying to: Post by David White at November 9, 2006 1:31 PM
As DW.
And, if I read any better than yourself, he even responded. see: Post by David White at November 9, 2006 3:13 PM
Hope that helps
Published: November 9, 2006 11:22 PM
banker
This has to be the most ridiculous statement ever posted on money:
"But counterfeiters spend the money without recognizing it as their liability. The Fed prints it and DOES recognize it as its liability."--quote
So, because the Fed "recognizes" a dollar as a liability there is no theft?
I am looking at my dollar bill and no where does it mention what I am suppose to receive at some point in the future. Let's see:
-This note is legal tender for all debts, public and private
-federal reserve note
-one dollar
-in god we trust
-washington, dc
No where does it mention that the Federal Reserve owes me ANYTHING. Which means that the Federal Reserve Note, known affectionately as a greenback, is not a liability.
A loan is a liability because it is a contract where the borrower has to pay back a said amount of money. Accounts payable is a liability because it is an agreement between two businesses that when a service has been rendered by one company the other is suppose to pay cash for those services in a timely manner.
Please, tell me, how on God's green Earth could anyone confuse the dollar for a liability? If you own a dollar, what exaclty would that entitle you to, courtesy of the Federal Reserve?
Published: November 9, 2006 11:52 PM
Björn Lundahl
Eric
“The fed is not a counterfeiter, because that is a legal issue. The fed can create all the money they want legally, and with the legal tender laws, they can force their money to be used”.
Hi, if the state gives someone a lawful permission to kill people and that person also uses that “right”, he is still a murder despite the privilege and the “law”. The so called law does not change anything.
The state is much worse than any counterfeiter since it does its counterfeiting all the time to an enormous extent and, also, forces it upon us.
“When the economy grows, say 5%, and the fed inflates by 5% resulting in prices staying the same, this is still theft (or taxes if you prefer) since w/o the fed's money inflation, prices should have dropped 5% due to the extra "stuff" created”.
True.
Björn Lundahl
Göteborg, Sweden
Published: November 10, 2006 1:47 AM
Francisco Torres
D. Robertson wrote:
"Yes, it is a massive heist."
"It sails, does it not?"
The pragmatic fallacy. A classic example. Thanks, Don.
Francisco Torres
The Mexican Philosopher.
Published: November 10, 2006 1:57 AM
Mike Sproul
Banker:
"how on God's green Earth could anyone confuse the dollar for a liability? If you own a dollar, what exaclty would that entitle you to, courtesy of the Federal Reserve?"
Because a paper dollar IS the Fed's liability--both in law and in fact. The Fed issued those dollars in exchange for assets---bonds, gold, buildings, desks, etc. The Fed can also sell those assets and retire the dollars received. The fact that they seldom retire dollars does not mean it does not and cannot happen. It only means that for now, people want dollars more than they want the Fed's bonds. For example, if a new kind of money is invented, and unwanted dollars start piling up in bank vaults, the Fed will very likely start selling bonds to soak up excess dollars, just like it does after the Xmas shopping season. Thus the Fed will give you a bond--or something else of value-- for your dollar. (Before you impetuously reply "A bond payable in dollars!", think it through: The bond existed before the dollars that purchased it.)
Published: November 10, 2006 9:50 AM
Marco Saba
The problem with a gold standard, today, is that you only have 25 grams of gold for each of the 6 billions human beings. Total gold ever digged is 151,000 tons. How the hell can you have a working economic system with just some 500$ worth of gold for each individual? Shall you coin very very thiny coins? Maybe in the micron (nano-tecnology) size ?
Published: November 10, 2006 10:35 AM
Mark Brabson
Marco Sabo:
Scarcity of gold is no problem. As demand for it rises, each unit of gold will rise in value and prices will fall. Also, much of the gold will not be in physical circulation at all, but will be transferred via warehouse receipts or electronic means. There of course will be gold and silver coins in circulation for "change" purposes, but people rarely carry a significant amount of change anyhow. Gold's scarcity enhances its value as a medium of exchange and doesn't impair it in any way.
Published: November 10, 2006 10:59 AM
Axel
Marco,
I have just begun my reading. the problem you describe seems to me to be the reason why the world was on effectively a bimetal standard. Simply, there was not enough gold for it to be minted in small enough quantity to be used for everyday use. Therein, gold held a high subjective(?) value. Silver, on the other hand, is much more plentiful, and can be used for smaller transactions, but is still scarce enough and divisible enough so that it fulfills the same desirable medium of exchange properties as gold and can be used in the same way. Rothbard spells this out fairly positively in his essays on the gold standard, which are for sale, or as free PDFs or article posts, or as audio files.
Published: November 10, 2006 11:18 AM
Eric
Mike, Bjorn:
When I said the fed was not a counterfeiter, I meant only that they are not, technically, breaking the counterfeiting laws. Economically, however, their actions are the same as a counterfeiter. And that is the point I think many of us are trying to say.
A counterfeiter too could say that the items he bought with the fake money are owned by the counterfeiter and he could someday return these items for the fake dollars he printed. But would that really happen? This argument is the same as saying the 6 trillion dollar national debt means nothing, because technically, they might someday pay it off.
But actually, there's a difference, since even if the FED did retire the money in the FUTURE, the FED won't likely be paying any interest on the money it used, by force, during the time it held these assets. The banks that benefit from this also lend out money for interest for which they have no real assets.
Published: November 10, 2006 11:27 AM
Corbett Coburn
I support the gold/silver standard, if for no other reason than the Constitution requires it. But I have absolutely no interest in discussions of pipe-dreams. And unless someone can come up with a rational plan for getting us back onto the gold standard, that's exactly what this is.
I have asked a number of people who write for LewRockwell.com & other websites to explain how we would rid ourselves of the Federal Reserve Notes in circulation & go back to the gold standard. No one has been able to suggest a plan. Unless there is a practical way to get back onto the gold standard, we might as well be discussing how many angels can dance on the head of a pin.
If the author can suggest a concrete, practical plan for returning to the gold standard, then let him present it. Then it would be worthwhile to debate the merits of the plan. But to debate the merits of a gold standard to which we cannot return is a waste of time.
Published: November 10, 2006 11:37 AM
steve
"Besides, you guys are giving imperialism a bad name. India would likely resemble Africa today if it weren't for the British Empire. And the French did a lot for North Africa, too."
Yeah, I guess according to this logic, Americans would be better off if their leader was Tony Blair. And, the Baltics would be better off being governed by the Russians. If a woman allows herself to be raped, it will be bad sometimes, but also good on occasion. Might makes right I guess.
Published: November 10, 2006 12:01 PM
Dr. Mark Thornton
Here is Rothbard on the subject of going back to gold. Basically define the dollar as a weight of gold and liberate the gold holding of the government.
The Case for a Genuine Gold Dollar
by Murray N. Rothbard
available on mises.org
Published: November 10, 2006 12:17 PM
Corey
Corbett:
I don't think the gold standard is as unattainable as you may think. Just look at the available sulutions today: www.pecunix.com
more alternatives: www.gold-pages.net/
Published: November 10, 2006 12:18 PM
Björn Lundahl
Eric
“When I said the fed was not a counterfeiter, I meant only that they are not, technically, breaking the counterfeiting laws. Economically, however, their actions are the same as a counterfeiter. And that is the point I think many of us are trying to say”.
Yes, sorry for misunderstanding you. I think that libertarian ethics and Austrian economics prove that governments all over the world are counterfeiters.
Björn Lundahl
Göteborg, Sweden
Published: November 10, 2006 1:47 PM
Corbett Coburn
Corey & Dr. Thorton:
Thanks for the information about www.pecunix.com
and www.gold-pages.net/. Neither presents a viable option for placing our economy on the gold standard. Nor does defining the dollar as a particular weight in gold & liberating the government's gold holdings.
The problem is that we must do away with the federal reserve, remove all of the federal reserve notes from circulation & give the people holding these notes their equivalent in gold or silver. And we have to do it all without destroying the economy.
Unfortunately, we have no idea how many federal reserve notes exist, so setting the value of an ounce of gold & giving people a set time to redeem their dollars is impossible. Someone (and you can bet it's not going to be some government) is going to be left holding dollars when the gold runs out. What do we do for them?
Doing away with legal tender laws and allowing people to set up their own gold accounts will wreck the economy & screw everyone who is now holding dollars. The price of gold will skyrocket as the value of the dollar plummets. People who have gold now (governments & the like) will make out like bandits. Those who hold dollars now will see their savings destroyed in a matter of days. Nothing but economic chaos & ruin can be expected by following this course.
I'm not saying going back on the gold standard is impossible. All I'm saying is that we need to have a concrete & practical plan that takes all the factors into account. So far, no one's offered such a plan.
One reason I am no longer a libertarian is that libertarians tend to confuse wishful thinking with reality and they are unwilling to put in the thought or the work necessary to bring any of their wishes to fruition. Essentially, they want the political equivalent of the free lunch. Until libertarians grow up & realize that spouting theories doesn't change reality, libertarianism is an exercise in futility.
