Free Republic

I don't have time to reply to all of this right now (what with xmas and all; still have to go finish shopping) so I'll just do a little at a time throughout the season until I'm finished.

1. My original post dealt with deflation and the effect on the price level that specie had. I did not ignore the fact that immigration and foreign investment had an influence on the nation's growth because that wasn't what I was really talking about. However, I will reply to some of your comments none the less.

I do not deny the fact that the balance of trade affected the level of specie in the country. But I think what you forget is that gold and silver were the "lawful" money of the time, both here and abroad. If GB wanted to invest here, was not what they paid in ultimately gold? The draining of specie from the country had more to do with the fixing of the silver-to-gold exchange rate. Gresham's law kicked in because the government artificially overvalued silver in relation to gold, thus causing the gold either to be horded or flow overseas.

Hamilton set up his bank for two reasons: he wanted a way to pay off the national debt and he wanted to make money; his bank was mostly a private affair and that alone I think would make it unconstitutional as only Congress has the right to coin money and regulate it's value. I personally believe he was a very smart man, but I also think he was a crook. Anyway, the debate on a National Bank was pretty fierce, and Washington was not convinced either way whether it was constitutional or not. However, he assumed that Hamilton, as Sec. of Treas., knew what he was doing and therefore allowed it. So what happened? The number of chartered banks went up dramatically under his Bank of the U.S. and all began to pump out ever faster depreciating bank notes; inflation was horrible. And finally, I'm not sure where you get the idea Jefferson was a leftist? He was a pseudo-libertarian, with several major character flaws I admit. But who doesn't have those?

Okay, I have to run so I'll post again when I can. To you and every other Freeper I wish a very Merry Xmas and a Safe and Happy New Year.

One only needs to look to Congress I believe. The Dems have more millionaire congressmen than the GOP.

You're incorrect on several points.

1. From approximately 1800 until roughly the creation of the Fed in 1913, the U.S. underwent a deflation in terms of prices. In a litle over a 100+ yr period the dollar actually appreciated about 33%; $1 in 1900 bought approximately what $1.50 did in 1800, all under a gold standard(except during the gold stike years, and the years the governmetn intervened). Economic growth averaged somewhere in the neighborhood of 5% per year during that same period, if I remember my numbers correctly. The idea that deflation is bad is a fallacy; it is actually a natural event. If your supply of money is relatively stable (and I use the term loosely), natural market forces and technological advance (namely productivity) spawn a deflation because you are becoming more efficient in producing your goods and services.

2. I don't know where you got your information but the classical gold standard was in place for far more than just a few years at a time. And it wasn't "rejected", to use your term; it's been circumvented by governments who realize it serves their interests to control the supply of money.

3. This is probably the most debatable. Article I Section 8 does not give the government the exlusive power to control the supply of money. That section gives the power to coin money (physically produce the coins and perhaps even bills if necessary), regulate the value of said currency through weight and tale (this is the weights and mesure part of the section). If you disagree, then read the next line where counterfeiting is addressed (because that's what governmetn fiat money is, counterfeiting). Then please move on to Section 10 where it is laid down that "No State shall....make any Thing but gold and silver Coin a Tender in Payment of debts." As far as I am aware, no amendment has ever addressed this issue and therefore, the money used today is unconstitutional.

4. The greatest depression (as you call it) before 1930 was not caused by the closing of the Second National Bank, but by its creation. It was allowed to pyramid government script on top of gold reserves that did not exist. When people rushed to turn their "dollars" into gold, the banks said 'oops, sorry, no gold here.' It was the same problem with the First National Bank, as well as the National Banking system of the post Civil War years. The fact is, you can go back through history, look at every depression or panic (as they were called then) and see that during those years, or just prior to them, the government was fiddling in some way with the monetary system.

5. While your definition of wildcat banking is essentially correct, your reason for there failure is not. It's true that there was not enough specie to meet the demands of the depositors. However, the bankers didn't run off with it; it was allowed to continue because the government would step in and suspend specie payment. If congress would just pass a law demanding 100% backing of demand deposits, with today's bank auditing sytem everything would be fine.

6. There is certainly enough gold and/or silver around to meet the markets needs. The global gold supply expands at the rate of approx. 2-3% per year. However, there is not enough to meet government's needs. And that's the beauty of it. It was a natural constrain on the expansion of government power.

The problem with your scenario is that you presume that people will continue to trade a commodity that has more use value than exchange value. What do we do when everyone has enough guns and bullets? Or they can't store them? transport them? divide them? Or even better: what happens when I learn to produce them myself, thus basically being able to counterfeit? The fact is that the MARKET determines what is and what is not money. It does this by determining which good is the most marketable over the others. Historically, its been a metal: gold or silver.

