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Source link: http://archive.mises.org/11833/its-over-you-lost-now-go-away/

It’s Over, You Lost, Now Go Away

March 3, 2010 by

Reading Justin Raimondo’s The War Party: A Paper Tiger I followed a link with the title “From the snide Washington-insiderism of the “cosmotarians” in the ostensibly libertarian movement” to an article on Reason The Ron Paul Delusion by David Harsanyi. In this article Harsanyi wites:

[Ron Paul's] obsession with long-decided monetary policy and isolationism are not his only half-baked crusades

Harsanyi is obviously referring to the debate over the nature of the monetary system that many writers on this current site are active in. Many of us, Ron Paul included, believe that a commodity money system is superior to a pure fiat system, and that the a central bank is not necessary, even harmful.

An issue that was once-decided may not have been well-decided. It is true that the transition from gold to paper took place, but not exactly by any kind of open debate in which all sides agreed on the best course of action. Instead, as Rothbard wrote the central bank was “a governmentally created and sanctioned cartel device to enable the nation’s banks to inflate the money supply in a coordinated fashion.” that was planned in secrecy and sold to the public with deceitful propaganda. The post-war gold exchange standard was planned by the world’s financial elites, and Nixon’s decision to sever the final link to commodity money was an act of default.

What makes these questions “decided”? (even long-decided?) An issue is only decided as long as everyone involved is happy with the result. In this era, you even have an opinion on the monetary system that makes you a bit eccentric. But as Lew Rockwell wrote, there was a time when “Every educated man had an opinion [on the money question]“. A lot of us weren’t around when the issue of the monetary system was “decided”, anyway. Those of us who are alive now and are not happy with how things have turned out over the last hundred years are reopening the discussion. While there is no guarantee that things will eventually go our way, the discussion cannot be ended simply by labeling it as “long-decided”.

{ 25 comments }

Mike Sproul March 3, 2010 at 12:45 pm

“Many of us, Ron Paul included, believe that a commodity money system is superior to a pure fiat system, and that the a central bank is not necessary, even harmful.”

Then there are those of us who believe that Federal Reserve Notes are backed by the assets of the federal reserve, that they are valued just like any other liability, and that there is no such thing as fiat money. Real libertarians should favor free banking. They should oppose a central bank monopoly on money issue, but they should not oppose voluntary fractional reserve banking.

I have never seen Ron Paul address the Free Banking objection to his hard money views. In fact, I have seen precious little attention to this issue from Blumen and company. But the childish title of Blumen’s post doesn’t give much reason to hope for an intelligent discussion.

billwald March 4, 2010 at 2:46 pm

If my local grocer trusts me, he could accept my IOU for food knowing that I will redeem the note the day after payday. The grocer could ask the guy who delivers the milk to accept my IOU but the milk guy doesn’t know me.

Fiat money is the equivalent of the government Okaying my IOU. It has functioned that way since the world went off the gold standard. The problem develops when the government issues their own IOUs and adds my personal Okay them.

Beefcake the Mighty March 3, 2010 at 1:02 pm

“But the childish title of Blumen’s post doesn’t give much reason to hope for an intelligent discussion.”

Neither does your entry into the conversation.

Bogart March 3, 2010 at 1:18 pm

My impression from having read several articles and hearing several podcasts by Ron Paul is that he has consistently been in favor of ending “Legal Tender Laws” and allowing individuals to create their own currencies. He is in favor of the “Gold Standard” which is the treasury announcing a conversion rate of treasury notes to gold as this is clearly better than the current Federal anti-Reserve System.

I have not heard any writings where he is for outlawing fractional reserve banking although he is not a big fan of the practice.

So my question is: What else does Ron Paul need to be in favor of to be in favor of “Free Banking”?

