Fools' Gold (Arguements Against Gold Standard and Bankers)

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?

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 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)

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.

iv. Gold exchange methods dealings in foreign exchanges and in forward exchange, and variations in the price of gold within the narrow limits permitted.

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.

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.

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)

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

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

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

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

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

d:
"Before I address your post to me, I must address your exchange with Inquest below."

d, quoting i:
"The purpose of [The Coinage Act of 1792] was to define the value of the dollar, not "fix" the price of anything."

V1, responding to i:
"This is mere semnatics. Whether you call it valuation of the dollar or price fixing of gold, either way the price of a commodity, namely gold, is fixed by government edict in relaton to the dollar."

d:
"This is central to the differences in our povs."

False. The central difference between us is your putting scarcity integrity above all other factors, and my thinking that is wrong. Our other big point of contention is whether having the phoney 'gold standard' made our economy more or less vunerable. The valuation vs. price fixing point is a mere ancillary semantics debate, as I said, and unimportant to the main points of the debate here.
----------

d:
"The dollar is a standard of value like feet or hours."

Minor correction: it was a standard of value before 1932.
----------

d:
"Therefore, it must be defined (certainly you will acknowledge that the Founding Fathers felt that way even if you don’t). The Act defined what a dollar is so that it could be used as a unit of measurement. A fiat standard has no unit of measurement."

You are belaboring the obvious. I know the difference between a floating and 'fixed' currency.
----------

d:
"A fiat system with scarcity integrity, however, could still be used and could be consistent with the principles of democracy and free enterprise. This requires either rigidly fixing the number of units or by growing the number of units by a pre-specified percentage in a pre-specified way. The current system has zero scarcity integrity. A handful of un-elected people acting in secret, together with the banking cartel, has been give the very undemocratic un free enterprise special privilege of changing the amount of this precious construct by whim."

I don't see any obvious objections to this system. It has the advantage of being realistically achievable, likely without massive disruption of the economy. However, the need to do this is based on your insistence that we must have scarcity integrity, a case you have thus far failed to make. You seem to take the idea of scarcity integrity being necessary as a given, and expecting us to do the same. Sorry, but it's not a given.
----------

d:
"On a minor note, in another post to Inquest you state:

V1, quoted by d:
".... you seemed to be proposing that if money leaves the country and is held by foreigners, the money supply in the US shrinks and dollars should change in value. 'Taint so." d:
"Actually, ‘Tis so. If it is not recorded on the books of a domestic commercial bank (even if it is on the books of a foreign subsidiary of a US bank) it IS NOT counted in the money supply. Now if all you meant is that it should be counted, then you are agreeing with what Inquest is saying."

First Inquest wasn't stating anything on this issue, he was asking a question, namely why the value of the dollar doesn't change as the trade deficit shrinks the domestic money supply. Second my "'taint so" referred to this part of my sentence:

V1:
".... and dollars should change in value."

From you statement here, I infer that you wrongly thought my "'taint so" applied to this part of my statement:

V1:
".... if money leaves the country and is held by foreigners, the money supply in the US shrinks...."

Sorry if I failed to make myself clear.

V1:
"Since massive deflation occured cyclically while we were on the 'gold standard', and hasn't occured at all since we got off it, I'd say history's lesson is undeniable."

i:
"But that's not answering my question. I asked you how (i.e. by what mechanism) fiat money has been able to eliminate these deflationary cycles. When you see the answer to that question, you just might see a certain amount of "deniability" in history's lesson after all."

I thought I made myself clear, but I guess not. I'll try again.