Published: November 10, 2006 3:13 PM
Björn Lundahl
Taking Money Back
by Murray N. Rothbard
http://mises.org/rothbard/moneyback.asp
As I have pointed out, the adoption of a 100% silver reserve money standard would be much easier than an adoption of a 100% gold reserve money standard.
Björn Lundahl
Published: November 10, 2006 4:13 PM
Björn Lundahl
One of the reasons for me being a libertarian is that libertarianism is reality, because, it is based upon true ethical and economical principles. I do not know of any other ideology which can deliver that. Other ideologies are based upon whims.
Or as Hans-Hermann Hoppe puts it in his book “The Economics and Ethics of Private Property”, page 234 and 235:
“In the present situation of a world-wide crisis of governmental legitimacy, of the collapse of East Bloc Socialism and enduring stagnation of the Western Welfare States, the chance for Austrian rationalism to fill the philosophical vacuum that has appeared with the retreat of positivism and to become the paradigm of the future is as good or better than ever. Now as before it requires moral courage as much as intellectual integrity to propound the Austrian social theory – the opposing statist battalions still represent a formidable majority and are in control of a far larger share of resources. Yet with the total breakdown of socialism and the concept of social ownership staring everyone in the face, the antithetical Austrian theory of private property, free markets and laissez faire cannot but gain attractiveness and win support. Austrians have reason to believe, then, that the time has come when they may succeed in bringing about a fundamental change in public opinion, by reclaiming ethics and economics from the hands of the positivists and the engineering powerful and restoring public recognition of private property rights and free markets based on such rights as ultimate, absolute principles of ethics and economics”.
Björn Lundahl
Göteborg, Sweden
Published: November 10, 2006 6:16 PM
averros
Corbett Coburn --
Until libertarians grow up & realize that spouting theories doesn't change reality, libertarianism is an exercise in futility.
You're demonstrating uncommon maturity by making unsubstantiated claims and ad hominem attacks branding your opponents as juveniles.
If you claim that some theory is false, point out the logical error in it or a demonstrable conflict with empirical observations. If you cannot, you must shut up and accept it to be true, if you have any intellectual honesty.
In fact, if you think that bowing to the "common wisdom" constitutes maturity you're wrong. It is merely feeble-mindedness.
Published: November 10, 2006 6:47 PM
George Thomas Kysor
Michael F. Sproul:
"...there are limits to the Fed's actions..."
Really? What specifically limits the Fed's actions? How can the acceptability of your IOUs possibly relate to the acceptability of the Fed's dollars?
Published: November 10, 2006 10:47 PM
Mike Sproul
G. Kysor:
Just as I can't force people to accept my IOU's, the Fed can't force people to accept its IOU's. This is obvious for people outside the US. Even inside the US, people have a choice of how many FR notes they want to carry.
Published: November 10, 2006 11:26 PM
Eric
Mike:
You are right, for those outside the FED's control. But for we poor fools inside the US, the FED has "legal tender" law to force us to accept their money, and they can create it at will. We can't create our own money, since legal tender law won't allow it. So, we would have to use barter or if we did try to use something else, we'd still have to pay our taxes with Fed notes and anyone who refuses to pay us with, say, gold, would simply go to court and they would make a judgement in terms of federal reserve money.
You also didn't respond to the point that when the FED retires money, they don't pay interest on the time they held assets (which they can use for any purpose) which they had purchased using newly created money.
So, this is like the embezzler who borrows from the company safe, goes to the track over the weekend and wagers the money, and then returns it before anyone notices. Only the FED keeps the borrowed money forever (at least so far). And what happens if the assets the FED buys are lost or destroyed, how would they retire the money then? Sort of like if the embezzler loses his bet at the track.
Published: November 10, 2006 11:46 PM
Björn Lundahl
We can all be rich! Hurray! I am a genius! Hurray!
All people should be allowed to print dollars under the condition that we all commit ourselves to offer them as loans, which would be a very good thing. We would not need to work anymore! As long as the loans we make are backed with property, everything is just fine. We could even make more backing and provide more security through not lending out more “money” than the value of the properties which we already own (our houses, cars etc). If we all also call ourselves “The Federal Reserve”, it will be even better! I wonder if I will receive the “Nobel Prize” for this? I am a Swedish guy and I live in Sweden, so the Nobel Prize committee should really recognize me with such a genial idea. But the Nobel Prize committee is in Stockholm and I live in Göteborg (only the second largest city in Sweden)? I know it! They will discriminate me for being a “Göteborgare” (an inhabitant from Göteborg). That is why I will not receive the “Nobel Prize” for this genial idea. That is the only reason. They might change their minds if I also suggest that all people should be allowed to print kronor (Swedish currency). Naturally, the printing of kronor must be done under the same specifications that I have suggested for being allowed to print dollars. Those specifications are of the greatest importance for making this a very good thing and for not being called counterfeiting and that “printing money out of thin air” have been done.
Björn Lundahl,
Göteborg, Sweden
Published: November 11, 2006 1:54 AM
Mike Sproul
Eric:
"A counterfeiter too could say that the items he bought with the fake money are owned by the counterfeiter and he could someday return these items for the fake dollars he printed. But would that really happen?"
If it did happen, he wouldn't be a counterfeiter.
Published: November 11, 2006 5:54 PM
Mike Sproul
Eric:
Take a look at the way the dollar has invaded Mexico. It will give you an appreciation of just how ineffective legal tender laws are. Or look at the history of the Assignats or continental dollars. People were flogged and executed for refusing them, but they still lost all value.
As to the interest the Fed earns, consider that 19th century note-issuing banks generally claimed they were unprofitable. The cost of printing, periodic redemption, chasing counterfeiters, etc. ate up the profit. They were mainly issued as a form of advertising. It seems likely that the Fed's profit on notes is the same or worse as it was for private banks. Simple economic logic indicates that if note-issue were so profitable, then rival currencies (foreign money, checks, etc.) would compete away those profits.
Published: November 11, 2006 6:01 PM
George Thomas Kysor
Michael F. Sproul:
"...the Fed can't force people to accept its IOU's."
1.) The Fed does not currently issue IOUs for gold or silver. The Fed now issues nothingness denominated in dollars. How can you claim that a note for nothingness is an IOU?
2.) Yes, the Fed can't force people, but, of course, law enforcement agencies can. However, don't people's valuation of the dollar ultimately determine its usefulness?
Published: November 11, 2006 8:55 PM
Björn Lundahl
Some remarks about my above example with the headline “We can all be rich! Hurray! I am a genius! Hurray!”
If we print the money under those specifications that I have suggested, we would still be counterfeiters.
If we returned all the property after a while, we would still have been counterfeiting and we still would be counterfeiters.
If we make new loans, we are counterfeiting again.
Despite the fact that old loans are amortized, the central banks and the commercial banks all over the world makes new larger loans and the money supplies increases all the time to new heights.
If all legal tender laws in all countries were abolished and this so called business were still going on, the central banks and the commercial banks, naturally, would still be counterfeiting.
Legal tender laws should be abolished, but this is not in any way, enough.
The true way to stop central banks counterfeiting is to abolish them and to abolish all fractional reserve banking and to replace this destructive system, with a 100 % gold or silver reserve money.
Björn Lundahl
Gothenburg, Sweden
Image Gothenburg (Göteborg):
http://commons.wikimedia.org/wiki/Image:Gothenburg%2C_Sweden%2C_from_the_%C3%84lsborgs_Bridge.jpg
Published: November 12, 2006 4:26 AM
Björn Lundahl
Some information about legal tender laws.
I quote from the book What Has Government Done to Our Money? :
"The ordinary law of contract does all that is necessary without any law giving special functions to particular forms of currency. We have adopted a gold sovereign as our unit.... If I promise to pay 100 sovereigns, it needs no special currency law of legal tender to say that I am bound to pay 100 sovereigns, and that, if required to pay the 100 sovereigns, I cannot discharge my obligation by paying anything else." Lord Farrer, Studies in Currency 1898 (London: Macmillan and Co, 1898), p. 43. On the legal tender laws, see also Mises, Human Action, (New Haven: Yale University Press, 1949), pp. 32n. 444”.
http://mises.org/money/3s5.asp
Björn Lundahl
Published: November 12, 2006 4:48 AM
brock barnes (Saturdaynightspecial)
"Until libertarians grow up & realize that spouting theories doesn't change reality, libertarianism is an exercise in futility."
And gold theory appears the most futile of all libertarian principles. Opponents of libertarian theory behave as though there were options - but this can only mean more socialism. Socialism is not the option, it's to be avoided, and then the only choice is libertarian principles.
The only option to maintain what freedom we have remaining (and to get back the freedom we lost) is to advocate libertarian principles - this is the only possible resistance to socialism. Socialism makes us less free and leads to more government control; more government, less freedom. Any struggle for freedom is always worth the losses, no matter how long the struggle is and how much the costs.
Socialism is a sick economic theory - libertarianism is the only theory that mitigates or removes the sickness. What keeps me alive and healthier is the sound (and practice) of libertarian theory. Libertarian theory is reality, socialism is fantasy and delusion (psychosis). If you capitulate, then you admit defeat and allow your bodies to self-destruct. What kind of person allows a government (rather than themself) to control them ? Knowing our corrupt, lieing politicians, how can anyone rationalize conceding control (over us) to them ?