Bogart March 3, 2010 at 1:29 pm

In the same manner that Ron Paul is really not against “Free Banking”, I find him completely against “Isolationism” despite the article claiming him to be an isolationist. He is “Isolationist” in one area and that is immigration. Aside from immigration, there is no one in congress who is more in favor of the concepts in the USA dealing with other nations in the manner best framed by Jefferson:
“Equal and exact justice to all men, of whatever state or persuasion, religious or political; peace, commerce, and honest friendship with all nations, entangling alliances with none;”

I am sure Reason will say next that Ron is a sexist as he believes the quote above that does not mention women.

I have stopped reading Reason magazine because of its hatred of Peace, Liberty and Free Markets and seems to me to be secretly pro violence through domestic and international interventionism.

J Cortez March 3, 2010 at 2:06 pm

I hate arguments like that. “The status quo means that you are wrong.” It’s not even a real argument.

I think Reason is pretty depressing exactly why Bogart said. They have what seems to me to be an idiotic dislike for the man. Paul is in no way perfect, but in my opinion, he is by far the best congressman in DC.

Nick March 3, 2010 at 2:22 pm

@ Mike… While I don’t have a source handy, I have heard Paul address the issue of free banking in the same manner as most libertarians; if there is a market for free banking in a free market economy, then it will exist and he’d have no problem with that. But, I can tell you my opinion. If I was making an exchange in a free market economy, a note issued by a 100% reserve bank would have more value to me than a note issued by a FRB.

“Then there are those of us who believe that Federal Reserve Notes are backed by the assets of the federal reserve, that they are valued just like any other liability…”

Really? The assests that make up this $2.3 trillion balance sheet “are valued just like any other liability”? Does this mean the Fed has all of that Fannie & Freddie paper, MBS’s, etc. listed on their balance sheet at a price determined by the market?

Ned Netterville March 3, 2010 at 2:25 pm

While Ron Paul is rather unique, in that he seems to be a relatively honest person working among thieves and liars, his proposed solution to the many-faceted problem of a central bank and fiat money is political–through legislation. However, I suspect that resolution of the unsustainable FR-fiat-money-fractional-reserve system will not come out of congress but rather through an ingenious entrepreneur devising an alternative, in what will prove to be an example of good money driving out the bad.

luap nor March 3, 2010 at 2:39 pm

I still don’t know what the newsletters are that he is referencing. Based on a Google search, it appears he’s equating not being a fan of MLK or Israel as racism and anti-semitism. One section about the LA riots was poorly worded, but not intrinsically racist.

The anti-government militia pumping and conspiracy theories are a little eccentric, but in no way affect my opinion of Dr. Paul.

It makes me sick to think people play this dirty. Those are very serious claims which are completely without merit. I guess it doesn’t matter if you say it anyway.

Harasanyi’s not even a libertarian: http://davidharsanyi.com/blog/2010/03/02/the-ron-paul-post/

(He also doesn’t even believe Dr. Paul wrote them, so it’s very disturbing that he suggested they did in the current article)

Michael A. Clem March 3, 2010 at 3:17 pm

I seem to recall making an argument against fractional reserve banking based upon its fraudulent effect upon third parties, people not involved in the contract between the bank and its customers, and nobody seemed to comment upon it. I did allow for one possibility for fractional reserve banking, where frb money can be clearly distinguished from non-frb money–then even third parties are given the choice of accepting or refusing the money.

bob March 3, 2010 at 3:24 pm

To say that the Fed’s notes are backed by assets is possibly the most absurd thing I’ve ever seen on this site. The Fed has NO liabilities – FDR and Nixon made this quite clear. Its notes cannot be legally redeemed on demand for any asset at the Fed. They may sell assets in open market operations, but the selling prices are not formed by contract but by supply and demand.

If the Fed held no assets against its “liabilities,” the system would function exactly the same. This should be quite clear by the fact that the Fed has created over $1 trillion to buy MBS’s likely worth less than half what they are spending on them.

billwald March 4, 2010 at 2:32 pm

“To say that the Fed’s notes are backed by assets is possibly the most absurd thing I’ve ever seen on this site.”