Tying the value of the currency to the value of a commodity (gold or anything else) makes the currency vunerable to massive deflation, a downward deflation spiral into depression. A large speculation bubble bursts, and gold & the dollar (whose values are tied together) start to drop in value, and prices are forced down to get people to buy goods. Wages must follow suit and drop as well, as businesses are getting less dollars for the same goods & services. This puts even more downward pressure on gold and the dollar, the cycle repeating and worsening until prices (commodities, services, properties and securities), wages, gold and the dollar begin seriously collapsing in an accelerating downward spiral. This is how our historic depressions occured. Removing that relationship by floating the currency removes that currency vunerability, breaking this downward deflation spiral that previously occured in so many of our economic disasters. That's why we've had many of the same trigger factors as previous depressions, speculation bubbles bursting, loan defaults, big bankruptcies, stock price crashes, etc., yet we've had no currency collapse, massive deflation or depression. I can't put it any plainer than that.
----------

V1:
"Your 'speed of light' analogy in inapplicable, as the speed of light is a constant, and gold is a commodity who's value fluctuates with supply and demand."

i:
"And the value of the dollar, under the Act, was to fluctuate right along with it. You seemed to be implying that the Act was somehow mandating that this fixed quantity called a "dollar" was to be used to tie down the value of gold regardless of what the market tries to do (which the essential element of a "price-fixing scheme"), and I was simply pointing out that you were putting the cart before the horse. It's no more a price-fixing scheme than saying that a dollar is worth four quarters is a price-fixing scheme."

That's fine, I don't want to get into another meaningless semantics debate. Call it what you please, it still has exactly the same effect as a price-fixing scheme.
----------

V1:
"You didn't check out the links on electronic currency I posted, did you? If you had, you would know that the statement you made above is false. More than half of the US currency in circulation today is purely electronic, and has no physical existence."

i:
"I didn't check all the links, no. But that's fine. So what does that raise the total money supply to, 1.3 tril? 370 billion (or more) leaving the country every year is still a lot in comparison. (and that's why I chose my words the way I did: that the money we're sending out is "at least comparable" to the money that's in circulation here, "in whatever form". That statement stil holds true)"

And as I pointed out, the value of the dollar doesn't change if the money is in foreign, as opposed to US hands; why would it?
----------

V1:
"However, we would be hemmoraging money regardless of whether we had a specie-backed or fiat currency. That's what happened during the Revolutionary War, we hemmorraged just about every bit of gold we had out of the country to pay for the war."

i:
"Umm, yeah, it called an EMERGENCY?! When you need supplies, you need supplies. In today's more normal times, if we had a stable money supply, and we were running the trade deficit we're running now, that would mean that somebody, somewhere, on this side of the ocean is losing money without getting any new cash flow to replace it. How long do you suppose he'd be willing to keep that up, unless his supply was being replenished by a particular source for whom, shall we say, money is no object?"

If I correctly read what you're saying here, the Fed is adding $hundreds of billions$ every year to replace trade deficit losses. If your assumption is true, then why isn't that reflected in money supply stats? And why isn't there massive inflation ??? Your assumption would mean the Fed would have to lie and somehow magically fool everyone as to what the real money supply is. I can certainly buy the idea of the Fed lying, but not a successful coverup of such a huge amount of currency being pumped into circulation every year. That couldn't be covered up.
----------

V1:
"One more point. I gave your response a little more thought, and you seemed to be proposing that if money leaves the country and is held by foreigners, the money supply in the US shrinks and dollars should change in value. 'Taint so. The amount in global circulation determines the money supply. Who holds it at any given moment is largely irrelevant to the value of the dollar (as long as they don't take a very large amount of it out of circulation for an extended period of time)."

i:
"You'll need to explain yourself a little more clearly here. Whether a dollar is being spent by Chinese among themselves, or whether it's being held in a vault by those same Chinese, it still has zero effect on the U.S. economy, unless it makes its way back into the U.S. economy. If it doesn't, that dollar is completely invisible to the U.S. economy, regardless of what's being done to it. The conclusion I would draw is that your parenthetical "as long as" is in fact, largely the case. Otherwise we would be seeing those dollars coming home. Dollars made from selling us stuff are going to be useless to these people unless they use them to buy something back from us."

No, the currency markets that determine the strength of the dollar are global markets, and bank holding of US dollars worldwide are factored into the total worldwide money supply. Do you seriously think that currency traders don't know or don't car about any US dollars other than those in circulation in America ??? National economies don't work in isolation, they cannot and have not for decades, if not centuries.

d:
"Your summary of panics and depressions may otherwise be accurate, but from my own knowledge I know that both the Panic of 1857 and the Panic of 1907 were severe but short."