Make government our servants, not our masters.
Published: November 12, 2006 7:17 AM
Björn Lundahl
Someone might wonder which property I was referring to that we would return in my above comment when I wrote:
“If we returned all the property after a while, we would still have been counterfeiting and we still would be counterfeiters”.
We could return, for example, U.S. government bonds and other U.S. government securities etc that we have bought (for the printed money we had made). Then we would have behaved in a manner that the Federal Reserve always does.
This must not to be confused with a 100 percent gold (or silver) reserve money standard. Under that standard, it is not possible for the Federal Reserve (or us, under above mentioned specifications) just to print money out of thin air. If the Federal Reserve would be allowed to exist under that standard (for what purpose?), it has to have had acquired the gold first before it could issue gold notes of that certain amount of gold* and before it could make loans through, for example, market operations. Those gold notes would be receipts (gold claims) and the Federal Reserve has to store the gold for safekeeping until the owners of those gold notes claims the gold or until they have repaid the borrowed gold notes. The total money supply has not increased as the gold stored at the Federal Reserve is not an effective part of it and is therefore not counted as money. The total money supply has not either decreased, as mentioned gold notes, which are used as money, have replaced the gold as an effective part of the money supply.
Björn Lundahl
Göteborg, Sweden
• In other words, the Federal Reserve has to be productive through enterprise or work to acquire the gold, which of course, it never has been.
Published: November 12, 2006 8:32 AM
Björn Lundahl
History shows us that money has its origin as a marketable commodity like gold or silver.
I quote from answers.com:
“The modern monetary system has its roots in the gold of medieval Europe. In the Middle Ages, gold and gold coins were the common currency. However, the wealthy found that carrying large quantities of gold around was difficult and made them the target of thieves. To avoid carrying gold coins, people began depositing them for safekeeping with goldsmiths, who often had heavily guarded vaults in which to store their valuable inventories of gold. The goldsmiths charged a fee for their services and issued receipts, or gold notes, in the amount of the deposits. Exchanging these receipts was much simpler and safer than carrying around gold coins. In addition, the depositors could retrieve their gold on demand”.
http://www.answers.com/topic/money
Logic also tells us that money could only arise from a marketable commodity like gold or silver and I quote from Man, Economy and State, by Murray Rothbard:
”One of the important achievements of the regression theory is its establishment of the fact that money must arise in the manner described in chapter 3, i.e., it must develop out of a commodity already in demand for direct use, the commodity then being used as a more and more general medium of exchange. Demand for a good as a medium of exchange must be predicated on a previously existing array of prices in terms of other goods. A medium of exchange can therefore originate only according to our previous description and the foregoing diagram; it can arise only out of a commodity previously used directly in a barter situation, and therefore having had an array of prices in terms of other goods. Money must develop out of a commodity with a previously existing purchasing power, such as gold and silver had. It cannot be created out of thin air by any sudden “social compact” or edict of government”.
http://mises.org/rothbard/mes/chap4b.asp
Björn Lundahl, Göteborg, Sweden
Published: November 12, 2006 10:27 AM
M E Hoffer
Bjorn,
I was wondering how you feel about competitive private currencies in a jurisdiction without Legal Tender laws (?)
Published: November 12, 2006 11:14 AM
Björn Lundahl
M E Hoffer
”I was wondering how you feel about competitive private currencies in a jurisdiction without Legal Tender laws (?)”
Hi, private competitive currencies would be satisfactory as long as they are only receipts for a certain amount of gold, silver or any other marketable commodity (which is specified on the receipts) and the issuer does not print more receipts than the amount of commodities which are deposited.
Björn Lundahl
Published: November 12, 2006 12:16 PM
M E Hoffer
Bjorn,
With this: "or any other marketable commodity", and your preface of "Gold, Silver...", would you limit the definition of "marketable commodity" to tangible goods, i.e. wheat, copper, orange juice?
Or, would you also accept "intangibles"--Corporate securities(shares of stock, various classes of debentures, and the like)--as fitting with your definition?
Hypothetically: Jeff's new currency (denomination), micro-sharesGE, have a face value of (GE:NYSE)/1000. Jeff has TrustCoNYC hold 1000 GE shares and issues 1,000,000 microsharesGE.
I hope that was clear. Would that fit your definition?
Published: November 12, 2006 1:10 PM
tarran
M.E. Hoffer,
I would expect such debentures would not rise to the level of a money in that there would not be much of a demand for them.
The company backing its bank-notes with GE stock is dependent that GE won't go bankrupt and evaporate (something won't happen to gold), and that the value of its holdings won't be diluted by GE issuing new shares (yes, miners dig new gold out of the ground too, but the risk for significant dilution is much higher with shares of stock).
I suppose that in a free market for money, enough people could presumably prefer such a currency to make it a viable medium for exchange, but it would be extremely unlikely.
Published: November 12, 2006 1:24 PM
Björn Lundahl
M.E. Hoffer
Above answer is a good one (tarran)!
You must remember that gold and silver were those commodities that evolved as money in a free market.
Björn Lundahl
Published: November 12, 2006 2:13 PM
Mike Sproul
G. Kysor:
"1.) The Fed does not currently issue IOUs for gold or silver. The Fed now issues nothingness denominated in dollars. How can you claim that a note for nothingness is an IOU?
You are confusing a currency that is phtsically inconvertible with one that is unbacked. The dollar is not physically convertible, but it is financially convertible, meaning that it can be returned to the Fed in exchange for the Fed's assets. If the Fed had no assets, and did not conduct open market operations, you'd have a point. But as it is you are mistakenly confusing the Fed with a counterfeiter.
2.) Yes, the Fed can't force people, but, of course, law enforcement agencies can. However, don't people's valuation of the dollar ultimately determine its usefulness? "
If that were true, then issuers of rival moneys could earn a free lunch by issuing their own money, with no stable solution short of the dollar falling to zero value.
Published: November 12, 2006 2:35 PM
M E Hoffer
tarran,
With this: "...and that the value of its holdings won't be diluted by GE issuing new shares." you outline a potential risk, for sure. Though, on the other side, GE, currently, pays a dividend, and that stream coupled with the proceeds of option writing(calls) could be used to create an interest-bearing version of Jeff's new microshareGE, or could be used to purchase puts--to give microshareGE holders a minimum assured valuation (assuming, of course, DTCC solvency)
Bjorn,
Good point in regard to Au & Ag
Published: November 12, 2006 3:14 PM
Björn Lundahl
M E Hoffer
In a truly free society people can use any currency which they want.
If you believe that you can in a free market, for example, go to the grocery and convince the shopkeeper that your “monies” are reliable and secure “monies” and he accepts them. Well, that is fine.
But you must understand that money is a market phenomenon. Money has evolved because of the fact that a barter system is an inefficient system. That, by itself proves that money is being used just because it is a commodity that is generally demanded and accepted and is therefore suited as a general medium of exchange.
I quote from the book “The Economics and Ethics of Private Property”, by Hans-Hermann Hoppe, page 62:
“Empirically, of course, the commodity that was once chosen as the best-because-most-universal-money is gold. Without government coercion gold would again be selected for the foreseeable future as the commodity best performing the function of money. Self-interest would lead everyone to prefer gold – as a universally used medium of exchange – to any other money. To the extent that every individual perceives himself and his possessions as integrated into an exchange economy, he would prefer accounting in terms of gold rather than in terms of any other money, because gold’s universal acceptance makes such accounting the most complete expression of one’s opportunity costs, and hence serves as the best guide in one’s attempts to maximize wealth. All other monies would be driven out of use quickly, because anything less than a strictly universal and international money such as gold – national or regional monies, that is – would contradict the very purpose of having money in the first place”.
Björn Lundahl
Göteborg, Sweden
Published: November 12, 2006 6:07 PM
M E Hoffer
Bjorn,
This: "That, by itself proves that money is being used just because it is a commodity that is generally demanded and accepted and is therefore suited as a general medium of exchange." Is, no doubt, true.
Also, I think 3(H) lays the proper map of the topography one would encounter in a "wealth-based" monetary system.
The problem, as I see it, is that there lies a grand chasm between where we are now, and that land where 3(H)'s Map becomes useful.
The brief surmise is that: People are fairly comfortable with holding corporate securities. Corporations are, in greater number, bypassing Investment Banks' underwriting departments in favor of direct-to-investor appeals. They, the Corporate CFOs, might as well take the next step: Gene-splice their security offerings with an assortment of derivatives and offer the resultant hybrids as a palette of currency substitutes that could compete against everything from savings accounts to lottery tickets.
The value of people's currency holdings, no matter if the nominal number stays static, oscillates everyday. They are already taking risks, they might as well start getting paid for them.
Published: November 12, 2006 7:24 PM
George Thomas Kysor
Michael F. Sproul:
1.) What are the Fed's assets?
2.) How can the dollar be returned to the Fed in exchange for the Fed's assets, i.e., what is the procedure one must follow when exchanging dollars for part of the Fed's assets?
3.) Don't people's valuation of the dollar as well as of goods and services establish prices?
