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.
The whole economic history of the World cries out that you can almost never trust the government to do what is right, when there is a problem that they can cover up by manipulating the currency. Just look around. When Government can manipulate the apparent value of money, they invariably will.
William Flax Return Of The Gods Web Site
[From you]: Mr. Carroll's arguements are not easily disposed of.
You're right. It would take me at least 20 hours to "dispose of" this bozo's positions.
But for starters, let me address the above quote from the article.
"There is a distinction between a debt discharged and a debt paid. When discharged the debt still exists, though divested of its character as a legal obligation during the operation of the discharge. Something of the original vitality of the debt continues to exist which may be transferred, even though the transferee takes it subject to its disability incident to the discharge. The fact that it carries something which may be consideration for a new promise to pay, so as to make an otherwise worthless promise a legal obligation, makes it the subject of transfer by assignment." (Stanek v. White, 172. Minn. 390, 215 N. W.784).On June 5, 1933, Congress enacted House Joint Resolution 192 to suspend the gold standard and to abrogate the gold clause. This resolution declared that "Whereas the holding or dealing in gold affect the public interest, and are therefore subject to proper regulation and restriction; and whereas the existing emergency has disclosed that provisions of obligations which purport to give the obligee a right to require payment in gold or a particular kind of coin or currency. . . are inconsistent with the declared policy of congress. . . in the payment of debts."
This resolution declared that any obligation requiring "payment in gold or a particular kind of coin or currency, or in an amount in money policy; and . . . Every obligation heretofore or hereafter incurred, shall be discharged upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts."
Is the above a "pseudo-legal argument"? I think not.
A legal "note" has to possess the following four indicia to be valid:
1. It has to state the amount owed.
2. It has to state to whom it shall be paid.
3. It has to state when it is due and payable.
4. It has to state the form of payment.
Before Federal Reserve Notes arrived, our formerly specie-backed currency conformed to all four indicia listed above. As to #1, a Twenty Dollar Bill stated the amount, $20.00. As to #2, it stated "Pay to the Bearer". As to #3, it stated that it was due "On Demand". And as to #4, it stated that it was payble in "Gold or Silver".
The following is the verbatim text from a 1922 note:
"This certifies that there have been deposited in the Treasury of the United States of America fifty dollars in gold coin payable to the bearer on demand."
A Federal Reserve Note fails on all four counts.
To put it more simply. If I write out an I.O.U "note" to you in the amount of $100.00, and agree to pay that note in 30 days, I can't simply hand you another I.O.U. as "payment" when the 30 days are up.
I hope you don't mind me getting slightly off the subject, but I have a question to ask - mostly a curiosity on my part. What the Constitution forbade to the states was making anything but gold or silver a tender in payment of debts. But what if the debt was something other than gold or silver to begin with? What if I loaned Wisconsin a bunch of clam shells? Are they still prohibited from paying me back in kind?
I'll try not to take offense at that crack.
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i:
"FDR's pattern, not just when it came to monetary policy, but to all aspects of public affairs, was not to simply "minimize the damage", but to completely overhaul the pre-existing social order, using an emergency as his vehicle."
I agreed that FDR was a socialist scumbag, remember? That doesn't in any way change the validity of my point, which was that preventing a total collaspe of the currency was a higher priority than punishing those past leaders who failed to keep enough specie to totally back the currency, or worse, punishing the regular American citizens that were just trying to stay alive.
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i:
"There may have been plenty of temporary measures government could have instituted to alleviate the damage that government caused, but that's no reason for society to be run like a permanent emergency."
Nor did I suggest it should be. You seem to be responding as if I was defending FDR's entire presidency. Only a gross misreading of what I clearly posted could lead one to that erroneous conclusion. If you are trying to suggest that floating the currency was "running the society like a permanent emergency", I don't see it. The specie-backed currency was a fundamentally flawed system. There was no possible way to get enough specie with the nation in the shape it was in to back all those notes in circulation. There was no way back. There still isn't a realistic way back to a gold standard that I've seen yet.
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i:
"And again, you have yet to answer the point I (#43) and at least one other poster raised, that every charge of "instability" you can level against a gold-based system can be applied with even greater force against a fiat currency - unless of course you simply trust the government to do what's right."
You are mistaken. The lesson of history shows the opposite, that our fiat courrency has been far more stable than the previous specie-backed currency. All the major depressions, panics, etc., in America's history occured before the fiat currency was instituted. Since then, we've had only relatively minor recessions. Even the recession of the early '80s (10%+ unemployment and 20%+ interest rates) was a mere ripple compared the disasters of the specie-backed currency era, like the Great Depression or the Panic of 1873. I'm all in favor of a better system than our current fiat system, but the 'gold standard' has proven to be worse, not better thus far.