He did hit on the true cause of downturns and bubbles that didn't really require all his fancy mathematical modeling. It's credit expansion and easy money.

Is it me, or can his comments be made to mean something else as well. Sure, Thurmond was a racist back in his day but he did evolve over time. And he had other planks when he ran for president: State's Rights, a low federal tax burden and a low balanced federal budget. Could it not be assumed he may have been referring to these? Why is it always race?

No I don't think you've missed too much. I've read this exchange since the beginning and while disagreeing completely with Southack in regards to his monetary theory, found it interesting nonetheless. The fact of the matter is: when people who espouse the classical liberal gold standard of the 19th and very early 20th century mention GOLD today, we really mean a commodity money as determined BY THE MARKET. The fact is, the gold commodity standard was exceptionally stable, mildly deflationary in fact, except when the government would tinker with it thus causing large economic downturns and runs on the banking system. If you want proof just go back and look at the panic of 1819, the post Civil War Greenback period, and the panics of the late 1870's when the government tried to fix the gold-silver exchange rates. I don't really care if it's gold, silver, platinum, or paperclips that the market decides on; the point is people, trading freely amongst themselves, determine the best commodity as their medium of exchange.

Since democrats by and large don't have the faintest understanding of economics, anything they come up with will be pure blather.

But are not tarifs in general a political action? Do not governments institute tariffs? And if I slap a tax or tariff on your goods, will you not slap them on mine? To what purpose then does all this serve other than to reduce economic activity in general? No, I'm sorry. I mean this as no slight to you, but I think you have been somewhat misguided in your economic instruction. Tariffs are bad for a myriad of reasons. No, wait, let me back up. A general revenue seeking tariff is.......acceptable, for lack of a better term.. Special interest tariffs, and tariffs soley for political purposes are bad.

No, buy gold. You can purchase gold coins and hold them. I typically have between 2-4% of my investments in gold coins. Look at it this way: an ounce of gold in 1940 (roughly) could buy you a brand new men's suit. Today, an ounce of gold could buy you.......a brand new men's suit. However, $30 (which is what a suit went for approx. in 1940) could barely buy you a pant leg today.

Yeah I think we do. I also agree with your reference to the asset bubbles. Really what I was trying to convey was the idea that sometimes the play of market forces trump those of the Fed. I think we also agree that we'd be far better off without a monopoly money producer?

Actually, it reduces demand. Don't know how I got that backward.

Credibility shot, oh no!! :)

Oh I agree. Buty here's the thing. Productivity in many industries can offset the increase in money creation by the Fed. Look at computers, semiconductors and many other high-end electronics. How can this happen when during the 90's the Fed was at the press cranking out dollars left and right? It's because the manfacturers are able to produce them much more efficiently and numerously as well.

We also have something called cash-balance deflation occuring. That's when consumers are more prone to maintain high have cash balances relative to income instead of purchasing goods. The Fed can create as many reserves as they want, if no one wants to use the money for purchasing then there is no inflation. It's only when it begins to circulate that money causes inflation. Make sense?

Actually I have to say you're wrong. The tariffs of 1930 resulted in a collapse of global trade. All tariffs reduce supply, it's a basic economic law; reduced supply then affects jobs. Reduced supply due to tariffs affects export jobs more than domestic jobs. Who /what defaulted the most during the Great Depression? Farms (the producers of our largerst export sector) and farm banks. Were tariffs the sole reason? no, of course not. Were they a big contributing reason? Definitely. Tariffs are the wrong answer.

Milton Friedman coined the term "helicopter" money.

The last thing we need is tariffs. Tariffs are one of the things that contributed to the Great Depression. If the government would have stepped back and allowed the market to adjust instead of passing Smoot-Hawley, instituting wage and price controls/supports, and increasing taxes, the depression would have been deep and probably painful but also of a shorter duration.

I agree cutting taxes would help; it's the only thing the government can do any more. The ability to cut spending, like it should, is not an option after LBJ put about 70% of the budget in the non-discretionary category. If you look back to Harding and the depression of 20-21 (I think), he cut taxes AND the budget 25%. Depression was over in about 12 months.

Unlike inflation which as Friedman once said (and I paraphrase): 'is strictly a monetary phenomenon', deflation can be influenced by many factors. Deflation, in the classical sense, was a tightening of the money supply through bank credit contraction, something we don't have to worry about right now. I personally think that we are in a slightly deflationary period due to increased productivity and cheaper imports. This is the type of deflation that was prevelent for roughly 120 yrs prior to the creation of the Federal Reserve System. There is absolutely nothing wrong with this type of deflation.