Posted on 04/29/2002 5:14:43 PM PDT by shrinkermd
By monopolizing this commodity the moneyed classes have got Nature by the throat and the community under their heels... Compared with this process, usury is mere child's play. -Alexander Del Mar in The Science of Money.
Advocacy of gold or gold "backed" money rests on dubious foundations. The discussion that follows will reveal some of the semantic deception, half-truths, doublespeak, self-interest pleading, and historical errors employed in gold advocacy polemics.
The Pope admitted in 1992 that Galileo had been right. This has nothing to do with gold money, but it is offered to show that neither antiquity nor authority makes a phony idea anything but phony.
There is a strong belief among gold money advocates that little bits of gold, especially if they are stamped with the image of some authority and numbers make better price counters than numbered pieces of paper or computer bytes. The belief involves a perception of what money is. The person who holds that belief perceives money to be something real and apparently needs to see and hold in his hand a physical manifestation of it. Gold is heavy, and refined gold is bright and shiny. It satisfies an emotional need however meaningless it is to the function of money. Money is a product of human mental fabrication. It always has been; it always will be. It is a tool that facilitates exchange. Modern society could not run without it or some equivalent accounting system.
A rational business decision would require that monetary symbols cost the least possible to manufacture. Presently, (1998), it costs around $280 to mine and refine an ounce of gold. Mining decades of tons of ore per ounce of gold has left holes in the ground measured by cubic miles. The ore is leached by toxic chemicals that have produced environmental pollution. Banks create money in any amount with the touching of computer buttons.
Abstract numbers, meaningless in and of themselves, that count quantities of amperes, wheat, gasoline, volume, distance, area, force, or any measurable, quantifiable thing, suffice in commerce, science, and technics without the clumsy inconvenience of metal counters. Why should it be different with money?
A pseudo-legal argument is sometimes advanced by advocates of gold money that a debt cannot be paid with another debt. This is semantic deception. A debt can be paid with anything that is acceptable to the payee. In addition, as long as debt in the form of deposit entries in bank accounts or Federal Reserve Notes can be exchanged for real goods and services, the payee is just as well off as if he had received little lumps of metal. Further, the multi-trillion dollar world economy runs almost exclusively on exchange of debt-money which only consists of numbers in deposit accounts at banks.
A common argument for gold money that accompanies the pseudo-legal sophistry is that gold has "intrinsic value," another semantic deception. Gold has interesting intrinsic properties such as chemical stability and excellent electrical conductivity, but "intrinsic value" is a semantic error if not outright doublespeak. Value(1) is a subjective judgment and cannot be rationally thought of as intrinsic. Subjectivity is exclusively a product of human minds. "Intrinsic value" is a deceptive euphemism for price.
If people were stranded in some remote location without food, water, and shelter, a mountain of gold would serve no more purpose than so much sand. It would have no price. Gold has no intrinsic value. It merely has a price which is the result of complex factors associated with its subjective price value compared to other commodities. Industrial usefulness of gold as well as human subjectivity that desires gold for personal adornment, etc., does assure that gold will fetch a price in a modern market. But what price?
Gold pricing in the United States, today, 1998, is denominated in Federal Reserve Accounting Unit Dollars.(2) The commodity price of gold has fluctuated wildly in the last half of the 20th Century, mostly remaining in the $300 to $400 per ounce range in the last decade. Price fluctuation was not due to variations of the Federal Reserve Dollar. The U. S. monetary price of gold is $42.22 per ounce. Artifact (jewelry, etc.) and numismatic prices of gold are what the market will pay. The value of gold as denominated by price is highly variable.
Historically, the commodity price of gold has been subject to fluctuation caused by normal supply and demand influences. Supply and demand infuences are in turn affected by the vagaries of mining and shipping, speculation, hoarding, political action, industrial demand, wars, central bank manipulations, and fads.
When governments or private banks have attempted to use gold as money, or for the last yea many centuries the fraud perpetrated as gold "backing" or reserves, it has been necessary to establish a monetary price of gold by fiat in an attempt to isolate money from inevitable price fluctuations of commodity gold.