I am not "a defender of fiat currency". I've repeatedly stated that I would love to get rid of it, if a better system can be found. If you must stick a label on me, 'gold standard critic' would be fair. And yes, I am interested in a serious debate of what I completely agree is a set of very important issues.
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d:
"1. Did we have to get off the gold standard because “everyone was in big trouble if we didn’t” or was that just an incredibly Big Lie?"
I believe I've given my answer to that one already. FDR had two choices; let the people continue to redeem currency for bullion until it was gone, and then watch the entire American economic system implode; or, float the currency. If there was another option, no one here has outlined it yet. Thus, FDR had no choice but to go to a floating currency.
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d:
"2. What kind of a monetary system is the ideal one for a free society today and how do we get there?"
I already proposed a possible answer to that. Check the bottom of post # 132.
And you know why that is, of course? It's because the Fed keeps churning out more dollars in order to smooth everything out for us. How can anyone believe that we can go on forever like this? It's like saying that we should forget about trying to balance the federal budget and just borrow everything we need and - Poof! - no more budget crises, no more government shutdowns a la 1995, no more problems! If there were crises when we were on the gold standard, it was only because of the failure of government to adhere to the discipline that gold demanded. If your point was that it's unrealistic to expect government to observe such discipline, then I might agree. But then the solution would be to remove government, not discipline, from the equation, and establish a truly free market in money.
There would be no problem, whatsoever, if you or they contracted to pay back with clam shells. Neither you, nor the State, would be making clam shells legal tender. Legal tender is something that one has to accept in payment for a debt denominated in terms of a monetary unit. But note, also, that the Constitution forbids the States from impairing the obligation of contracts. That is one of the few absolute restrictions imposed. The document was incredibly well and carefully thought out, and the only real mistake that appears after 215 years is that they didn't think to put the same contract and currency restrictions on the Federal Government.
William Flax Return Of The Gods Web Site
I would suggest that you rethink that statement. It is extremely likely that Roosevelt's Keynesian games with our money, right after he took office, are the major reason that the Great Depression lasted until we got into World War II. We never had another Depression that lasted that long. In violating the obligations of contracts denominated in stable (gold backed money) he undermined confidence. In devaluating the Dollar, he wiped out Capital.
You might also look at what happened when the end of the 36 year cycle hit in 1965, with Lyndon Johnson. The bear market lasted every bit as long as that which began in 1929--Lyndon simply masked it with the inflationary way he waged the Viet Nam War. But note, the Stock Market did not get back to its December, 1965 level until 1981, while the Dollar lost over 2/3 of its buying power during the same period.
For some basic thoughts on economics, see Economics & Common Sense.
The reason for basing a monetary system on gold, is simply because the latter is maleable and compact, and most people value it. One could, in theory, base it upon anything that people value. The need is to have a standard that the Government cannot fudge. If people cannot trust their money, economic activity is suppressed--particularly on the production or supply side--and providence is neglected. People become more dependent upon Government--which is, of course, what the demagogues desire.
William Flax Return Of The Gods Web Site
And I am not a gold bug but concede that gold has done a better job historically than anything else. My position is that money must maintain “scarcity integrity.” That means nobody should be able to arbitrarily screw around with its supply. Do we agree on that? Do we agree the current system doesn’t come close to doing it? In fact, the current system is characterized by a group of men going into a close door meeting every month or so while the rest of us wait with baited breath for their pronouncements. They emerge, say up 1/4 down 1/4 or unchanged and 6 weeks later release a summary of the reasons why they did what they did! As I have said elsewhere, a properly devised fiat currency could potentially achieve this. The first thing you have to get rid of is the irrational and enormous privilege of central banks to create irredeemable liabilities against itself without limit and of banks to create liabilities against themselves limited only by the Central Bank’s self control.
FDR had two choices; let the people continue to redeem currency for bullion until it was gone...or float the currency
What do you mean “until it was gone”? Don’t you mean until it was transfer from the banks that promised it to (some of the) people to whom they promise it to. That’s the way things should be. Many prior presidents also protected the banks by suspending specie payment until order was restored (I disagree with that, too, but it demonstrates there was an alternative to going off the gold standard). On another thread, about a month ago, Professor Anatal Fekete put forth the thesis that going off the gold standard was a rescue mission of the banks to guarantee that the bond rally of the 30s would continue (bonds would be where safe money would go once gold was verboten).
I already proposed a possible answer to [what is an ideal currency for a free society]. Check the bottom of post # 132.