I said in my list that they lasted two years. You seem to be merely agreeing with what I said. So what's your point here ???
----------

d:
"Furthermore, the cause of every single money panic of the 19th century was the unbridled creation of money for speculative purposes."

That is a simplistic and unsupported claim. The money supply was one causal factor, in some cases a major factor, but never the sole factor.

The Panic of 1857 was triggered by the loss of the steamer Central America, and the several $million$ gold shipment it was carrying to New York banks from the San Francisco mint. At the same time, the fact that the entire capital reserve of the New York office of the Ohio Life Insurance and Trust Company had been embezzled became public knowlege, causing the bankruptcy of that huge firm. Land prices had already been inflated by a land boom, and that bubble was in the process of bursting as land prices plummeted. These events in combination destroyed consumer confidence in the economy, leading to a run on banks and a collapse in stock prices. Since the gold shipment for the banks never arrived, the banks couldn't make good to their depositors and their assets, mostly land, had lost most of their value, thus many banks failed. Once banks began failing, the depression spiral was set in motion. Currency supply was not the major factor here at all. Bad investments by banks, the loss of a major gold shipment and a huge embezzlement scandal were the big causes here.

If you still insist that currency inflation was the primary causal factor in all the panics I listed (which, BTW, were stock panics, not "money panics"), then please back up your claim with some historical money supply data show this clear relationship you say exists.
----------

d:
"Elsewhere you accuse me of being insensitive to the pain and suffering of Americans. The money panics were the cure and the speculators felt the pain (as they should). Today, instead of the free market solution, everybody is required to give corporate welfare to bailout the large powerful global speculators."

If only speculators felt the pain, you'd have a point. But we both know that is not the case at all.
----------

Response to post # 174:

V1:
"Out of courtesy to the forum rules, I won't plainly express my opinion of your views [regarding the matter of deuce preferring cyclical depressions and the resulting economic devastation to Americans over having our current fiat currency]. I will just say that I'm glad you don't have the power to make economic human scarifies of us all to your demigod of scarcity integrity.

d:
"What forum rule would you have to violate to express your opinion of my views?

The 'no flaming' & 'no profanity' rules.

V1:
"S&Ls were considered a pillar of strength in the banking sector right up until deregulation. I recall no stories of imminent S&L failures previous to deregulation, and the financial press makes its living on ferreting out and reporting such bad news. You will have to provide evidence of your claim if you expect me to accept it."

d:
"What proof are you looking for? Everyone knew the S&Ls financed long-term assets (30 yr mortgages at 7%) with short-term liabilities (deposits, that they had to pay 14% for). Where’s the mystery to you?"

If one accepted that inflation would automatically destroy the industry, as you seem to suggest here, then how do you explain their survival of previous inflationary periods? S&Ls have a lot more assets than just their outstanding mortgages. They own land, income-producing properties (office building and shopping malls), stocks and other securities, etc.. In inflationary periods, these assets usually increase in value and the income they produce can increase as well. Yes, inflationary periods hurt them, and the inflation of the early '80s was severe enough to really hurt them, but you are trying to isolate one factor and wrongly present it as the whole picture. To say that deregulation wasn't a huge causal factor in the S&L crisis is simply false.
----------

d:
"To parody Dylan: You don’t have to be a member of the financial press to figure which way the dollars flow. Your belief, in fact, that the financial press is vigilant could not be further from the truth. For example, in early March, 1932, as state after state declared “Bank Holidays,” the NYTimes reported these events on page six under such innocuous headings as “Banks protected in 6 more states.”

The NY Times is not the financial press. The WSJ and the like is.
----------

d:
"More recently, during the ENTIRE campaign of 1988, what news were you seeing about the S&L crisis. Bush Sr. (reminiscent of FDR before him) acted, however, in the first week of his Presidency to begin to stop the carnage."<;p> Your memory of events doesn't seem to match mine. It was one of the major campaign issues.
----------

d:
"What did you think the (silly) pre-text for “deregulation” was, anyway, if not to “rescue” the industry."