AGREE! The world is on an electronic exchange system and the relative value of the various currencies is determined by the money traders.

“Money” is no longer a storage of value but functions as an IOU for goods and services and as a conversion factor to compare various goods and services. It would be more honest and useful to dump nationalistic named for “money” and go to a universal system of “work hours.”

The one asset we all have is 24 hours in a day. One almost universal measure of value is the amount of work that one person can do with a shovel in one hour, the human equivalent of “horsepower.” In this system, if the local economy valued a carpenter 20% higher than a laborer with a shovel, the carpenter would be paid mh1.20/hour.

But the starting point, one person, one shovel, one hour, would be very close in every nation thus the exchange rate would be a wash. The BIG difference between nations would be the efficiency of turning a mh into a consumer good or service. Local (national) wages would be consistent across the globe but local (national) prices would vary.

The consumer would find it much easier to decide which goods and services he can afford e.g. I must trade a half years labor to buy a new car – is it worth a half year of my life? Second, it would provide a real time test of the various political and economic systems. For example, the states of Oregon and Washington are very similar. The big difference is that Oregon has a state income tax and no sales taxes while Washington has a sales tax but no income tax. Which system is more efficient? Compare the ads in the Sunday papers for an instant analysis.

iawai March 3, 2010 at 3:41 pm

The issue of free-money (and free-banking) is settled just like the issue of secession is settled: Those with political power just stay mum, and call anyone who brings it up a kook and other assorted pleasantries.

Magnus March 3, 2010 at 5:25 pm

What makes these questions “decided”? (Even long-decided?)

This type of desperate “argument” demonstrates only two things —

(1) that the statists are SCARED TO DEATH that their banking cartel monopoly legislation might be even partially undone, and

(2) that they have absolutely no argument on the merits to defend the status quo other than fear-mongering.

Merely saying that the existence of the Fed is “decided” is the argumentative equivalent of putting your fingers in your ears and shouting “Na na na … I’m not LISTENING!!!”

Nick March 3, 2010 at 6:47 pm

@Bogart… You’re right about Reason. After 9/11, it really started going downhill. I stopped subscribing in 2003 when they felt the need to give as much space to promoting the invasion of Iraq as they did to those that opposed the invasion.

The linked article, having not actually refuted any of Paul’s positions, just regurgitated the TNR hit-piece that was published the day before the NH republican primary. If you look at the comments on the Reason article (almost 1,000 of them), readers were not too happy. I don’t know if it’s related but the next day they published this article by Brian Doherty.

Nick March 3, 2010 at 6:52 pm

“…his proposed solution to the many-faceted problem of a central bank and fiat money is political–through legislation. However, I suspect that resolution of the unsustainable FR-fiat-money-fractional-reserve system will not come out of congress but rather through an ingenious entrepreneur devising an alternative, in what will prove to be an example of good money driving out the bad.”

…unless there are men with guns willing to enforce laws preventing the ingenious entrepreneur from devising an alternative (the “good money”). Look what happened to e-gold, The Liberty Dollar and I can probably get on google and find other examples. While I, like you, doubt anything good will come from congress, Paul is a member so it’s not surprising he would introduce legislation to repeal those laws.

Nick March 3, 2010 at 6:57 pm

“I seem to recall making an argument against fractional reserve banking based upon its fraudulent effect upon third parties… I did allow for one possibility for fractional reserve banking, where frb money can be clearly distinguished from non-frb money–then even third parties are given the choice of accepting or refusing the money.”

It’s not fraud if the third party is aware the note is from a FRB and knows the risks associated with that note. If you don’t want to sell your labor, product or whatever for FRB notes then don’t. Or maybe you’ll accept either but you want a much higher payment in FRB notes. And, if a FRB (or anyone) counterfeits a non-FRB note to claim another person’s wealth, that is fraud.

Peter March 4, 2010 at 5:20 am

It’s not fraud if the third party is aware the note is from a FRB and knows the risks associated with that note.