I read your proposal but couldn’t see the rationale for making land (illiquid and non-standard) the standard of liquidity. Would you not agree with me, however, that scarcity integrity, is the crucial characteristic of an honest currency. I have a proposal that achieves scarcity integrity AND pays off the entire national debt. I'll try to find a link to an FR discussion of it several months ago if there is any interest.
I look forward to this week's gold market with heightened interest. ;^)
d:
"And I am not a gold bug but concede that gold has done a better job historically than anything else."
Since all the major economic disasters in American history occured while on the 'gold standard', and none have occured since we scrapped the 'gold standard', your claim here is clearly the exact opposite of the undeniable truth.
----------
d:
"My position is that money must maintain “scarcity integrity.” That means nobody should be able to arbitrarily screw around with its supply. Do we agree on that?"
No, that is a false premise. Governments have historically created artificial gold shortages and gluts, or the perception of same by hoarding or dumping large amounts of gold on the market. Gold is as easily manipulated as any other commodity. We already covered this. Likewise, the government can pull gold-backed currency out of circulation and put it into physical storage, manipulating the currency supply. The idea that specie-backed currency or the value of the specie itself can't be easily manipulated by huge buyers (like governments or private consortiums) is a naive fantasy.
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d:
"Do we agree the current system doesn’t come close to doing it? In fact, the current system is characterized by a group of men going into a close door meeting every month or so while the rest of us wait with baited breath for their pronouncements. They emerge, say up 1/4 down 1/4 or unchanged and 6 weeks later release a summary of the reasons why they did what they did!"
The fiat currency is a little easier to manipulate than specie-backed currency, but in either case, the parties doing the manipulating were able to do so. Thus, in the real world, there is no meaniful difference.
----------
d:
"As I have said elsewhere, a properly devised fiat currency could potentially achieve this. The first thing you have to get rid of is the irrational and enormous privilege of central banks to create irredeemable liabilities against itself without limit and of banks to create liabilities against themselves limited only by the Central Bank’s self control."
While a believe a manipulation-proof currency is a pipe dream, I agree wholeheartedly that breaking the Federal Reserve Bank's deathgrip on our currency would be a good thing.
----------
V1:
"FDR had two choices; let the people continue to redeem currency for bullion until it was gone...or float the currency."
d:
"What do you mean “until it was gone”?"
I mean until the fedgov had no more specie to redeem their notes, and the currency & economy collapsed completely. But then, I suspect you knew full well what I meant.
----------
d:
"Don’t you mean until it was transfer from the banks that promised it to (some of the) people to whom they promise it to. That’s the way things should be."
You completely ignore the devestation to our nation that would have occured in a currency collapse. Doesn't the suffering of American citizens mean anything? Or is your quest for philosophical ideals more important in the midst of one of the greatest disasters our nation has ever faced? I find your attitude somewhat less than realistic.
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d:
"Many prior presidents also protected the banks by suspending specie payment until order was restored (I disagree with that, too, but it demonstrates there was an alternative to going off the gold standard)."
You have contradicted yourself here. A suspension of redemption is only required when there is not enough specie to back the amount of currency issued. That means the government is pumping out worthless paper that it has no backing for. That is as much a fiat currency as the one we have now; it's just a fiat currency that includes a socialist price-fixing scheme that sets a fixed price on a comodity by government edict, namely gold. It's also a criminal fraud, as the notes claim right on them that they all can be redeemed at any time, which is a lie under such circumstances. At least FRNs make no such fraudulent claim.
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d:
"On another thread, about a month ago, Professor Anatal Fekete put forth the thesis that going off the gold standard was a rescue mission of the banks to guarantee that the bond rally of the 30s would continue (bonds would be where safe money would go once gold was verboten)."
There were many wrong reasons for going off the gold standard. That in no way proves it wasn't the right thing to do for the country at the time. History shows a vast improvement in the stability of the economy since that was done; you can't get around that fact.
----------
V1:
"I already proposed a possible answer to [what is an ideal currency for a free society]. Check the bottom of post # 132.
d:
"I read your proposal but couldn’t see the rationale for making land (illiquid and non-standard) the standard of liquidity. Would you not agree with me, however, that scarcity integrity, is the crucial characteristic of an honest currency."
I proposed a currency that includes scarcity intergrity with the 'land standard'. Liquidity is irrelevant, as land titles can be bought, sold and traded just as easily as gold. "Non-standard" implies that we can't try anything not encompassed within the conventional wisdom. Is that not contrary to the American spirit of ingenuity? Scarcity is a given with land, as it has a fixed supply. Gold's scarcity is not a given, especially with new technologies, a point you repeatedly try to ignore, apparently because you have no answer to it.