The operative word in that sentence being "pretext". You are taking the rhetoric of politicians as factual.
----------

d:
"Deregulation was a boon to those who feasted on the dying carcass (shady S&L operators, real estate developers, lawyers, accountants, but most of all Wall Street). Unfortunately, it did nothing for the industry: it had long since been declared DOA by anyone who gave it serious thought."

You seem to be agreeing with me here that deregulation was very bad for the industry.

V1:
"[Inflation and] huge deflation can and has occured with no significant change in the currency supply."

d:
"Untrue. While I have already pointed out to you that the very definition of inflation IS an increase in the money supply, you prefer to use the certain effect of inflation and call it a cause. Very well."

Please see post # 189 above.
----------

d:
"I have taken the liberty to compile some statistics for you. The 1960s and the 1990s had very similar statistics: real growth= 28%, monetary growth = 44%, and the cpi up 30% during the two decades. The 1970s and 1980s had far worse stats: lower real growth (24%), much higher monetary growth (96%), and the cpi up 86%. That is stark realism. Source of figures for both cpi and real (i.e. constant dollar) growth was statistical Abstracts of the U.S. (available online) and the Fed was the source of M1 growth (also available online)."

Check this out:

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Money & Inflation Since 1960

Each bar in the graph represents an annualized rate of growth over the indicated five-year period. The green bars show the growth in the M1 money supply relative to the growth in the real GDP. The red bars show the growth in the consumer price index.

As can be seen, the average inflation rate grew through the 1960s and 1970s, then dropped steadily thereafter. The rate of growth of the M1 money supply increased more or less steadily throughout the whole period.

During the period when the inflation rate was growing, the money supply growth rate lagged significantly. By the 1990s, the inflation rate had dropped to its lowest level in 30 years, while the money growth rate reached its highest level, and in fact exceeded the inflation rate.

M1 represents transaction money, consisting of checking accounts and cash held by the public. One must conclude that whatever the causes of inflation during this whole period, an excessive growth rate in the M1 money supply had little or nothing to do with it.

d:
"I have just read all your posts and there is much to respond to in detail OVER THE NEXT FEW DAYS (I will not be able to do anything tomorrow).... I'll be back to respond probably by Sunday."

Okay.
----------

d:
"Quickly, however, 1819,1837,1857,1873,1893, and 1907 were all preceded by rampant money creation. I will direct you to specifics but they are WIDELY known."

A sweeping claim you've made several times, but have yet to back up. In the example I gave, the Panic of 1857, the historical facts are exactly as I presented them.
----------

d:
"(see Chapter 3 of the online book Special Privilege)"

So to back up your 'hard currency' claims, you post a link to a hard currency book by a hard currency advocate on a website or a foundation devoted to pushing the hard currency prinicple. That's like backing up Jesse Jackson's claims by offering the crap posted on the Rainbow/PUSH website as proof. I'm not impressed.
----------

d:
"You appear to lack an understanding of what happened in the S&L fiasco (see Chapter 1 of above reference for some background)"

More claims with the same biased source as 'proof'.

You're still speaking in generalities. I guess I'll have to make my question more specific. There doesn't seem to be anything special about "gold" that makes it vulnerable to deflationary cycles. Any fixed quantity of anything that's used as currency can be subject to the exact same pressures, if I'm not mistaken. I can't see any way in which this wouldn't happen with paper money, IF the paper money existed in fixed quantity. If the advantage of the current system is that the money doesn't exist in fixed quantity, where is that extra money coming from?

I also want to address something you said to Deuce after you responded to me: "Are FRNs a 'fraudulent currency'? They aren't counterfeit in the conventional sense of the world. Much the opposite, we spend a lot of resources to prevent that. They are backed by the full faith and credit of the US government. While you may laugh at that statement, you can't deny that our fedgov goes to great lengths to support public confidence in the US dollar." So it sounds like you're saying that you simply trust the government to do what's right. But earlier you were saying that government couldn't be trusted with a gold standard, when the gold standard has a built-in mechanism to help keep the government more honest. This is perhaps the biggest incongruity of yours that I'm trying to figure out.