4.) If so, doesn't it follow that when people's valuation of the dollar lessens then prices increase if the other factors remain unchanged?
5.) Isn't it also true that as people's valuation of the dollar continually decreases there will eventually come a point where people's acceptance of the dollar will decline?
Published: November 12, 2006 8:21 PM
Jim
Mike Sproul,
The problem is that the bulk of Fed's "assets" are government bonds. Counting that as if it were real reserve assets has two problem:
(1) In contentional banking, an IOU from a client is not a bank's reserve asset. Deposits are reserve assets, but IOU's are money already lent out.
(2) What is government bond? It's a stack of Fed notes at a maturity date. So even if the Fed actually undertook to exchange bond for Fed notes printed earlier, it's just a matter of exchanging one stack of Fed notes for another. Regardless which stack is left outside the Fed's door, new money has been introduced to dilute existing money.
There was a time when government bonds are not allowed to be counted as reserve assets for banks, as logically how it should be (see point 1 above). It was changed either during the Civil War or WWII to accommodate the government cash requirement.
Published: November 12, 2006 10:30 PM
Jim
There are currently only $750 billion dollar cash currency in circulation, two thirds over seas. So $250 billion dollars is enough for a $12 trillion domestic dollar economy. Why? Because money change hands, and people can write checks; cash transactions are relatively rare for large transactions. So $750 billion divided by 150,000 tons works out to be about $170 per troy ounce (not a typo). Of course, there are other currencies in the world that need to be converted into gold too if the whole thing is to work and not all gold in the world can be minted into coins, but the gold price does not have to be astronomical to make it work
Of course, silver coins as a supplemental currency for transactions under $100 (about what the original 19th century $5 is worth today) would still make a lot of sense because gold coins probably should not be made much smaller than 1/5 or 1/10 ounce . . . or roughly somewhere around $65-130 after seniorage at current price.
Published: November 12, 2006 10:45 PM
Jim
Corbett,
I'm afraid you may have it backwards. It's not any attempt of going to gold standard that might destroy people's savings, but a collapse of the dollar (and wiping out of savings of the ordinary man) that will bring forth the return to gold standards.
Like the numbers I gave in the previous post, it takes only $250 billion cash to run a $12 trillion economy. If all the dollar in the world were converted to all the gold in the world today, the conversion rate would be $170/oz. Of course, not all gold is available for conversion and other currencies need to convert too in that scramble. However, given this baseline number, the price of gold does not have to be astronomical in 2006 dollars. On the other hand, I suspect, when the economy does go back to gold standard, despite the government's wishes, the price of gold will be much higher. Eventually even the tax collectors give up the currency when inflation is truely rampant, because the tax revenue at the end of the collection period is reduced to next to nothing due to inflation, so the government has to print even more money to make up the short fall. Eventually, even the government wants a sound money :-) Of course, by then, the middle class savers would have been wiped out.
Currently, the cash in circulation is growing at 6% per year, and if the BLS GDP growth is published at 2% using 2.1% inflation adjustment, the real GDP growth may well be negative. Negative real GDP growth coupled with 6% cash currency growth (which actually undersates inflation because the reported overseas underworld dumping dollar in favor of Euro means the velocity of money is picking up), well, that makes for a very volatile mix.
Published: November 12, 2006 11:00 PM
Björn Lundahl
M E Hoffer
”I was wondering how you feel about competitive private currencies in a jurisdiction without Legal Tender laws (?)”
My earlier answer:
“Hi, private competitive currencies would be satisfactory as long as they are only receipts for a certain amount of gold, silver or any other marketable commodity (which is specified on the receipts) and the issuer does not print more receipts than the amount of commodities which are deposited”.
I want to add that people in a free market have not the right, in trade, to call “their own type of money (or currency)” as money, because money is logically something that is already in use as a general medium of exchange and to refer to this definition is therefore something very wrong.
So the issuer of a receipt of something which is not used as money has not the right to label this something as money or currency.
Björn Lundahl,
Göteborg, Sweden
Published: November 13, 2006 1:35 AM
adi
Mike Sproul's monetary theory is at odds with our Austrian monetary theory;
1) Sproul claims that people will hold dollars as an asset since Fed's money is supposedly backed by the Govt's papers (which promise to pay some amount later) and Govt can buy back these papers later using tax money (dollars) taken forcefully from the people. In Mike's theory Govt could just sell more bonds to Fed and Fed could increase money supply since now more dollars are backed by the new good quality paper.
*Austrian theory is about transaction motive to hold money since people decide to hold some cash balance by marginalistic principles. One commodity from the group of commodities arise as a money. Origin of money is in exchange.
2) Sproul claims that we must have a elastic currency; so that amount of money in circulation is determined by the needs of trade & industry. This is impression what I have got by reading some of his papers. Is there some relation between Sproul's and Fekete's Real Bills Doctrines?
* Any amount of money can serve equally well; prices adjust. Austrian theory is not a quantity theory since marginalist principles determine the needs to hold cash.
Published: November 13, 2006 2:43 AM
brock barnes
“The modern monetary system has its roots in the gold of medieval Europe. In the Middle Ages, gold and gold coins were the common currency. However, the wealthy found that carrying large quantities of gold around was difficult and made them the target of thieves. To avoid carrying gold coins, people began depositing them for safekeeping with goldsmiths, who often had heavily guarded vaults in which to store their valuable inventories of gold. The goldsmiths charged a fee for their services and issued receipts, or gold notes, in the amount of the deposits. Exchanging these receipts was much simpler and safer than carrying around gold coins. In addition, the depositors could retrieve their gold on demand”.
Plastic Credit and Debit cards and other types of electronic banking can make coinage feasable. You can't use paper receipts because of computer printers because these receipts would have to be checked for legitimacy. Silver can be used for small transactions. Gold can be used for expensive transactions if any person lacks credit. Few people today carry large quantities of cash.
Metal could eliminate currency and the world could all use gold and silver. Lenders could then also use "gold clauses."
Published: November 13, 2006 4:05 AM
Saturdaynightspecial
"Yes, Dr. Thornton, and just wait until the US tax and economic base gets beefed up with another 20 million Third World workers and their brand new US citizen offspring. Mass immigration provides us with the best of all worlds for an imperialist: a multicultural empire that doesn't have to be maintained abroad."
Posted by Reactionary at November 9, 2006 1:32 PM
That's an idea for more immigration controls - it can hamper/restrict invasion and occupation because government won't have the neccessary manpower. Mass movements of people wreak havoc on economies. But ideas implemented by governments always look appealing (and end up having perverse results). What causes all the problems (what makes Mexicans immigrate) ? Population growth. What's the solution ? Tell all the Popes to shut up or teach people about the benefits of birth control.
Published: November 13, 2006 4:28 AM
banker
I must be guilty of contributing to the decline of America. I hopped on an airplane and went through customs. Oh my God! I moved from one country to another! Oh my God! America is being taken over, run for the hills!
Hmm..
The IRS is immigration independent; the Federal Reserve is immigration independent; socialists/populists coming to power are immigration independent.
Please tell me why the immigration issue is being brought up in this article by commenters?
Also, what is the difference between a "Third World" worker and a "first world" worker? Is it genetic? cultural? Are your parents superstars and "third world" parents crap (referring previous poster)? I am baffled.
Published: November 13, 2006 6:25 AM
Jim
Movement/relocation and procreation are two of the most fundamental natural human rights, the attempted control over which would inevitably lead to monstrously corrupt government. What's the solution? A "one-child" policy or a "hukou" system that binds idividual to the land? in other words, a modern day serf system? Shall we have a street section level busy-body system to enforce that or a Berlin Wall to prevent migration?
People move not because of population growth. People move because of the draw of money, i.e. in search of better opportunity. Places like upstate NY are being depopulated (a drastic population decrease in the last couple decades) because the youths born there prefer to add themselves to the crowding in New York City, where there is more opportunity. The absurdity would be obvious if someone suggested building a fence around the city so that new comers from upstate would not be allowed in, lest some of them overcrowd one-bedroom or studio apartments with two, three or four unrelated "roommates."
Fiat currency is part of the reason behind the migration. Money is created in the Federal Reserve system, and the Federal Reserve Bank of New York is the very center of the Federal Reserve system, with all the other Federal Reserve banks supposed to follow the steps of NY in money creation. Money creation naturally draws goods and population to money . . . it's just an amplified version of the gold rush of 1849. New gold coming out the ground back then was making an egg in San Francisco worth more than half a dozen eggs in Minnesota. For the same reason, a sandwich or taco is worth twice as much in New York City as in Up State, and 10 times as much as in Mexico. No wonder the youths from Upstate and Mexico want to come to the city.
Published: November 13, 2006 9:02 AM
Jim
Brock,
We both agree that there is enough gold (and/or silver) to monetize the economy. Warehouse receipts and the electronic equivalent of can drasticly help increase the velocity of money . . . since total money supply is the outstanding specie count multiplied by the velocity of money, the objection of "not enough gold" is quite erroneous and well addressed by Mises himself, who more or less concluded that any sizable amount of gold can monetize any sized economy, due to the velocity factor.