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d:
"I have a proposal that achieves scarcity integrity AND pays off the entire national debt. I'll try to find a link to an FR discussion of it several months ago if there is any interest."
I would be very interested in reading your proposal. Please post the link here when you find it. Thanks!
o:
"I would suggest that you rethink that statement. It is extremely likely that Roosevelt's Keynesian games with our money, right after he took office, are the major reason that the Great Depression lasted until we got into World War II. We never had another Depression that lasted that long."
I suggest that you are the one that needs to rethink your flawed premise here. You are focusing in on one factor in isolation, and ignoring other huge economic forces at work. FDR's massive federal spending on the large array of new government agencies and the stiff federal taxes levied to pay for them had an extremely deleterious effect on the economy's struggle to recover. The vast majority of this tax money was pumped into makework fedgov jobs, which was just another form of welfare, a redistribution of wealth with no new wealth being created. The Great Depression lasted as long as this condition lasted. When WWII started, that federal spending was shifted to creating new means of production, factories, foundries, engineering houses, etc., new businesses that created real wealth and real jobs. That is when things picked up, even though the fiat currency remained. The relationship seems clear to me, and the main problem appears to be excessive taxes for the purpose of redistribution of wealth.
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o:
"In violating the obligations of contracts denominated in stable (gold backed money) he undermined confidence. In devaluating the Dollar, he wiped out Capital."
Since the crash and total lack of investment capital occured before the currency standard change, this simply isn't a logical conclusion.
----------
; o:
"You might also look at what happened when the end of the 36 year cycle hit in 1965, with Lyndon Johnson. The bear market lasted every bit as long as that which began in 1929--Lyndon simply masked it with the inflationary way he waged the Viet Nam War. But note, the Stock Market did not get back to its December, 1965 level until 1981, while the Dollar lost over 2/3 of its buying power during the same period."
We had exactly the same syndrome in 1965 with LBJ's "Great Society" programs as we did with FDR's new administration in 1932, a massive increase in fedgov spending and taxes. Here, in 1965, was the birth of welfare, food stamps, medicare, mental health care, and a number of other social programs being created all in one very short period. That massive increase in fedgov spending and taxes for all these new 'entitlements' was a big hit on the economy. With more new fedgov programs and the big entitlements' excessive built-in COLAs in years following, the trend of increased wealth redistribution through federal taxes continued right up until 1981, when Reagan took office. The minute Reagan changed the social spending philosophy of the fedgov and the people perceived that entitlement spending would be curtailed and taxes would be going down, the economy responded immediately. The timeline supports my premise perfectly. The fact that we suffered economic hardship that was very mild compared to previous economic disasters that occured on the 'gold standard' also supports my premise perfectly.
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o:
"For some basic thoughts on economics, see Economics & Common Sense."
Please elaborate.
-----------
o:
"The reason for basing a monetary system on gold, is simply because the latter is maleable and compact, and most people value it. One could, in theory, base it upon anything that people value. The need is to have a standard that the Government cannot fudge. If people cannot trust their money, economic activity is suppressed--particularly on the production or supply side--and providence is neglected. People become more dependent upon Government--which is, of course, what the demagogues desire."
As I keep repeatedly (and apparently futilely) pointing out, the idea that the government can't "fudge" a specie-backed currency is a naive fantasy. Also, the US dollar is the most trusted currency on the planet, which puts the lie to this premise that fiat currencies are not trusted by the people. The claim that those who disagree with the 'gold standard' are "demagogues" desire increased dependance on the government is itself rather hypocritical demogoguery.
i:
"And you know why that is, of course? It's because the Fed keeps churning out more dollars in order to smooth everything out for us."
The idea that the fedgov has kept every economic crisis in check by simply printing more money is simplistic and wrong. Increasing the money supply weakens the dollar and creates its own problems.
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i:
"How can anyone believe that we can go on forever like this? It's like saying that we should forget about trying to balance the federal budget and just borrow everything we need and - Poof! - no more budget crises, no more government shutdowns a la 1995, no more problems!"
If your implication that the fedgov just printed more money to solve all of its financial problems was correct, there never would have been a shutdown in 1995, now would there ??? While things are far from perfect, there is no question that fedgov deficit spending has been curtailed somewhat. This is at least a fundamental change in attitudes inside the Beltway. Now if we can only keep them from using the 'War on Terrorism' and the recession as an excuse to lapse back into the same old bad habits....
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i:
"If there were crises when we were on the gold standard...."
IF ?!?! Surely you have some grasp of America's economic history!
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i:
".... it was only because of the failure of government to adhere to the discipline that gold demanded."