And the chances of that being true are … ?

(Hint: “slim” and “none” appear in the answer)

Too small to fail March 3, 2010 at 7:15 pm

“Then there are those of us who believe that Federal Reserve Notes are backed by the assets of the federal reserve, that they are valued just like any other liability, and that there is no such thing as fiat money.”

The value of the “assets” is declared by fiat.

Mike Sproul March 3, 2010 at 11:43 pm

Bogart:

“However, the primary beneficiaries of legal tender laws are financial institutions, especially banks, which have been improperly granted the special privilege of creating fiat irredeemable electronic money out of thin air through a process commonly called fractional reserve lending. According to the Federal Reserve, since 1950 these private companies (banks) have created almost $8 trillion out of nothing. This has been enormously advantageous to them.”–Ron Paul

Free banking means government doesn’t muscle in between banks and their customers, so Ron Paul should start by dropping his opposition to fractional reserve banking. At a more fundamental level, he should drop the “thin air” mantra. All banks, even the fed, get a dollar’s worth of assets when they issue a dollar. Thus as more dollars are issued, there are more bank assets backing those dollars, and the value of the dollar is unaffected.

Nick:
If some bank has issued 100 currency units (dollars) against which it holds various assets worth 90 oz. of silver, then each dollar will be worth .9 oz. The fed is no different. Whether the fed marks its assets to market or not, the market value of the fed’s dollars will be determined by the market value of the fed’s assets

Michael Clem:

I assume you mean that third parties are hurt as fractional reserve lending causes the value of the dollar to fall. The answer is that fractional reserve lending does not affect the value of the dollar, since lending by private banks does not affect the amount of the fed’s assets or its liabilities. It’s analogous to how the issue of call options does not affect the value of the base security.

Bob:
“The Fed has NO liabilities – FDR and Nixon made this quite clear. Its notes cannot be legally redeemed on demand for any asset at the Fed.”

The fed sells its bonds for dollars all the time. Dollars haven’t been physically convertible into gold for years, but they have always been financially convertible into the fed’s bonds or other assets.

To Small…

The fed’s assets (bonds and gold) trade in free markets at positive prices because they have real value, and the main reason they have real value is that the government backs them with its tax revenue.

Michael A. Clem March 4, 2010 at 1:02 pm

I assume you mean that third parties are hurt as fractional reserve lending causes the value of the dollar to fall.
No, I mean third parties are deceived and defrauded, unless frb money is distinguishable from non-frb money. This should be possible in free banking, though, because banks shouldn’t have to (and just simply shouldn’t) issue the same dollar design and such as other banks. If a dollar has clearly been issued by the First National Bank, and it is known that the First National Bank engages in fractional reserve banking (preferably by a notation on the dollar itself), then the FNB dollar should easily be distinguishable from the non-FRB dollar issued by another bank, and be weighted accordingly. Simply calling for “free banking” isn’t enough without a clear understanding of what free banking entails.

Too small to fail March 4, 2010 at 6:12 pm

Circular reasoning by Mike Sproul.

“The dollar has value because they’re backed by bonds, and the bonds have value because they’re denominated in dollars.”

Mike Sproul March 4, 2010 at 10:16 pm

Too Small…

You are mixing up backing with denomination. The dollar is backed by bonds and gold. The bonds are backed by taxes. If you don’t pay your taxes the government will take your house, so the dollar is ultimately backed by your house.

Juan March 5, 2010 at 1:50 am

Ah mike sproul you are such a lovely inflationist. I guess you get some sort of benefit from the banking cartel, that’s why you support their fraudulent system?

Too small to fail March 5, 2010 at 6:33 pm

That’s correct. The dollar is ultimately backed by (the government’s ability to steal) my house. So what happens to the dollar when the government doubles the money (and “bond”) supply without doubling my number of houses? You can have as many “bonds” as you want, but you haven’t actually increased the backing. It is an accounting fiction.

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