There is nothing modern about the "modern monetary system." The Mongols enforced a paper/silk/mulbury-leaf fiat money system on 1/4 the world back in the 13th century. While it is true that sometimes people prefer carrying warehouse receips instead of specie, especially if the specie is silver, which historically was almost always an order of magnitude greater in quantity for the same amount of goods and services, the complete replacement of specie by fiat currency always required the strong arms of the government. Mongol rulers confiscated all monetary gold and silver inside their domain; any outside traders would have to exchange their specie for the mulbery-leaf money on entry, then exchange back to specie on the way out. In other words, like the dollar-gold exchange standards before Nixon closed the gold window in the early 1970's. European traders found the Mongol fiat money system incredulous. The system collapsed in less a hundred years, and the China (and its surroundings) went back to silver standard. After that, European traders obviously found no difficulty moving boat loads of silver half way across the globe in order to engage in trade with that country.
Published: November 13, 2006 9:26 AM
Reactionary
banker,
The entire US welfare state and its accompanying fiat banking system are based on enrolling ever more suckers into the Ponzi scheme. The government is very protective of its enterprise, and even criminalizes discrimination based on race or national origin.
Jim,
There is no fundamental right to move/relocate. In a libertarian society, all movement would have to be with the permission of the adjacent property owners.
Published: November 13, 2006 9:28 AM
Jim
Reactionary,
Of course, it goes without saying that the move/relocation has to be financed by the individual him/herself and without encroaching upon the property rights of others. I was not endorsing squatting, for example. On ther other hand, there is no such property rights as "collective ownership of a country/state." The boundary of a nation-state itself is nobody's property, just like the air we breath and burn in our cars is nobody's property and the government can not presume to collect rent on that. There is no such thing as collective ownership. What is mine is mine, what is yours is yours; what is neither yours or mine is not collectively owned by us.
Published: November 13, 2006 10:07 AM
Jim
Man-made fusion or laser creating gold will have little effect on the price of gold in terms of other commodities so long as it takes more than the energy contained in 10 barrels of oil to make an ounce of gold.
Published: November 13, 2006 10:24 AM
Reactionary
Jim,
You and your wife probably own your home as joint tenants. The assets of a business entity are collectively owned by its shareholders. Collective ownership of property is a common and logical concept. There are private communities all over the United States that have commonly owned entry ways patrolled by armed guards.
Published: November 13, 2006 10:28 AM
Jim
Join ownership and collective ownership are very different concepts. The examples you gave regarding marrital property, shareholding and gated communities are joint ownerships that participants voluntarily and explicitly enter into.
Collective ownership of a state, its borders etc., however is an entirely different concept. It's the intellectual basis for the worst collectivism because the supposed members of the collective is inducted/abducted into it by the tyranny of majority without ever giving an explicit consent. For example, the collective rule regarding what is "legal labor" and whom the property owner can rent to, why should the state collective have any say on the interaction between two willing adult parties? Barring immigrants is as silly as barring goods and service from neighboring towns. Sure, it may help the local monopoly, but it is certainly detrimental to the consumers.
Published: November 13, 2006 10:41 AM
Reactionary
Jim,
Whether barring immigrants is silly depends on the immigrant. Gated communities operate on the principle that allowing entry only under certain conditions to certain types of people enhances every member's property values. Collective ownership is key to realizing that goal. Current US immigration policy is a clear illustration of the tragedy of the commons.
Published: November 13, 2006 10:59 AM
Jim
Reactionary,
Government is about as prescient in determining which immigrant will enhance "every membmer's property value" as its capacity in counter-acting economic cycle, spotting what's the up and coming technology, providing healthcare to everyone, etc. etc. Which is to say, not at all. The private employers are far better at determining which immigrant can render valuable service.
"Collective ownership" is the intellectual basis for all sorts of hare-brained schemes from environment to social wellfare. Collective ownership of borders is the intellectual basis for trade restriction (including immigration, which is a restriction against trade in labor) and warfare among nation-states. National borders is not a real property. Real property should be able to be privatized if need be. I want my personal slice of that border :-) In reality, so-called collective ownership of national borders is little more than saying the government should have the right to tell individuals within that border what to do in commerce.
Published: November 13, 2006 11:22 AM
Reactionary
Jim,
It is not really much of a jump from a neighborhood or clan deciding who gets to come and go to a nation deciding the same thing. I agree that it gets to be absurd for an artificial empire like the US, in which the concept of nationhood has been decoupled from common ancestry, and even from geography to a some extent.
Published: November 13, 2006 11:55 AM
Jim
Reactionary,
There is a huge difference between a gated community and a national state:
1. People join the gated community voluntarily.
2. People can buy into and sell out of gated communities. Citizenship in nation-states are not tradeable, and the cost of relocating to a different country is a lot higher than relocating between different gated communities.
3. As far as I know, there are no plubmers' or electrician's or house-cleaners' unions or ordanances that ban the use of service providers coming from ouside the gates. In other words, gated communities are libetarian voluntary joint ownerships, not "collective ownershps."
Anthromorphising the State is the intellectual root of collectivism. Joint owerships like gated communities are indeed legal persons, and rightly so because each individual member can indeed buy and sell his share of the stake. The State is not really a legal person, and each individual member can hardly be held responsible for what the State does (otherwise, you may as well endorse terrorism and collective punishment). That's the root cause for the tragedy of commons: the fanciful ideas about the state as "collectively owned" by the individuals in a society is nothing more than a fantasy. The massive debt borrowed in our name is not accountable to anyone. The nanny-state legislations put in our names are no different from tyranny against the individual.
Published: November 13, 2006 12:02 PM
Jim
Reactionary,
Here is a simple litmus test between real joint ownership and fantasy "collective ownership" concept invented to make you submit to the collective: Can you privatise and sell your share of the stake? If you can not sell and make the sale financially accretive to yourself, that means the "collective ownership" is nothing more than a fanciful notion invented to make you submit to the "greater good."
Published: November 13, 2006 12:09 PM
Jim
Reaction,
BTW, that's the difference between a shareholding company and a "commune."
Published: November 13, 2006 12:11 PM
Reactionary
Jim, I'll address your points in turn.
1. What about children? And the "gated community" is actually inapt, since they rely entirely on state-enforced legal definitions to form themselves.
2. That is true so far as it goes, but minority shareholders are forced to surrender their interests for less than they think they're worth all the time. This would be no different in a so-called "anarchist" society.
3. I love how libertarians make the terminology up as they go along. Somewhere along the way you've been taught that "collectivism" is some horrible evil (and it can be), when sports leagues, religious orders, families, and mutual insurers are all examples of collective ownership. So you come up with a truncated phrase, "libetarian voluntary joint ownerships." In any event, the fact that a gated community allows contractors to come and go does not detract from its exclusivity. And most covenants you'll see reserve the right of the community homeowners' association Board to bar entry to anyone in their discretion.
The problems you recite result to a large extent from the devolution of the traditional nation into the modern social democracy. Anarchists paint themselves into a corner, because the fact is that human beings are social animals who build communities with collective decision-making in order to function. So the anarchist either has to concede he is really a minarchist, or he has to join his Marxist kin and be a perpetual leveller of traditional, organic society.
Published: November 13, 2006 12:19 PM
Francisco Torres
Anarchists paint themselves into a corner, because the fact is that human beings are social animals who build communities with collective decision-making in order to function.
Humans are social animals, but they do not make decisions collectively - that is only apparent. People confuse the decision network generated through the billions of individual decisions, that performs the same as a neural network, with a collective decision. Each individual still makes his or her decision individually. We are certainly NOT Borgs.
Besides that, the decision making process into which government bureaucrats involve themselves hardly represents a collective-decision network, but rather a top-down, regimental-like structure.
People tend to think that democracy and voting represent decision making processes, a priori of implementation. In reallity, it is the acquiescence of PREVIOUS decisions made by politicians, a posteriori - hardly a collective decision.
Published: November 13, 2006 3:13 PM
Francisco Torres
Somewhere along the way you've been taught that "collectivism" is some horrible evil (and it can be), when sports leagues, religious orders, families, and mutual insurers are all examples of collective ownership.
Sports leagues, religious orders, families and mutual insurers are NOT collectivist organizations. "Collectivist" means that the person surrenders his or her will to a collective of individuals or a society. In the case of the above organizations, an individual enters voluntarily and can leave voluntarily - which means there is no surrender and thus no collective. For example, the NBA does not own the players, nor do the players decide en masse about the actions the collective will take.
A person that surrenders his or her will to a collective cannot exercise that will. This is why a Collective is a self-defeating construct - without will, there cannot be progress, innovation, creativity or even incentives to live. Organization and Collective are NOT the same thing.
Published: November 13, 2006 3:26 PM
billwald
The Govt's assets? Half the land west of the Mississippi. 90% of Alaska.
Does Gresham's Law apply to gold? Why do people who own gold want to trade their gold for my paper dollars?
If our international electronic money system crashes we won't revert to a gold standard. We will will revert to a machine gun standard. If I have the only food in town and sufficient fire power doesn't matter how much gold you have.
Published: November 13, 2006 3:41 PM
billwald
The Govt's assets? Half the land west of the Mississippi. 90% of Alaska.