The U. S. Constitution writers anticipated the instability of commodity prices and included the phrase, regulate the value, in the coinage clause.(3) In 1792 after the ratification of the Constitution, the Congress, consistent with the Constitutional mandate, defined specific amounts of gold, silver, and copper as representing dollars. They regulated the value and established a monetary price by fiat.(4)
Historically, monetary prices have been set higher than market prices, the ludicrous present U. S. monetary price notwithstanding. It would make no sense to issue money that had an equal or lower monetary value than the price of acquiring the metal. This mark-up is known as seignorage. It is profit that accrued to goldsmiths, kings, banks, and governments that issued gold money. When the monetary price of gold was too low, coins were melted and turned into artifacts that could be sold for more money than the original coins. When the monetary price was too high, artifacts were melted and turned into counterfeit coins. This was another cause of monetary and price instability when gold was used as money.
The relative scarcity of gold and the demand for gold for other uses than money should raise questions about the efficacy of trying to use consumable and losable gold as money or as monetary reserves.
The inherent instability of a scarce commodity subject to all the influences enumerated above have inevitably led to financial instability which instigates human suffering, social unrest, political instability, totalitarianism, fraud, counterfeiting, theft, war, and abandonment of gold monetary policy.
A mantra of gold money advocates is that alternative money systems, particularly "paper money," always fail. Historically, it is true; but it is also a case of selective historical facts, half-truth, and errant semantics. There is archaeological evidence that accounting systems existed before paper was invented. For example, clay tablets written in cuneiform that show evidence of debt accounting. Paper, per se, merely represented another more economical way of accounting. What is never admitted is that all money systems including gold money systems have failed. Today, "paper money" as bank notes is substantially irrelevant. Overwhelmingly, transactions are carried on via computer accounting where money is nothing more than numbers transferred from account to account by computers.
Arguments about the substance of money will never address the problem of why all monetary systems have failed .
In fact, historically, not only has no money system survived indefinitely; but also, no civilization, empire, or political system has survived indefinitely. Systematic monetary manipulation has played a part in their demise. It is not a question of gold or paper; it is a question of human culture. Is it possible to maintain a political system or nation that is founded in myth, intellectual error, and financial fraud?
The Gold "Backing" Fraud
A sacrosanct dogma of modern economic superstition is that money derives its value from scarcity. It is nowhere scientifically proven or successfully argued. It is accepted dogma; and, once again, the semantic trick of substituting value for price is used.
Scarcity does play a role in prices of goods and services, but it is only one factor; there are many other factors in price.
What is provable is that the scarcity of gold provided an opportunity for fraud that has become modern banking custom and practice.
Exactly how the fraud started is not matters of facts, but that it started is not in question.
Legend with perhaps more than a little truth in it has been related many times, including Congressional testimony.(5)
In brief, goldsmiths built vaults to secure their gold which was used in artifact manufacture and lending. The security of the vault attracted others who deposited their gold with the goldsmith for safe keeping. The goldsmith noticed that depositors never claimed all their gold at once. This provided him the opportunity to lend their gold at interest for his profit.
The custom developed that depositors would write notes which could be redeemed by the goldsmith to pay their bills. Eventually, the security of the goldsmith s vault and convenience of the notes induced more and more people to leave gold with the goldsmith and pay their bills with notes.
The common use of notes provided the goldsmith with the opportunity to write notes for making loans. In fact, it enabled him to write notes for more gold than there was gold in his vault. He created money! Eventually, it was found that as much as ten times the value of gold in the vault could be circulated as notes. He only needed enough gold in "reserves" to redeem the few notes that were presented for redemption.
This fraudulent practice has become modern banking custom and practice. Today, it is called fractional reserve banking.(6) Of course, gold is not presently used as reserves; banks just create money out of nothing without any pretense of gold reserves.
Gold advocates lament that money is no longer "redeemable." This is doublespeak that is tantamount to a lie. Since the initiation of the goldsmith s trick in banking, bank notes or "paper money" have never been fully redeemable in gold money. It must also be remembered most money created by banks by checks and deposit entry was never printed as banknotes. While deposit money, Federal Reserve Bank Notes, and U. S. coins cannot be exchanged for any form of gold money at the U. S. Treasury or Federal Reserve Banks, anyone is free to spend as much current money purchasing gold as they please; and the gold can be sold for current money. Furthermore, current money is exchangeable, fully redeemable, for all necessary and desirable goods and services which is the only real purpose gold money could serve. Satisfaction of superstitious beliefs and greed of investors are not considered real purposes.
The growth of national and world economies has rendered even the gold "backing" pretense of using gold as money absurd, but the greedy wishful thinking is that gold will be re-monetized at some astronomical price that will provide a windfall to gold investors. It is more likely that gold will be confiscated, as happened in the United States in 1933, before central banks attempt to re-monetize gold.