That's fine, I don't want to get into another meaningless semantics debate. Call it what you please, it still has exactly the same effect as a price-fixing scheme.

It's not a semantics debate, it's far from meaningless, and the gold-standard does not have anything close to the same effect as a price-fixing scheme. A price-fixing scheme (when imposed by government) forces producers to give people something in exchange for less than its fair price. The gold standard does no such thing. All it does is provide definitions, no different than the dollar and four quarters.

No, the currency markets that determine the strength of the dollar are global markets, and bank holding of US dollars worldwide are factored into the total worldwide money supply.

This is a bit difficult to reconcile with your earlier statement: "The amount in global circulation determines the money supply. Who holds it at any given moment is largely irrelevant to the value of the dollar (as long as they don't take a very large amount of it out of circulation for an extended period of time)." But according to what you're saying now, even if it is taken out of circulation for any length of time, it still wouldn't have an effect on the value of the dollar, because that money, as you say, would be "factored into the total worldwide money supply." Which is it, pray tell?

Hamilton was the greatest thinker from the Revolutionary period in political theory, law and economic/financial subjects. His thoughts compared to Jefferson or Madison are in a completely different level.

His enemies were economic buffoons.

So it is good to see someone go to him for definitive examinations of e/f issues rather than throw up some irrelevant piece of nonsense from Jefferson.

Of course, Hamilton realized that conditions prevailing at the time of the Constitution's creation would not allow using only metals as money since there was almost none in the new nation. He understood that the Continentals had collapsed from overprinting and suggested that one of the reasons for obtaining loans from France during the war was to back the currency. States not only over issued currency but refused to honor its debts issued in the War.

Jefferson was one who repeatedly suggested and defended defaults of those debts even to foreign nations.

A national bank was the mechanism H used to increase the money supply but it was not to do so by freely running printing presses. National debt was the engine he devised to provide an increased money supply since bonds, notes whose value was assured served the same function as money (specie). Not only did establishment of the funding system for the National debt essentially add millions to the capital available but it made that debt a better investment than that of any other nation.

Studying Hamilton's life and thoughts is a never ending source of wonder and profit. It is just too bad he could not afford to accept the Chief Justiceship when Washington wanted him to since John Marshall considered him his superior in legal acumen. Then, at least, he wouldn't have been murdered by that scumbag, Burr.

While I believe that Hamilton probably would have preferred metallic backed currencies all things being equal he was not an ideologue in any way and would gravitate towards what could be made to work. National banks responsibly run create capital for a nation and this was the intention for the one he created. While trade was clearly a source of specie it would only produce a net gain if there was a trade surplus. That I don't believe would have been the result from a primarily agricultural country. Intuitively I would say that a shipload of American products would not be as valuable as a shipload of English thus a deficit would be the result.

American economic development was stimulated by European investment until at least after the Civil War. So I see no possibility for an money supply totally consisting of metallic backed money.

Theoretically I can't see how it would be a positive economic force today because of two problems. 1) If we assume the supply of gold to be somewhat fixed then as the limit of supply is reached the price of gold would have to skyrocket this would mean that the price of everything else would then to collapse.

2)As population increases the per capita amount of gold shrinks thus, the money supply falls which is also deflationary.

Most of the banking difficulties of the 19th century came about through unwise State sponsored schemes to get around the major problem- lack of specie. That is why State bank regulation skirted outside the limits of safety.

Can you reassure me that my doubts are wrong in this respect?

American economic development was dependent upon plentiful European investment until at least after the Civil War. So I see no possibility for an money supply totally consisting of metallic backed money.

2)As population increases the per capita amount of gold shrinks thus, the money supply falls which is also deflationary.

Can you reassure me that my doubts are wrong in this respect?

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.