Does Gresham's Law apply to gold? Why do people who own gold want to trade their gold for my paper dollars?
If our international electronic money system crashes we won't revert to a gold standard. We will will revert to a machine gun standard. If I have the only food in town and sufficient fire power doesn't matter how much gold you have.
Published: November 13, 2006 3:41 PM
Saturdaynightspecial
Gated communities are a result of wealth and/or an ignorance or a contempt for the principles of freedom.
Wealthy can afford a wall surrounding their property ("good fences make for good neighbors too") to protect their wealth (and contentment.)
The rules found in gated communities are rigid; a telltale about a restrictive lifestyle, mindset, especially imposed on others. Some of these types (to stereotype) want to live in air filtered cocoons. In the corner of the brain of every liberal (lefty socialist) lies this arrogance about how every individual should live.
But gated communes provide security too.
Mises would say to ignore any heavy inflow of workers; in time it would slow or stop (it's temporary). But Mises didn't live (or vacation) in the year 2005.
Migrants lower the cost of labor and perform work most others don't want to do. Or simply do work that needs to be done.
I don't believe in any population controls such as birth control imposed by others (or government). But telling others red apples are better than green apples is harmless the same as telling others to practice birth control (as opposed to forcing them). There is a benefit to self imposed birth control: not only does it reduce some births but it reverses the "be fruitful and multiply" advice. Who cares if we shrink - believe me, we can easily reverse that trend more easily than we can retract our three hundred million back to the more pleasant two hundred million. Who's to say three hundred million (or 4 hundred million) is better than two hundred million ? A greedy or get-rich-quick business person who wants a steady reliable supply of low cost labor ??
"Please tell me why the immigration issue is being brought up in this article by commenters?"
My answer is because immigration (or restricting it) determines the size of a labor market including military manpower used to perform empire building. Gold standard restricts a government's ability to perform empire building and that makes us more free. But imagine a government not having enough troops to maintain it's empire. It would be another prohibitive effect on empire building.
If we respect the principles that make us free (and allow migration and free movement from one country to another) then we must tolerate a crowded America (at least temporarily) but when we do that then don't we also give up some freedom ? That is why I fantasize about that former two hundred million we had about forty years back.
Published: November 13, 2006 4:18 PM
Jim
Reactionary,
Since you brought up the word "Marxist," I'm sorry to say this, but it has become quite apparent that not only are you not familiar with what Libertarianism is but also what the intellectual basis of Marxism is.
". . . the fact is that Human beings are social animals who build communities with collective decision making in order to function . . . " well there you just painted yourself to be a Marxist. Kar Marx' own intellectual framework was built on human being's supposed need to integration into a collective in order to avoid anxieties of alienation.
To answer your question one point at a time:
1. What about Children? Children are wards of their parents until they are old enough to make their own decision. At that point, they have the option of leaving the gated community if they wish. So long as their parents are not dead, the ownership stake belongs to their parents. If their parents are dead, and the children inheritting the shares find the rules of the community not to their liking, they can sell their inheritted property, for substantial sums. Obviously, citizens can not sell their citizenship in a nation-state. There, you can see it clearly that a gated community, being a private property voluntarily organized, is a creator of market-recognized value, whereas a nation-state, despite all its talks of "collective good" is not a real creator of value. BTW, I'm not the one who brought up gated community and compared it to the nationa-state; you were.
2. Minority shareholders may or may not get on the market what they think their shareholding is worth; however, unless the entity is thoroughly run down and bankrupt, they always get something and often times substantial return on their sale. On the other hand, stakes in a fantasy "collective" is always worth zero in the market place. That should show you that the a "collective" is a destroyer not a creator of value.
3. Sports league, religious orders and mutual insurers are all voluntarily entered into. Even families do not impose obligations on individuals what the individuals do not wish to bear; not even laws require debt pass from father to son, for example. The "collectivism" in the name of a nation-state is quite a different story. Obligations are imposed on the vast majority of citizens without them ever having been consulted. The equivalent is not voluntary religious orders, but religious pogroms! Pogroms are exactly the sort of thing sponsored by nation-state in the name of "collective good."
Published: November 13, 2006 7:59 PM
Jim
Saturdaynightspecial
I bear no special grudge against gated communities. If people join voluntarily, let them. If the rules become too restrictive, over-zealousness will be reflected in the market price of the stakes/shares/houses inside that community when it comes up for sale. That's the difference between a joint share-holding company and a commune or "collective." There is no value to a membership in the "collective" or commune, so the random rule making in the "collective" are not naturally restrained by market forces . . . a little like the restrained fiat money creation or bond issueing in the name of the "people"/"collective" if you will.
Immigration came up because there is a dispute over whether "collectively owned" nation-state border is a real property, which should not be trespassed by individuals, or simply a figment imagination designed to encroach the real property rights of those individuals living inside that border, such as your property rights being abridged by the outlawing of its being rented to certain individuals who are willing to pay; your property rights being abridged by the outlawing of certain class of workers that you'd like to take care of your property.
The concept of "collective ownershp" is the root cause of much evil including the financing of an empire. Empires can issue sovereign debts in our names only because some of us, enough of us, are brainwashed into believing that somehow we "collectively" own the Empire. We do not. "Collective ownershp" is not real ownershp by the individual, but only ownership by the elite to exploit the vast majority of individuals . . . because the individual can never cash out their share of the empire for anything! Just like in a commune, or communist people's republic. All that money is borrowed in our names, yet each one of us is not entitled to any concrete asset in that empire.
What is yours is yours, what is mine is mine. What is neither yours nor mine is not "collectively owned" by us. "Collective ownership" is almost always a deceptive construct designed to abridge existing private ownerships. For example, collective debt issuance means dilution of the money we earn through our hard work; collective ownership of air means we can not drive our cars as we wish; collectie border means limitations on what we can do inside or with our own properties, etc. etc.
Published: November 13, 2006 8:24 PM
Jim
1. None of the government held land is placed in the Federal Reserve system. Nor does national debt stipulate repayment in land. All government bonds stipulate is repayment in federal reserve notes. So the land does not come into play at all in the discussion on money
2. Gresham's Law refers human behavior under legal tender law that is still functioning. When there is no legal tender law (such as trade on the international level) or when legal tender laws break down, people prefer transaction in the most trusted form of money, not the cheapest and least reliable money . . . for the exact reason you mentioned: people producing gold would not want your paper, nor would producer of anything else.
3. Machinegun Standard does not work for long, for the simple reasons that you can't give people machines or bullets as payment and still expect yourself to either maintain a monopoly on firepower or carry on transaction with the same people again; so you as the ruler will cast around for a monetary medium that is not related to machine gun, even if it's some kind of paper backed by your machine guns . . . i.e. the system we have now, only a little less stable perhaps :-)
Once people have seen in their own lives how quickly a paper currency system can collapse, their faith in replacement paper system would be vastly reduced. So some kind of sound money sytem will have to be resorted to.
Published: November 13, 2006 8:52 PM
Mike Sproul
G. Kysor
"1.) What are the Fed's assets?"
Bonds, gold, buildings, private IOU's, foreign IOU's, etc
2.)" How can the dollar be returned to the Fed in exchange for the Fed's assets, i.e., what is the procedure one must follow when exchanging dollars for part of the Fed's assets?"
The Fed offers a bond for sale and I buy it with paper dollars; The Fed offers a desk for sale and I buy it with paper dollars. The fed offers a building for sale...
3.) "Don't people's valuation of the dollar as well as of goods and services establish prices?"
If a dollar were a claim to one ounce of silver, then a dollar would be worth one ounce. Both demand and supply of dollars would be horizontal at 1 oz/$. The price of silver itself would be determined by supply and demand. Supply and demand works for commodities, but not for pieces of paper that are themselves a claim to a commodity.
4.) "If so, doesn't it follow that when people's valuation of the dollar lessens then prices increase if the other factors remain unchanged?"
Think of the supply of dollars as horizontal. Then a reduction in demand just causes a fall in quantity without affecting value.
5.) "Isn't it also true that as people's valuation of the dollar continually decreases there will eventually come a point where people's acceptance of the dollar will decline? "
yes.
Published: November 13, 2006 9:10 PM
Mike Sproul
Jim:
"(1) In contentional banking, an IOU from a client is not a bank's reserve asset. Deposits are reserve assets, but IOU's are money already lent out."
I borrow $100 from my bank and give them an IOU worth $100. The IOU is the bank's assets and my liability. The bank has issued 100 checking account dollars to me. Those dollars are my assets and the bank's liability.
(2) "What is government bond? It's a stack of Fed notes at a maturity date. So even if the Fed actually undertook to exchange bond for Fed notes printed earlier, it's just a matter of exchanging one stack of Fed notes for another. Regardless which stack is left outside the Fed's door, new money has been introduced to dilute existing money."
I own a $100 bond. One day I sell it to the Fed, and they hand me 100 newly-printed dollars. The next day I sell the dollars back to the Fed for the bond. The bond existed before the dollars. If bonds are confusing you, you can just as well imagine that the Fed printed 100 new dollars and bought a desk with them. The Fed'a assets would rise by $100 along with the money stock, so the value of the dollar is unaffected.