What discipline did a gold standard demand from government? They still printed as much currency as they wanted, without the specie to back it up. There has never been even close to enough specie to fully back all the currency issued in the entire history of this nation.
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i:
"If your point was that it's unrealistic to expect government to observe such discipline, then I might agree."
That's only an ancillary part of my point, but true none the less.
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i:
"But then the solution would be to remove government, not discipline, from the equation, and establish a truly free market in money."
I believe I've already stated a couple times here that I think a privatized currency is desirable. However, contrary to your claim, it would not be a solution to all the problems you appear to think that it would be.
OK, then. If fiat currency has been so much better for us, in your view, then what is the mechanism by which it has smoothed things out, if not by enabling the feds to print more money at will without having to worry about short-term consequences?
Increasing the money supply weakens the dollar and creates its own problems.
Thanks for the hot tip. Now I suggest you tell the feds that. And by the way, if you'd be so kind as to see #116 (and please excuse my mathematical error: "million" should be "billion") and view the responses - I'd be interested in your comments.
all the major economic disasters in American history occured while on the 'gold standard', and none have occured since we scrapped the 'gold standard', your claim here is clearly the exact opposite of the undeniable truth.
Let’s just restrict ourselves to financial disasters rather than the broader category of economic disasters. In the last 15 years alone we have had an S&L bailout, a Mexican bailout, a Southeast Asian bailout, Russian bailout, Brazilian bailout, Argentinian bailout, and LTCM confiscation of assets just to name a few. Every single one of these (plus all the things about to explode like derivatives, etc.) are directly attributable to fiat currency that the financial elite can create at will. Why can’t you see that?
You go on to say that scarcity integrity is not an essential element of what makes a money work but use as your example the historical manipulation of the gold market by government. Aside from the fact I disagree with your facts, your use of this as evidence leads me to believe you do not know what I mean by “scarcity integrity.” To clarify, by scarcity integrity I mean no entity can create it and destroy it by whim as is the case with our current system. Even Michael Milken, in describing what went wrong with his operation said something to this effect: a lot of perverse things happen when money ceases to be scarce…and for me and my operations, that’s exactly what happened.
government can pull gold-backed currency out of circulation and put it into physical storage, manipulating the currency supply.
???????
a manipulation-proof currency is a pipe dream
I seriously disagree. It is possible although not likely as long as people do not see the danger of leaving these things up to the experts who always devise a system for their own benefit.
By what principle do you claim that the transfer of gold from the government (actually banks) to the people is described as “until it is all gone.” It seems to me it is merely changing hands. There are other problems I’m not addressing here, but I find it curious that you use the term “until it is all gone.”
You completely ignore the devestation to our nation that would have occured in a currency collapse.
Do you mean the banks made promises beyond what they could keep, but for the good of all you favor a system that allows them to continue making more and more promises and for the government to undertake rescue missions to keep the Ponzi scheme going for as long as possible, because when we finally recognize the insanity there will be a price to pay?
You claim that I contradict myself because I state that during the gold standard days specie redemption was temporarily suspended. However, I specifically said that I was also opposed to that and was offering it up for the limited purpose of disputing your claim that FDR’s action was the only action possible
History shows a vast improvement in the stability of the economy since that was done; you can't get around that fact.
History hasn’t been fully written yet, but it appears you have sufficient understanding to see the handwriting on the wall but for some reason it’s invisible to you. In any event, I do not see the stability you see. I see an accident waiting to happen that is giving more advanced warning than someone should need.
When I find my proposal I will post it. My guess is that it was a thread on which Nick Danger and I went back and forth on in the Nov 01-Jan 02 period. Any suggestion about how I can pinpoint it beyond a self search through that period.
I have tried to touch on your entire post. However, I hate these dialogues that go all over the place. I look forward to your response, but even if I disagree with all of it, I will just pick out the one issue I feel strongest about to try to narrow the discussion.
No need to limit yourself in your responses. All points made in a debate are fair game.
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d:
"You claim:"
d quoting V1:
"all the major economic disasters in American history occured while on the 'gold standard', and none have occured since we scrapped the 'gold standard', your claim here is clearly the exact opposite of the undeniable truth."
d:
"Let's just restrict ourselves to financial disasters rather than the broader category of economic disasters."
Why? I thought the subject here was how our currency standard effected the economy's stability.
----------
d:
"In the last 15 years alone we have had an S&L bailout, a Mexican bailout, a Southeast Asian bailout, Russian bailout, Brazilian bailout, Argentinian bailout, and LTCM confiscation of assets just to name a few. Every single one of these (plus all the things about to explode like derivatives, etc.) are directly attributable to fiat currency that the financial elite can create at will. Why can't you see that?"