Attempts to re-monetize gold in the early 20th Century were accompanied by disaster in national economies and were quickly abandoned.
The Gold (un)Standard
"... the disastrous inefficiency which the international gold standard has worked since its restoration five years ago (fulfilling the worst fears and gloomiest prognostications of its opponents) and the economic losses, second only to those of a great war, which it has brought upon the world..."--J. M. Keynes(7)
What is generally referred to as "the gold standard" is a set of variable monetary and economic goals that involve manipulation of currency, balance of trade, internal commerce, and prices by use of variable gold policies. Different countries have tried different gold policies depending upon the desired goal. Whether it was to achieve balance of international trade, stable currency, stable internal commerce, or stable prices determined the policy. Balancing international trade may, and usually does, interfere with internal commerce. Stable prices may require juggling currency. Different countries with different goals pursuing different policies may conflict. What is called "the" gold standard is not a unique and well defined system.
There is a common conception of "the" gold standard that ties the value of the currency unit to a legally determined amount of gold. It is believed that such a policy would stabilize currency. It may be possible to stabilize currency using gold in monetary policy decisions but with disastrous other results.
For example, five methods used to manage a gold standard by the Bank of England from 1925 to 1931 follow:(8)
i. The bank rate.
ii. Open market operations (that is purchase and sale of securities) undertaken to influence the amount of reserves of the commercial banks, and their power of creating bankers money.
iii. Open market operations, undertaken to influence the London Money Market.
iv. Gold exchange methods dealings in foreign exchanges and in forward exchange, and variations in the price of gold within the narrow limits permitted.
v. Personal influence or advice such as the so-called embargo on foreign loans.
Anyone familiar with Federal Reserve operations will note amazing similarity. Just as the present Federal Reserve Open Market Committee engages in a variety of open market transactions to control the dollar, the Bank of England tried to manage the pound ostensibly based on gold. The results also have an amazing similarity to the Federal Reserve s policies, particularly the "soft landing" announced by Alan Greenspan that was the 1990 recession.
... the operations of currency management conferred upon the Bank of England the power to restrict credit, to postpone new enterprises, to lessen the demand for constructional materials, and other capital goods, to create unemployment, to diminish the demand for consumable goods, to cause difficulty in renewing loans, to confront manufacturers with the prospect of falling prices, to force dealers to press their goods on a weak market, and to cause a decline in general prices on the home market. In brief, the stability of the international exchanges was accomplished by a process which deliberately caused universal depression in industry, created unemployment, and forced manufacturers to produce, and merchants to sell, at a loss.(9)
The operations of the Bank of England under the administration of Montagu Norman critiqued above is a classical example of what happens when monetary policy is carried out in the abstract. Human needs and human suffering be damned, trade will be balanced to control the outflow of gold or silver or inflation will be controlled to maintain prices regardless of how it affects employment, hunger, or any other form of human stress.
The errant buzz-word of monetary policy administered by Federal Reserve gurus personified by Alan Greenspan is inflation. Low unemployment motivates the gurus to "slow down an overheating economy." In other words, needful humans must be made to suffer to accomplish abstract monetary goals.
The above critique of Bank of England policies exposes, more than anything else, the fallacious thinking that gold will automatically regulate currency and prices. Not only the above critiqued policies, but also, other history confirms the fallacies.
One extreme anecdote from Roman history is the case of a man who had his own image placed on a gold nugget which he presented to a lover. So extreme were Roman concerns with controlling money that it was a death penalty offense under Roman law at that time to affix any image on gold except for official purposes. The law-breaker was executed.
This Roman anecdote is an example of two things: 1. An absurd, extreme policy used in an attempt to make an inherently unstable commodity suitable for monetary use by legal means. 2. The arrogant stupidity of legal absolutism.
Some factions of gold advocates argue that attempted regulation is the problem and that "market forces" should be allowed to follow their course with gold. Aside from the obvious superstitious belief in a fiction in support of a belief, histories of fraud, manipulation, monopolization, gambling, and speculation of commodities(10) left to market forces should overcome the tunnel-vision and doublethink of such an argument as market forces should determine the value of common currency while believing the implausible, self-defeating belief that gold left to speculation and monopolization will, by magic, lend stability to currency in the same market.