"There was a time when government bonds are not allowed to be counted as reserve assets for banks, as logically how it should be (see point 1 above). It was changed either during the Civil War or WWII to accommodate the government cash requirement."
That must have been a pretty brief period. The Fed has always held gov't bonds. National banks used to hold $110 of bonds for every $100 issued. Are you thinking of state banks?
Published: November 13, 2006 9:24 PM
Jim
Mike Sproul,
Your are confusing "asset" and "reserve asset." Take the following simple example: if a new bank takes $100 deposit from you and give $100 check dollars to you, it's at 100% reserve. Then if it takes a $300 IOU from you, and gives you $300 check dollars. What's the bank's asset? $100 plus the $300IOU; what's the bank's reserve asset? $100; i.e. the IOU is not a reserve asset. In other words the reserve ratio is 25%.
Then if the bank lends $1000 to the government, taking $1000 bonds (i.e. IOU) from the government. . . what's the new reserve ratio? You'd think it's 100 / (100 + 300 + 1000) = 7%, right? No. The war-time introduced rule contends that IOU from the government, unlike IOU from you, is reserve asset, in other words, the bank's reserve ratio is now (100+1000) / (100+300+1000) = 78.5%! If the reserve requirement is 5%, then the bank can go forth and lend additional $17000! All because you deposited $100, and the government borrowed, not deposited, $1000! If not for the government IOU being counted as the bank's reserve asset, the 5% cap would have limited lending to an additional $600 (after the first 100 and 300 for you and $1000 for the government). That's more than an order of magnitude difference.
That's how fraudulent the federal reserve system is.
BTW, if Fed printed $100 and bought a desk with it, the economy outside of Fed would have 100 more dollars chasing a physical economy with one desk less. So yes, price of desks would go up compared to otherwise.
Published: November 13, 2006 11:15 PM
George Thomas Kysor
Michael F. Sproul:
1.) How do you, or anyone outside the Fed, know what physical assets the Fed has?
2.) How is buying what the Fed puts up for sale a redemption of the Fed's IOUs/dollars? (I assume you contend that dollars are IOUs since you stated, "Just as I can't force people to accept my IOU's, the Fed can't force people to accept its IOU's").
3.) Are you implying that dollars are demands for commodities by your statement ("Supply and demand works for commodities, but not for pieces of paper that are themselves a claim to a commodity")? But if pieces of paper were used as virtual substitutes for actual commodities, then why wouldn't supply and demand affect people's valuation of those pieces of paper?
4.) Think of it this way, wouldn't people's decreasing valuation of dollars lead to increased bartering and consecuently a lessening demand for dollars?
Published: November 14, 2006 3:00 AM
Saturdaynightspecial
If the government borrows to pay for war (and empire) then why are some saying it is printing more money to pay for war ?
When the Chinese buy US securities it is done as an investment. First they must buy dollars, then they can buy US securities. The government uses the money it has borrowed from the Chinese to pay for war. And then the government must pay back the principle and the interest. To do that it collects taxes (it does not "*counterfeit money"); but if it does not collect enough taxes it must borrow again to pay off IOU's as they mature. This process is what raises the cost of borrowing to the public and to the government. And when the government's costs increase (while it fails to collect enough taxes) a deficit is created. This deficit increases until the government stops it's spending. Deficits raise the cost of borrowing.
A rising cost to borrow can be slowed if more outsiders buy (or participate) in US securities - this is the case when China buys US securities. Because more dollars are available for lending (reducing the cost for borrowing.) This is why interest rates have not skyrocketed from the Iraq war (for now). Because the supply of dollars is increased from the Chinese.
If only gold and silver were used and not any paper currency then the government could not borrow to pay for war because it would not be able to repay loans due to the growing cost of borrowing from not being able to collect enough taxes (in gold). Imagine our gold going to China to pay for war.
Government simply prints more dollars to pay loans (*counterfeits.) After more dollars are in circulation then what's the problem with that?
===============================================
The dollar will never collapse. It is actually gaining acceptance - ask any Cuban. And this is not bad - ask any Cuban.
People have more faith in the dollar than any other currency or means of exchange. You could not use gold in most stores today without first informing the public of it's value (you couldn't use gold to purchase groceries).
But a gold and silver currency could make us much more prosperous, secure and content. And changing back to gold/silver could easily gain greater respect than the dollar.
Published: November 14, 2006 3:34 AM
Björn Lundahl
Jim
Your comment “Mike Sproul your are confusing "asset" and "reserve asset”” and the rest of it, is very straightforward, good and true. Another truth, obviously, is that Mike Sproul does not want to learn.
Björn Lundahl
Published: November 14, 2006 5:53 AM
banker
The Chinese central bank cannot expand the supply of dollars. Only the Federal Reserve can do that. However, Congress decided to spend like drunken sailors (as always), which necessitated Mr. Greenspan to crank up the printing presses. Also, the Fed was trying to inflate its way out of the previous stock market bubble.
The Chinese central bank, in keeping with a fixed exchange rate, have to inflate their currency to keep pace with the dollar. I am thinking that the US and China are at the same point in the credit cycle.
In essence, Fed prints dollars->Chinese print yuan->Chinese use new yuan to buy new dollars (ie invest in treasuries). Chinese boom + US real estate boom = Bust
Published: November 14, 2006 6:59 AM
Reactionary
Jim,
Sports leagues, mutual insurers, mutual aid societies, families and religious orders are all examples of successful collectives. Without collective modes of ownership and a social order, human beings would live in an unsustainable state of individual autarchy. Collectivism per se is not the problem, the problem is the inability to make rational economic calculations in the absence of profit and loss.
The reason I lump in anarchists with Marxists is because they both believe that human beings are shaped solely by a priori economic axioms, and they are both perpetual levellers of traditional society.
Published: November 14, 2006 8:26 AM
Jim
"Without collective modes of ownership and a social order, human beings would live in an unsustainable state of individual autarchy."
I hope you are not copying from a book by Karl Marx, but merely re-inventing the wheel while not knowing that Karl already had that "insight" a century and half ago.
Sports leagues, mutual insurers, mutual aid societies, families and religious orders (not talking about religious theocracy here, right?) are certainly not collectives in the sense that the borders of a nation-state are being claimed to be "collectively owned." Individual sportsman can quit a league and go play for a different league, so can mutual insurers cash out, so do mutual aid societies, families and religious orders. . . none of them has the element of coercion. Every single one of them allows secession and setting up of a competing entity (or can do nothing about stopping you, at the least.) The nation-state and the borders thereof a are a completely different story. Ever heard of the American Civil War? That's what happens when someone wants to quit the nation-state. Have you ever seen war breaking out over someone quitting Sports League, mutual insurance, mutual aid society? Murder is not exactly the norm when someone wants to quit a family or quit a religion, is it? Yet civil war is common when someone wants to quit the nation-state.
You simply can not compare the empty-air "collective ownership" to the normal joint-ownership in the private economy. The latter has severability, the former is severable therefore empty rhetoric put forth by a dictatorship.
You got really close when you observed that the problem is the inability to make rational economic calculations in the absence of profit and loss. That's exactly the fundamental problem with "collective ownership." The membership/supposed ownership is not severable, therefore has no market value. How can you caculate profit or loss associated with a membership when the collective memership itself has no value? That's exactly the difference between "collective ownership" vs. normal "joint shareholding."
"Collective ownership" is an empty concept invented to dress up a dictatorship. If you really want to an example of "collective ownership" in a family, that would be a family in which individual members can not run away and take his/her share of it with him/her . . . what does it sound like? Sounds to me like the position of a slave in pre-1860 America. "Collective ownership" is essentially a property that never vests or get paid to the individual for his/her contribution. What do we call non-voluntary labor without compesation? Slavery.
Published: November 14, 2006 2:27 PM
Jim
typo earlier. Whereas normal private joint ownerships usually are severable, "Collective ownership" is _not_ severable . . . therefore there is no real ownership per se in "collective ownership," only the right of some individuals to ride roughshods over others.
Published: November 14, 2006 2:32 PM
Reactionary
Jim,
Families are one example of a collective with no calculable financial value that frequently allocate resources on the basis of need. Shocking I know. You must surely cheer the day when such an inherently uneconomic institution follows the Soviet Union into history.
You also need to educate yourself on what a nation-state really is. Hint: the USA has never been one. If you have any Serbian or Croatian friends they can probably help you out on this one.
Published: November 14, 2006 2:59 PM
Mike Sproul
adi:
"Mike Sproul's monetary theory is at odds with our Austrian monetary theory;"
True. As to Fekete's version of the RBD, we both reject the Austrian view that fractional reserve banking is fraudulent. I think Fekete and I would both say that as long as the bank and its customers agree to the terms of fractional reserves, there is no fraud. A few commentators from mises.org have even agreed with this, though most reject it. Austrians claim that a bank that replaces some of its gold reserves with an equal value of silver, copper, wheat, etc., is commiting fraud--even if the customers agree to it. I have rarely seen such an indefensible statement in print.
Another difference between myself and Fekete is that he claims the real bills rule maintains a stable price level by assuring that the quantity of money moves in step with real output, while I claim that it works by making the quantity of money move in step with the bank's assets.