Because it's completely false. First, the subject here is how the American currency standard effects the American economy. Second, there are many factors in play in these other countries; manipulations of investment and debt by the World Bank and other globalist orgs; fundamental corruption as an accepted way of life; a lack of diversity resulting in excessive vunerability to market forces in their economies, manifested by total dependency on a few commodities that are their main national products; instability in government and wildly varying government policies from regime to regime; a lack of both domestic and foreign investment, due all of the above factors and to a fear of sudden nationalization of assets by a leftist coup; a poorly educated workforce with low productivity; unions and strikes; etc.. Yet you lay virtually all their problems at the foot of a fiat currency. That is so laughably simplistic and wrong, it beggars description.
As for the S&L fiasco, that was not due to currency problems. We had a fiat currency since 1932 (and before), yet the S&Ls remained a pillar of strength in American financial markets until very moment the 'deregulation' of the industry occured. Suddenly, the S&Ls could buy up bad loans and huge amounts of land of questionable value, and did so with abandon. Any enforcement provisions for remaining rules had been stripped out of the deregulation legislation by Democratic Senators (remember the 'Keating Five scandal' ???), so no meaningful oversight of the industry was possible. Then, when the bottom fell out of the land market and the S&Ls main assets lost most of their value, and all they had left was an enormous debt load, the crisis occurred. If there had been no 'deregulation', there would have been no S&L crisis. Again, the S&L collapse had little, if anything to do with currency problems.
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d:
"You go on to say that scarcity integrity is not an essential element of what makes a money work but use as your example the historical manipulation of the gold market by government."
There is also the small matter of the fact that our current currency has been the strongest on the planet for seven decades with no 'scarcity integrity' at all. There is also the matter that the old 'gold standard' currency was really a fiat currency itself, as there was never enough specie to back the amount of currency issued. How about addressing those points, hmmm ???
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d:
"Aside from the fact I disagree with your facts...."
Instead of disagreeing with my facts, why don't you try refuting them.... if you can.
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d:
".... your use of this as evidence leads me to believe you do not know what I mean by "scarcity integrity."
You are mistaken. I understand your argument, I simply recognize that it's wrong.
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d:
"To clarify, by scarcity integrity I mean no entity can create it and destroy it by whim as is the case with our current system. Even Michael Milken, in describing what went wrong with his operation said something to this effect: a lot of perverse things happen when money ceases to be scarce…and for me and my operations, that's exactly what happened."
I am getting tired of repeating myself. With our former 'gold-backed' currency, the government created or destroyed as much currency as they wished without having the means to back it. Your whole premise seems to be how great the 'gold-backed' currency was, when it was just another fiat currency all along!
A non-fiat currency would have to have a one-to-one relationship between the amount of government specie reserves and the amount of notes issue. Since the price of gold was fixed by government edict, and the dollar was equal in value to 371.25 grains of pure silver (as per the Coinage Act of 1792) or 24.75 grains of pure gold. There has never in American history been nearly enough gold and/or silver bullion reserves to redeem all the currency issued by the government. Thus, the American government was printing unbacked, worthless fiat notes all along, and merely operating under the fiction that they all could be redeemed. Your whole argument is a sham based upon a totally false premise.
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V1:
".... government can pull gold-backed currency out of circulation and put it into physical storage, manipulating the currency supply."
d:
"???????"
With a fully specie-backed currency (which America has NEVER had), it can be manipulated by the government or large finanacial consortiums as I described above, by simply physically storing large amounts of currency when they wish to restrict the currency supply, then dumping it back on the market when they wish to inflated the currency supply. The government collect huge amounts in taxes, and the Federal Reserve Bank has huge amounts of currency flow in daily. Also, damged currency is destroyed and replaced with newly-minted notes. Instead of putting that currency back into circulation right away, they put it in vaults and hold it, restricting the currency supply (the manin component of the M1 money supply). The result is precisely the same as printing more or less fiat currency, inflating or restricting the money supply, and the currency manipulation has the exact same effect in both cases. Do you get it now ???
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V1:
".... a manipulation-proof currency is a pipe dream."
d:
"I seriously disagree."
Then with all due respect, you are deluded. Any currency system created by man can, and will be manipulated by man. Nothing is corruption- or manipulation-proof.
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d:
"It is possible although not likely as long as people do not see the danger of leaving these things up to the experts who always devise a system for their own benefit."
They will always find a way, whether such matters are "left up to them" or not.
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d:
"By what principle do you claim that the transfer of gold from the government (actually banks) to the people is described as "until it is all gone." It seems to me it is merely changing hands. There are other problems I'm not addressing here, but I find it curious that you use the term "until it is all gone."