One of the sophistries used by gold money advocates is the non sequitur. Byzantium has been offered as an example of how a culture or empire was stabilized by a stable gold currency.(11) In the first place, stable Byzantium can be dismissed with the question: Where is Byzantium now? In the second place, the longevity of Byzantium was not extraordinary for its day. Nor did Byzantium ever achieve extraordinary wealth. The Italian city states built on bankers credit lasted longer and achieved more wealth.(12) Byzantium existed during the "dark ages" of Europe as a near singularity in the Euro-Asian area. It was founded in autocratic theocracy. The annual trade of Byzantium was less than a week of world trade today, perhaps less than a day s trade. Byzantium s relatively stable coinage was a function of its relatively stable society maintained by a severe autocracy. Its relatively stable society was not a function of its coinage; its relatively stable coinage was a function of its relatively stable society.
After the ascendancy of the Italian city states, it could just as well be argued that Byzantium failed to achieve great wealth and eventually succumbed because of the superiority of credit money or Byzantium s stupid, limiting, and inflexible reliance on gold coinage, but that is not the argument presented here. The argument here is that money is a function of culture, not culture is a function of money although selective facts may make it appear so. Certainly, the pathological kleptomania and greed of Capitalism make it seem U. S. culture is a function of money.
The coup de grace of gold standard is that a gold standard applied in recent centuries has not altered the custom and practice of bank issued debt-money. Bankers, such as Alan Greenspan who has advocated a return to a gold standard, are well aware that gold standard is not only no threat to their power and ability to create money out of nothing; but also, it enhances their confiscatory power and control over both the public and private economy. It helps banks realize their superstitious mantra that money derives its value from scarcity. The more scarce the more value, i.e., the more interest banks can charge for the money they create out of nothing.
Ordinary gold standard advocates are either ignorant or disingenuous about bank created money. They usually blame government for the abuses of credit money, but it is banks that create money nearly exclusively. Paranoid, near hysterical arguments such as inflation is caused by "governments printing too much money" are absurd when it is banks that create money. What a silly argument it is to say governments print too much money when, for example, the U. S. government has borrowed more than $5 trillion from banks and other investors in government securities! Every cent of it originally issued by banks! But just as any paranoiac can have real enemies, there is plenty of blame to lay on government. It is government that has given the power to create money to banks(13) then relies on borrowing money from banks and private investors at the additional expense of interest when taxes are inadequate to meet expenses.
A Federal Reserve bankers dogma is that monetary policy must be separated from politics because politicians can t be trusted with it. This dogma has some truth in it; but like any half truth, it obscures a lie. Monetary policy can never be separated from politics, and bankers would loose their golden goose if the government excercised its Constitutional power to issue its own money.
Ostensibly, the people have the power to control politicians with the political process. People have no power to control bankers for whom they cannot vote and do not know.
Criticism of bank created money and how(14) it is done is left to other vehicles. This discussion is about the fallacies of gold money arguments.
Conclusion
What is usually referred to as "the" gold standard or gold backed money is an intellectual and financial fraud. Under gold standard policies, Central banks wrote checks creating money to buy gold to use as reserves, just as Federal Reserve Banks create deposits to buy U. S. Treasury securities, now. A gold standard does not prevent commercial banks from creating money on the basis of fictional reserves and lending it at interest. What has passed as a gold standard in the last few centuries is not theoretically or functionally different than the present bank created credit/debt money system. In both cases, banks create and issue money as debt. Both systems are often properly labeled debt-money systems. Money is nearly exclusively issued by banks as debt at interest in both systems.
A plausible argument can be made that if banks were required to maintain an invariable level of gold reserves, it would limit how much money they could create. It would, but it would also limit how an economy functions as in the disastrous British case cited above.
The Federal Reserve Act was passed in 1913 establishing the Federal Reserve System as the U. S. Central bank. It required 40% gold reserves behind issuance of Federal Reserve Notes. World War I soon followed. It would have been impossible for the United States to finance it s participation in that war with Federal Reserve Banks and commercial banks required to maintain 40% gold reserves. (The argument that it may have forced the U. S. to stay out of the war had the reserve requirement been maintained is irrelevant; the U. S. participated in the war.) Reserve requirements were lowered, and the war was financed with debt-money created by banks.
The first central bank of the U. S. was charted in 1791, and the Coinage Act of 1792 which limited coinage to the haphazard appearance of gold and silver owners at the mint forced seekers of money to use bank credit or debt financing. It is a speculation whether the two cited acts were intended to force money seekers into banks. The central bank has been attributed to the efforts of Alexander Hamilton. There is no doubt of Hamilton s banking connections.
The United States has become the most powerful nation ever in history. It did so mostly on bank credit; nearly exclusively so in the 20th Century.