Published: November 14, 2006 3:30 PM
Mike Sroul
Jim:
OK. We're clear on the difference between assets and "reserve assets". Our debate comes down to you saying that the multiplication of money causes inflation, while I say that as long as assets move in step with money, the amount of assets per dollar stays the same and there is no inflation.
"if Fed printed $100 and bought a desk with it, the economy outside of Fed would have 100 more dollars chasing a physical economy with one desk less. So yes, price of desks would go up compared to otherwise."
I think you'd agree that if GM printed a new share of stock, worth $60, and bought a $60 desk with it, then the price of GM stock would be unaffected even though there would be "one more share of GM stock chasing a physical economy with one less desk." You're saying paper money is unique among financial securities, while I say it is just like any other security.
Published: November 14, 2006 3:44 PM
Mike Sproul
G. Kysor
"1.) How do you, or anyone outside the Fed, know what physical assets the Fed has?"
For that matter, I don't know what assets anyone has. I just trust the accountants to tell me.
2.) "How is buying what the Fed puts up for sale a redemption of the Fed's IOUs/dollars? (I assume you contend that dollars are IOUs since you stated, "Just as I can't force people to accept my IOU's, the Fed can't force people to accept its IOU's")."
The Fed prints $100 and buys a desk. Then they sell the desk and receive $100 in exchange. If they destroy the dollars, they have been redeemed. Every dollar that comes out of the Fed can go back in.
3.) "Are you implying that dollars are demands for commodities by your statement ("Supply and demand works for commodities, but not for pieces of paper that are themselves a claim to a commodity")? But if pieces of paper were used as virtual substitutes for actual commodities, then why wouldn't supply and demand affect people's valuation of those pieces of paper?"
Every economics book I've ever seen discusses supply curves and demand curves in the context of actual commodities--apples, cars, houses, music, etc. They never discuss the supply and demand for paper claims to those commodities, for the simple reason that paper claims can be created and destroyed instantly in infinite amounts. The model of supply and demand is not applicable. Consider a paper certificate redeemable for 1 oz. of silver. If the price of that certificate rose to 1.01 oz, suppliers would offer infinite amounts while demanders would want none. If the price fell to .99 oz, demanders would want infinite amounts while suppliers would offer none. Both demand and supply are horizontal at 1 oz., and meaningless in the determination of price.
4.)" Think of it this way, wouldn't people's decreasing valuation of dollars lead to increased bartering and consecuently a lessening demand for dollars?"
A moot point if my answer above is accepted
Published: November 14, 2006 3:58 PM
George Thomas Kysor
Michael F. Sproul:
1.) Well then, which accountants do you trust to tell you what physical assets the Fed has?
2.) That's great, so one day when that desk reaches a valuation of, say, $100,000 the Fed could then exchange one of its new SuperDollars for every thousand dollars (during a time period set by the government) for a mass redemption?
3.0 So, doesn't the following comparison illustrate why government coercion (i.e., enforcement of fiat currency laws) is necessary?
A.) With the Fed's previous silver certificate, one could then exchange on demand a one dollar silver certificate at the Fed for a vial of actual siver.
vs
B.) With the Fed's present fiat dollar, one can't now exchange one fiat dollar at the Fed on demand for any sized vial of silver.
4.) Think of it this way, wouldn't people's decreasing valuation of dollars lead to increased bartering and consecuently a lessening demand for dollars for a vial containing actual silver) vs the Fed's present fiat dollar (now it can't be exchanged at the Fed for any amount of silver on demand) illustrate why government coercion (i.e., enforcement of fiat currency laws) is necessary?
4.) Think of it this way, wouldn't people's decreasing valuation of fiat dollars lead to increased bartering and consecuently to a lessening demand for dollars and thereby to an overall rise in the price of goods and services?
Published: November 15, 2006 12:38 AM
George Thomas Kysor
Michael F. Sproul:
This post supercedes my previous post.
1.) Well then, which accountants do you trust to tell you what physical assets the Fed has?
2.) One day when that desk reaches a valuation of, say, $100,000 could the Fed then exchange one of its (new) SuperDollars for every thousand dollars (during a time period set by the government) for a mass redemption?
3.) So, doesn't the following comparison illustrate why government coercion (i.e., enforcement of fiat currency laws) is necessary?
A.) With the Fed's previous silver certificate, one could then exchange on demand a one dollar silver certificate at the Fed for a vial of actual silver.
vs
B.) With the Fed's present fiat dollar, one can't now exchange one fiat dollar at the Fed on demand for any sized vial of silver.
4.) Think of it this way, wouldn't people's decreasing valuation of fiat dollars lead to increased bartering and consecuently to a lessening demand for dollars and thereby to an overall rise in the price of goods and services?
Published: November 15, 2006 12:57 AM
Jim
Families are voluntary entities. People form families and split on voluntary basis. That is clearly not the case with the kind of "collective ownership" when in reference to national borders. Can I have my share of the border and let anyone who wants to be in, in?
Not sure why you would even suggest libertarian values are anti-family. You have it exactly backwards: it's the "collective welfare of the society" concept that led to mandatory public education and social workers than can step in between the parents and their own children . . . because somehow they believe they "collectively own" your children! The very idea of "collective ownership" by a society at large is anathema to Family! Heck, if you really believe the society at large collectively decide how the resources should be allocated, you should support family planning like the commies do. That's why, like I said before, "collective ownership" is the very intellectual foundation of communism and dictatorship. It's a very different animal from voluntary joint shareholding.
USA is very much a nation-state. The nation-state was first formed after the 13-state rebellion, when states like RI were forced into accepting the Article of Confederacy, then followed by a drastic revision that created a powerful central government, then enormously consolidated by the Civil War. The fighting in bleeding Kansas in the 1850's alone killed more people than the fighting between Serbs and Croats in the 1990's. Sherman's march through Atlanta and US Cavlry action against Indian tribes were far more thorough than the jobs done by Serb and Croat ethnic cleansers.
Published: November 15, 2006 2:17 AM
Jim
Mike Sproul,
Glad we cleared up the confusion regarind assets vs. reserve assets.
The difference between money and GM stock is that GM stock is not legal tender whereas government printed money is!
It comes back to the special "reserve asset" status given to government bond, unlike any other IOU out there. Think about it, if the whole banking system is built upon the government bond being "reserve asset," in reality it has just given the government the power to print all the money it wants, through bond issueing. There is a limit to how much bond GM can issue because the issue has to find subscribers . . . whereas the government bond is automaticly purchased by the Federal Reserve system, and counted as reserve assets!
Published: November 15, 2006 2:33 AM
daveweilacher
Instead of arguing for a gold standard, shouldn't the argument be against a compulsory government currency standard?
Published: November 20, 2006 10:12 AM
Marco Saba
I think the problem with gold is also that the gold market is somehow manipulated (see: www.gata.org)
Furthermore, it is owned by the very same people that hides behind the Federal Reserve. (Rothschild, Morgan, etc.)
Which in the end are responblwe for the mess we are in now with the FED Dollar. (I suggest to fire them as soon as possible)
When you buy a T-bond, who do you think will pay for the bond at the end? Yourself through taxation. So the actual system is a scam where the only who benefits are the Fed and the Gov. At the expenses for the common citizen taxpayer. We can avoid this by letting the gov. directly print banknotes and credit (as he do with coins, retaining the seigniorage). You can have a check on gov monetary policy through the political system, while you cannot have a check on a private entity like the Fed that is herself her ultimate judge. (this is the most crazy part of the scam)
But I can add more: the Federal Reserve fake the balance by writing the face value of banknotes in the liability side instead that in the profit side (so they can hide their monetary rent, avoiding to be taxed for).
There is a very interesting book dealing with this problems, New Paradim in Macroeconomics, by Richard Werner. There is not real competition between those very special companies like banks that can create money and credit out of YOUR debt. You pay, they gain. (They assumes as for true that they would be lesser corrupts than government officials, which is only a lie, whithout a check and balance system).
The problem arises as more and more people become aknowledge about money and credit mechanics. And about how they are routinely expropriated of the seigniorage on the money and credit.
In the end, you can have a civil war. Or you must enroll all the citizens as policemen - which is a crazy way to redistribute the seigniorage.
Another problem is if we can reform the system BEFORE a collapse and disruption on the banking industry. This is the real moral hazard, in my opinion.
Published: November 20, 2006 10:21 PM
Julien Peter Benney
Francisco's comment that sports leagues are "not collectivist organisations" may be a little wrong.
Historically (certainly in my Australian homeland) many sports leagues have imposed exactly the price controls and other market restraints that are so much anathema to Austrian economists.
Zoning to give players a single buyer amongst twelve or so clubs, and wage ceilings to allow poorer clubs a hope of good players were a prominent part of both the VFL and NSWRL for over fifty years. Yet they in the long run merely created shortages of players: by the 1960s wage ceilings were very much binding and clubs could not find enough players.
Another curious thing is that sports leagues in Australia have actually been historically owned by the clubs and decisions made by them. The consequences have not necessarily been good, even when one realises sport's popularity actually has no relation to the standard of play as I know with the County Championship in England.
Published: June 3, 2008 6:24 AM