I've already explained this. Please don't pretend to be obtuse, and focus in on semantics while ignoring the actual point made. That doesn't lend creedence to your argument, exactly the opposite. You know full well that in 1932 when large numbers of citizens were redeeming their currency for bullion, once the government bullions reserves supposedly backing the currency were depleted, the currency would have collapsed. The economic devastation would have likely been similar to the hyperinflation in Germany in the late '20s & early '30s when their currency collapsed.
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V1:
"You completely ignore the devestation to our nation that would have occured in a currency collapse."
d:
"Do you mean the banks made promises beyond what they could keep...."
True, as did the government, since day one.
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d:
".... but for the good of all you favor a system that allows them to continue making more and more promises and for the government to undertake rescue missions to keep the Ponzi scheme going for as long as possible, because when we finally recognize the insanity there will be a price to pay?"
First, I am again repeating that I favor dumping the fiat currency system for a better one. Please stop falsely representing my views. Second, I am repeating that the pre-1932 'gold standard' currency was a fiat currency as well, so the truth is we dumped one fiat currency for another one. Third, please tell me; are you in favor of the idea that FDR should have let the currency collapse occur, with the resulting devastation, just as "a matter of principle" ??? Or just to protect the fiction of a fully gold-backed currency, something America has never truly had in the first place ??? And fourth, why is it necessary for me to repeat myself to you so much?
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d:
"You claim that I contradict myself because I state that during the gold standard days specie redemption was temporarily suspended. However, I specifically said that I was also opposed to that and was offering it up for the limited purpose of disputing your claim that FDR's action was the only action possible."
Irrelevant, since your whole argument is based on the totally false conception of us having a non-fiat currency before 1932.
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V1:
"History shows a vast improvement in the stability of the economy since that was done; you can't get around that fact."
d:
"History hasn't been fully written yet...."
History is never fully written, but seven decades of far greater stability without the 'gold standard' is a fact you cannot dispute.
----------
d:
".... but it appears you have sufficient understanding to see the handwriting on the wall but for some reason it's invisible to you. In any event, I do not see the stability you see. I see an accident waiting to happen that is giving more advanced warning than someone should need."
That is nothing more than your opinion, the exact same one that has been espoused by 'hard currency' advocates since 1932. Disaster is always "right around the corner" for you guys. The history of economic disaster under the 'gold standard', however, is not opinion, it is not a prediction, it is a fact.
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d:
"When I find my proposal I will post it. My guess is that it was a thread on which Nick Danger and I went back and forth on in the Nov 01-Jan 02 period. Any suggestion about how I can pinpoint it beyond a self search through that period."
Sorry, I don't know how to assist your search. If you find it much later, I'd appreciate a ping when you post it. Thanks.
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d:
"I have tried to touch on your entire post. However, I hate these dialogues that go all over the place. I look forward to your response, but even if I disagree with all of it, I will just pick out the one issue I feel strongest about to try to narrow the discussion."
I wish you'd address all the points, since you've failed to rebutt any of them thus far.
i:
"OK, then. If fiat currency has been so much better for us, in your view, then what is the mechanism by which it has smoothed things out, if not by enabling the feds to print more money at will without having to worry about short-term consequences?"
There are a variety of mechanisms that have smoothed out the economy. The stock market rules have been reformed so that the bursting of a massive speculation bubble won't crash the economy, as it helped do in the past. An example is 'Black Monday', Monday, 19 October 1987. Stocks lost nearly a quarter of their value, over 500 points in one day, a greater single-day percentage loss than the crash that triggered the Great Depression. Yet the market bounced back in a very short time. The Federal Reserve Bank interviened, but not by printing currency. It interveined by buying stock to shore up stock prices and offering loan guarantees to corporations in trouble, shoring up investor confidence in those companies. Banks have done just as easily in 1932, but did not. Since Black Monday, the computer-controlled 'program trading' that was credited as the major causal factor in that crash has been addressed with stock market 'circuit breaker' rules that will suspend trading in the event of precipitous stock price drops.
Another major factor in the Great Depression and the Panic of 1873 was the severe hard times in the agricultural sector, which at that time was still the foundation of America's economy. At the turn of the 20th Century, three out of four workers in America had agriculture-related jobs. Today, it's around 4% of workers. Agriculture has always been a 'boom & bust' sort of business, and today nations that have a largely agriculture-based economy still suffer major fluctuations in their economies.
Yet another factor was the fedgov insuring bank deposits to prevent bank failures. Bank failures were one of the primary driving forces in previous economic disasters. Making such failures impossible shores up consumer confidence when the economy is in trouble, that extra confidence making a major disaster less likely in the first place.