Winning two world wars, once having the highest now reputed third or fourth average standard of living in the world, and development of spectacular technology including space exploration were all accomplished under bankers debt-money schemes, but this is not a defense of bankers debt-money. It must be repeated that criticism of bankers debt-money is found elsewhere. This is to suggest that the U. S. could not have developed as it did under the restrictions that a gold money system would have imposed.
A credit money system operated for the purpose of serving human needs instead of serving the profit interests of bankers could educate everyone to any desired level, provide medical care for all, end poverty, and finance any socially acceptable and physically possible activity.
The substance of money used for counters whether lumps of yellow metal or computer bytes is unimportant, per se. What is important is monetary policy. Good or bad policy can be made with credit money that makes good or bad results. It is hardly possible to have a good policy under the restrictions and inflexibility that a one hundred percent gold money system would impose. Gold "backing" known as fractional reserves has already been revealed as a banking fraud that differs from the present bankers debt-money system in cosmetics only.
If there is anything that can be classified as a public utility, it is money. Yet, the supposedly democratic U. S. Government has seen fit to endow a select group of greedy bankers with all the power of issuing and regulating the money supply for their own profit. The banking system that issues money as debt holds the government and people hostage to the system. Until the power to issue money is taken from the hands of greedy corporate profiteers, megalomaniac kings, and plundering politicians, there is little hope for a socially kind and peaceful society or a safe and sustainable environment.
The science of how to do it is well known.
They [bankers] viewed national interests from the windows of the bank parlour. From their point of view, industry, commerce, agriculture, wages, employment, were but counters in the skilled game of international finance. They must be regulated to fit in with the monetary scheme. The monetary scheme must not be regulated to fit in with the needs and necessities of the world.(15)
Whose interests are served by "the monetary scheme"?
Until the "cart before the horse" philosophy of financiers revealed in the above quote is righted, no monetary system will serve public interests. A gold monetary system will be just
FOOLS' GOLD!
Notes:
1. See Theoretical Essay on the Nature of Money for a fuller explication of value.return
2. Contrary to popular opinion, the "U.S." dollar in the form of bank notes and commercial bank credit is not issued by the United States Government. It is issued by Federal Reserve Banks and commercial banks mostly in the form of deposits or numbers in deposit accounts. return
3. Article I, Section 8, clause 5. return
4. An Act establishing a Mint and regulating the Coins of the United States, April 2, 1792, specified 24.75 grains of pure gold and 27 grains of standard alloy per dollar. return
5. Robert Hemphill, credit manager in the Federal Reserve Bank of Atlanta, before the Committee on Banking and Currency, House of Representatives, March 22, 1935, re Banking Act of 1935. return
6. See Modern Money Mechanics, published by the Federal Reserve Bank of Chicago for a detailed explanation of how the central bank creates reserves and regulates the money supply and commercial banks create money by fractional reserve lending. return
7. Quoted by Sir Charles Morgan-Webb in The Money Revolution. return
8. Ibid. return
9. Ibid. return
10. See "The Tulipomania" chapter of Extraordinary Popular Delusions and the Madness of Crowds for a charming example of kleptomania, gambling, and greed in an unregulated market. Of course, a free market in tulips is one thing; a free market in common currency is another. The whole book is an entertaining read of collective "delusions" and "madnesses." return
11. See The War on Gold by Antony C. Sutton. return
12. See An Inquiry into the Permanent Causes of the Decline and Fall of Powerful and Wealthy Nations by William Playfair. return
13. See The Federal Reserve Act in the United States Statutes at Large and Title 12 USC for complete texts of current banking law. return
14. For how, see Modern Money Mechanics published by Federal Reserve Bank of Chicago. return
15. The Money Revolution by Sir Charles Morgan-Webb.
Ok so you respond to my post by dismissing the Constitution, cite some half-baked economic “history,” then you declare that you don’t what I mean by the dollar losing 95% of its value since 1913 and then you beat breast declaring that you, “will follow a philosophical and epistemological argument, (I) will maintain a "tradition, tradition, tradition, ritual, myth, cultural, superstition argument.”
This doesn’t sound like a discussion worth pursuing but I’ll give it another shot…
I didn’t address the article because it mixes three distinct problems:
1. The Fed (which I am against and think is unconstitutional)
2. Fiat money vs. money backed by something that has had universal value over centuries
3. Government control of the money vs the free market
The article weaves back and forth between the three issues sometimes combining them sometimes treating them as separate and makes so many assumptions that it would take way too much time to deconstruct.
As to your post, I decided to cite a Constitutional basis for gold and silver but, like the Democrats, you don’t seem to honor the intent of the founding fathers. I don’t believe that the blueprint for the US of A is a “living document” that can be interpreted whatever way you want to with the passage of time. The Constitution was designed to keep the Federal Government small and non-intrusive, ignoring its true intent was what got us to where we are now.
This ranting about the Ibond is completely ludicrous and deserves no investment of my time.
Let’s hear from an economist about “the breakdown of the gold standard” (something that is treated with lies and half-truths by the article:
If the classical gold standard worked so well, why did it break down? It broke down because governments were entrusted with the task of keeping their monetary promises, of seeing to it that pounds, dollars, francs, etc., were always redeemable in gold as they and their controlled banking system had pledged. It was not gold that failed; it was the folly of trusting government to keep its promises. To wage the catastrophic war of World War I, each government had to inflate its own supply of paper and bank currency. So severe was this inflation that it was impossible for the warring governments to keep their pledges, and so they went "off the gold standard," i.e., declared their own bankruptcy, shortly after entering the war. All except the United States, which entered the war late, and did not inflate the supply of dollars enough to endanger redeemability. But, apart from the U.S., the world suffered what some economists now hail as the Nirvana of freely-fluctuating exchange rates (now called "dirty floats") competitive devaluations, warring currency blocks, exchange controls, tariffs and quotas, and the breakdown of international trade and investment. The inflated pounds, francs, marks, etc., depreciated in relation to gold and the dollar; monetary chaos abounded throughout the world.
---Murry Rothbard
More Rothbard:
It must be emphasized that gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium. Above all, the supply and provision of gold was subject only to market forces, and not to the arbitrary printing press of the government.
The international gold standard provided an automatic market mechanism for checking the inflationary potential of government. It also provides an automatic mechanism for keeping the balance of payments of each country in equilibrium. As the philosopher and economist David Hume pointed out in the mid-eighteenth century, if one nation, say France, inflates its supply of paper francs, its prices rise; the increasing incomes in paper francs stimulates imports from abroad, which are also spurred by the fact that prices of imports are now relatively cheaper than prices at home. At the same time, the higher prices at home discourage exports abroad; the result is a deficit in the balance of payments, which must be paid for by foreign countries cashing in francs for gold. The gold outflow means that France must eventually contract its inflated paper francs in order to prevent a loss of all of its gold. If the inflation has taken the form of bank deposits, then the French banks have to contract their loans and deposits in order to avoid bankruptcy as foreigners call upon the French banks to redeem their deposits in gold. The contraction lowers prices at home, and generates an export surplus, thereby reversing the gold outflow, until the price levels are equalized in France and in other countries as well.
It is true that the interventions of governments previous to the nineteenth century weakened the speed of this market mechanism, and allowed for a business cycle of inflation and recession within this gold standard framework. These interventions were particularly: the governments' monopolizing of the mint, legal tender laws, the creation of paper money, and the development of inflationary banking propelled by each of the governments. But while these interventions slowed the adjustments of the market, these adjustments were still in ultimate control of the situation. So while the classical gold standard of the nineteenth century was not perfect, and allowed for relatively minor booms and busts, it still provided us with by far the best monetary order the world has ever known, an order which worked, which kept business cycles from getting out of hand, and which enabled the development of free international trade, exchange, and investment.
In summation: How you can believe that government-backed fiat money is superior to something which has historical value is beyond me. The problem is government’s central planning compared to the free market. Your Ibonds are based on Big Brother’s guarantee that they will pay you a certain percentage to give your money to the government. All you get is a promise form the government backed by its power to tax. The fact that your quotes are from the Fed website shows your bias.
Also, please get someone to proofread your stuff before you post it as much of it makes no sense.
And by its power to print, and by its power to destroy.
Altogether, a very nice foundation for a free and prosperous society. NOT!!
That doesn't seem to make any sense. Why would banks want to water down the value of the dollar? Don't banks pool lots of short-term deposits to make larger, long-term loans? If the dollars decline in value while they're out on loan, the banks get screwed. I would think banks would be strongly opposed to inflation.
It sounds like you're trying to discredit the gold argument by saying that the transition won't be easy. I don't think too many people are arguing that it would. But the first question to ask is what's the most desirable system in and of itself. Then we can worry about how to get there.
Errr... heads, I was referring to you as the anarchist. But I meant it in the nicest possible way. :-)
You need to catch up on your Sowell. Conservatives are always the conventional ones. We're the safety locks of society.