As for the 'gold standard', when you have tied the value of the currency to the value of gold, that creates a big problem in a depression. As all us capitalists know, government price fixing schemes never overcome real-world market forces in the end. So regardless of the fact that the government had fixed the price of gold by edict, when there was a depression there was the typical massive price deflation that characterizes such an event. The value of gold and the currency that was tied to it deflated, plummeting rapidly, as did the confidence of the people in that currency. When people knew even their gold wouldn't buy them nearly as much in real market, it's pretty obvious how their attitude toward the supposedly gold-backed currency changed.
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V1:
"Increasing the money supply weakens the dollar and creates its own problems."
i:
"Thanks for the hot tip. Now I suggest you tell the feds that."
You said the fedgov "keeps churning out more dollars in order to smooth everything out for us", implying it smoothed things, not that it created problems. Since you failed to make yourself clear, your sarcasm is unwarranted.
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i:
"And by the way, if you'd be so kind as to see #116 (and please excuse my mathematical error: "million" should be "billion") and view the responses - I'd be interested in your comments."
Post # 116, by i:
"There's been a lot of talk about inflation on this thread. I have a question for those with more knowledge of economics than I. I understand that the amount of money circulating in the U.S. is somewhere in the vicinity of $400-500 million (maybe a little more - I think my information is old). I also understand that our annual trade deficit is... somewhere in the vicinity of $400-500 million. This would mean that every year the value of our dollar should be cut roughly in half. But that doesn't seem to be happening. Does anyone know how these numbers add up?"
The amount of physical US currency in circulation, FRNs and coins, circa 2000, as per the Federal Reserve website is $600 billion$. The US trade deficit, circa 2000, as per the Department of Commerce, Bureau of Economic Analysis website was about $370 billion$. And yet, the GDP for America in 2000 (again from the DoC, BoEA website) was $10.2 trillion$. So how is that possible? Simple. Almost all of the large financial transactions and many small ones (checks, debit card, credit card transactions) don't involve US currency, paper FRNs or coins, they are purely electronic funds transfers. This includes the majority of the trade deficit. Since physical currency isn't leaving the country, the currency supply remains relatively constant. It seems the majority of US currency is circulation is purely electronic, and has no physical existance whatsoever.
Selected U.S. Legal Issues in Issuance of Electronic Money
ELECTRONIC MONEY AND MONETARY POLICY: SEPARATING FACT FROM FICTION
You also made a rather artful sleight-of-hand when you likened the gold standard to a "price-fixing" scheme. In your response to Deuce, you said, "Since the price of gold was fixed by government edict...," in reference to the Coinage Act of 1792. That is totally bass-ackwards. The purpose of that act was to define the value of the dollar, not "fix" the price of anything. By way of analogy in physics, the speed of light is defined as 299,792,458 meters per second, exactly. No, that doesn't mean their "fixing" the speed of light at any value, heedless of what reality tells them; they're just defining the meter as the distance light travels in 1/299,792,458 of a second.
The amount of physical US currency in circulation, FRNs and coins, circa 2000, as per the Federal Reserve website is $600 billion$. The US trade deficit, circa 2000, as per the Department of Commerce, Bureau of Economic Analysis website was about $370 billion$. And yet, the GDP for America in 2000 (again from the DoC, BoEA website) was $10.2 trillion$. So how is that possible?
How is it possible? Because it's the same money sloshing around and around. Nobody cares if the same dollar gets counted several times if it's used in several transactions. How has McDonald's served over 35 billion when there's only 6 billion people in existence?
Almost all of the large financial transactions and many small ones (checks, debit card, credit card transactions) don't involve US currency, paper FRNs or coins, they are purely electronic funds transfers.
I think that statement deserves a little scrutiny. True, electronic transactions don't involve physically handing cash over, but they're still going to be based on money that's located somewhere. The fact that the money doesn't change physical location doesn't mean that it isn't changing hands, and therefore not in circulation. And likewise, it doesn't really matter if a physical dollar flies across the ocean; if it's owned by a foreigner, then it's effectively "out of the country", regardless of its physical location.
The point I'm making is that we're hemorrhaging money (in whatever form) out of the country at a yearly rate that's at least comparable to the money supply within the country (again, in whatever form). There's no way that could be happening unless there's something here to renew the money that gets lost - otherwise we'd be experiencing massive deflation. And there's going to come a time - I don't know when, but I don't see how it can't happen - when the foreign owners of these overseas dollars are going to want to do something with them. Otherwise, what would they be collecting them for? Hood ornaments?
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