Surely with a gold standard we'd have the environmental lobby marching on Washington protesting against the "rape" of the ANWR by gold miners. It would be like going on a monetary "Oil Standard," with new Saudi Arabias or Iraqs able to do to our entire economy what they're presently trying to do to do to only one segment.
What the heck are people here thinking?
I dunno, they go to these web sites and they read this stuff, and they think they've found the Secret Poop that explains how big shots control ze vorld. They can't explain what goes on otherwise, so they figure somebody really smart and well hidden must be planning it all.
Where most people turn to religion for the answer to Who that might be, others are more comfortable making up gnomes in Zurich or secret societies of fabulously wealthy Europeans. It's a measure of how old these tales are that the 'perps' are always European Old Money. Never mind that the richest people now are in the U.S. and in Asia.
If you dive into that stuff, you start running into some really weird material : foreign Jews own the Federal Reserve, Kennedy was killed because he was going to introduce a new currency backed by silver, all kinds of crap. It's sort of like the Holocaust Denial sites in that there are all these outlandish statements made, solidly backed up with "quotations" and "references." If you don't know any history, and you don't know any economics, I suppose the stuff might sound believeable.
In fact the stuff goes out of its way to target people who know zero about economics. They go on at some length to "prove" that the Federal Reserve is a private entity instead of a government agency, as though they expect their readership to need convincing of that. I sat through this video one time and laughed out loud while this guy zoomed in on pages in the phone book, showing that "Federal Reserve" was in the business section alongside "Federal Express," like this was some big revelation.
Hey, if somebody doesn't already know that, they are already in over their head and they probably shouldn't be reading or expounding on the subject of macroeconomics. They need to start farther back, with something like Thomas Sowell's Basic Economics. Just that book alone would vaccinate most people against this Art Bell stuff that's out there.
I understand that there are economic incentives for people to hype gold. But I cannot figure out what motivates people to write this other crap. The only thing I can figure is that the authors of these books and web sites are socialist ideologists, and they are out attacking the idea of private banks and non-government entities controlling the money supply... dressing themselves up as 'patriots' as a way to peddle government ownership of the means of production. I guess if you're already economically illiterate, you won't know Socialism when you see it either, so you could even fall for that... and not know you had.
What you are essentially telling us is that we should abandon a free market in currencies, and instead fix the prices by fiat.
Strawman. Non sequitur. I believe that a yard should be fixed/defined as three feet. Would you describe that as my saying that I do not favor a free market in distances, and instead want to fix the relationship by fiat.
[Russia and South Africa] have enough gold in the ground to jack the price around all they want.
Above ground “we” have 25% of the world supply; Russia has 1%; South Africa a fraction of 1%. But what does this matter? By what reasoning do you conclude that defining a currency honestly as representing a specific quantity of a commodity puts an economy at the mercy of another country that has a below ground supply of that commodity?
You want Vladimir Putin setting the rate at which our economy can expand? (I know you don't believe you're doing that by pegging currencies to gold, but again, that's only because you don't understand how any of this really works).
Would you explain how it works?
You pretend that gold just "is," and there isn't anybody mucking around with its supply.
No such pretension is required for my desire for honest money.
Plus you'd take the currency-trading market out of the system, which is what keeps the current system honest.
Honest money does not require a currency trading market. In fact, the mere existence of a currency trading market is prima facie proof that the money isn’t honest.
Pick any one of these topics so we can have an intellectual discussion about it.
Yes, he had to confiscate our money in order to protect our money.
LOL
What cost $1 in 1933 would cost $12.49 in 2001. Equivalently, if you were to buy exactly the same products in 2001 and 1933, they would cost you $1 and $0.08 respectively.
Oh that FDR, wasn't he a sly one?
I cannot discuss these issues at length with impertinent illiterates without becoming too acerbic in my replies.
It's hard to grasp the level of cognitive dissonance necessary to believe that FDR saved capitalism from itself by abandoning legal money and imposing Gubmint fiat paper on every American.
Of course, the 'New Deal' was simply the U.S. manifestation of the world-wide infatuation with 'socialism', 'progress', and 'modernism', in the post-WWI era.
Those very words seem mildewed and dusty now, like tracts from the '30s found in your basement. The 2nd and 3rd rate minds staffing our schools and colleges, however, cherish these worm-eaten doctrines as signs of intellectual/ethical grace. If one does not believe in the merits of 'socialism' one is simply too barbaric to break intellectual bread with; you must be either a fascist or a crank or both to question the intellectual and moral authority of the current elites. Call this phenomena a regression to the historical mean-- the grim acceptance of an ordered society, with a place for everyone and everyone in his place.
The market??? EEEEWWWW!!! Who wants THAT grubby thing??? That's the societal norm today.
Reform may be impossible; it's likely that the financial system must suffer an earthquake before people are willing to become rational. Nothing new there.
The attempted smearing of 'goldbugs' by association with tinfoilers and other paranoid headcases is beneath comment.
I'm certain that a century from now, the criminal antics of today's financial actors and the rube-like gullibility of the investing public will be viewed with the sort of slack-jawed amazement with which we see the authors and victims of John Law's schemes, or tulip-speculators, or of course South-Seas Company investors.
Any lurkers out there reading this thread should take one lesson to heart: there is NO certainty in the market for financial assets-- no certainty, that is, except volatility.
Diversify, diversify, diversify...oh yeah, and sell too early. ;^)
Mr. Carroll's arguments are very easily disposed of when one compares fiat paper money. Certainly a gold-standard currency has its problems, but those problems are orders of magnitude worse with a currency not backed by anything. Nearly every argument he makes can be made more harshly upon a fiat/floating currency.
A true gold standard is really a barter system, wherein people trade goods (gold) for other goods & services. If, in the worst case, there is a run on the banks, everyone actually has something: the gold represented by the gold-backed currency. Sure, one may not find a pile of gold particularly useful, but it is infinitely more useful than an ATM card and a "We're sorry, but your banking institution is permanently closed" screen.
Gold is used for currency because it is relatively (but not exceptionally) rare, compact, easily purified, attractive, and generally convenient in relation to currency needs. Silver and platinum are similar, but less suitable due to greater or lesser availability in relation to the desired convenience. The main idea is that the monetary system is actually bartering, instead of a truly abstract representation of wealth. A barter-backed currency could be based on other goods, but gold is by far more convenient; we could have a pastrami-sandwich-backed currency, but storage & durability proves problematic. A floating/fiat currency represents nothing, it is merely an IOU.
Economic problems begin when the gov't starts cheating by handing out more reserve notes than there is gold to back it, meaning that some people are actually holding reserve notes for nothing - a problem exacerbated ultimately when the currency officially represents nothing; a run on banks means people discover they actually own nothing except an "IOU" useful only in scamming the next person into accepting it.
The only good a floating/fiat currency has is, perversely, economic stimulation: it's in everyone's best interests to pass on the IOU notes as quickly as possible in exchange for other goods/services, so that when the music stops they are not stuck with nothing more than a piece of paper (or, more accurately nowdays, a few bits in someone else's computer).
Sure, gold standards have problems - problems which mostly rise from the abuse thereof: handing out reserve notes with nothing backing them, punishing people for owning & marking gold, etc. But fiat currencies are wholly built upon exactly these problems.
I'd like to see an explaination of what's so great about fiat currencies without resorting to gold-bashing.
I have to confess that the only formal economics course I ever took was "Finance and Investments" with Mr. Fitzsimmons in high school - 1973. Half the year was spent on banking and the Federal Reserve, the other half was spent studying the stock market - we went on field trips to the Fed and the stock exchange in Philly, opened brokerage accounts, kept up with current events. I was on a college track headed for a business degree until I took my science elective in the physics electronics lab and realized that was the way I wanted to go. Despite the school counselors who told me to 'fuggetaboudit', Mr. Fitzsimmons steered me around all of the bureaucratic crap that colleges use to discourage kids from doing what they love instead of what the test scores say. It took me an extra year of catching up on the math, but I have Mr. Fitzsimmons to thank today for my being a disgruntled EE instead of a disgruntled accountant.
We did have the necessary amount of precious metals before Clinton and company sold off a large part of the Gold reserve to pay down the National Debt to make their numbers look good in the Media!
The current system of "Fiat Currency" is a house of cards! FACT: Fiat Currency is worthless. When the next wave of Terrorist attacks happens watch how it effects our economy that is built on worthless currency.
Whenever the money supply grows relative to goods available prices will go up. Part of the reason you don’t see much cpi inflation is that we have (until relatively recently) experienced asset inflation instead (stocks, real estate, etc.). Secondly, our large trade deficit actually exports our inflation by simultaneously increasing the amount of goods and reducing the amount of dollars, domestically. What you are probably concerned about are all those dollars being exported. If and when they come home to roost the scenario you fear will come to pass and we will all have to run for cover.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.