The Salt Lake Tribune reports that Utah Rep. John Dougall at the urging of a constituent has committed to opening a bill file for legislation that would require the state of Utah to accept payments for licenses and whatnot in gold. Utah residents would even be able to mint gold and silver coins under the legislation.
“Fundamentally, what it comes down to is people’s concern about the fundamentally reckless policies at the federal reserve and what it does long-term to the financial standing of the country and giving folks another choice of monetary tools for their financial transactions,” Dougall said.
Sadly, the Tribune fished around for a quote on the proposed legislation and found Utah State economics professor Alan Stephens who says using gold as money is a mistake because there isn’t enough of it. The economy can’t grow unless there is more money created, according to Simpson. In other words if we didn’t have inflation the economy just wouldn’t go anywhere. Producers create goods and services only because the Fed creates money. That’s what they’re teaching at Utah State.
Simpson goes on to say parties can contract in gold if they want to anyway. Oh sure, good luck with that professor. Legal tender laws and all of that. In this book review from 1980 for the Freeman, John Sparks writes, “Why, if gold clauses are now legal once again, are citizens not generally making use of them to avoid the ravages of inflation?
“[Henry Mark] Holzer provides one legal answer to that question. Long-term loan contracts which require the borrower who repays in paper currency to repay more of the cheaper dollars, may violate state usury laws even where there has been a waiver of the defense of usury in advance. Holzer suggests a way that such a problem can be overcome by drafting a clause which states that ‘a given number of ounces of gold (either bullion or coins) of a certain fineness is being loaned and that exactly the same weight and fineness will be repaid.’”
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More details of the Utah Sound Money Act can be found here.
So close but lacking in freedom. The bill should do what Ron Paul has suggested which is to allow competing currencies and have the state accept payments in those currencies.
Bogart,
Ron Paul is a supporter of a pure gold standard, not of those fancy “competing fiat currencies” schemes.
Nikolaj,
You are almost right. Ron Paul supports a pure gold standards, but recognizes the need to transition into that standard using competing currencies.
Nikolaj, Ron Paul is the one who wants to introduce currency competition rather than a federal gold standard….
Interesting. They probably could have looked down the hall at Utah State and gotten a different perspective from Michael or Diana Thomas. FWIW, Michael and I were classmates at the University of Alabama, we moved to St. Louis at the same time, and we had at lot of interesting conversations while I was a grad student at Wash U and he was working on an MA in economics with Lawrence White at UM-St. Louis.
Dixie,
Ron Paul is a follower of Mises and Rothbard who where the advocates of 100% gold standard. He clearly supports the gold standard first by abolishing the legal tender laws, and then the Federal Reserve system. The “competing fiat currencies” is a misguided and confused inflationist doctrine proposed at one point by Hayek and advertised these days by Selgin, White and co. The best critique of that doctrine was provided by Rothbard, and it is based on Mises’ regression theorem.
There is no such a thing as a “federal gold standard”. Paul says that Fed and legal tender laws should be abolished. That does not mean the competing fiat currencies, but practically reestablishment of the gold standard (with a possible amendment that would require the full banking reserve). the reimposition of gold standard would mean elimination, rather than increasing or accepting the government interventionism.
Nikolaj,
Ron Paul on competing currencies.
Enjoy.
-Dix
Ron Paul is most adamantly for the repeal of legal tender laws. He has crafted a short sweet and to the point bill, as is his wonderful style, to that effect. The repeal of legal tender, in effect, allows for competing currency. This is because a legal tender law, in actual effect, all but establishes that only one specific currency be used in contracts. It doesn’t say that, but it is the effect, it is what happens when any contract, however delineated, must be considered paid and complete upon tender of “legal tender” which is FRAUDs, aka FRNs aka Dollars.
That said, Paul is definitely NOT for competing *fiat* currencies. He is for gold and silver competing with, and ultimately destroying, fiat currency of any kind.
You may want to get information from the source as opposed to listening to third party hearsay from disreputable sources like CNN or the Paul Krugman blog.
Dear Douglas French:
Amsterdam was a case for 100 percent reserve banking system.
I have data about purchasing power of the Dutch Guilder:
http://www.iisg.nl/hpw/calculate.php
I have also data about purchasing power of the British Pound:
http://www.measuringworth.com/calculators/ppoweruk/
Therefore, dear French, the Dr. has know about the case of Amsterdam in 17th century, I ask: Why the inflation of the Dutch Guilder (with a 100 percent reserve banking system) was greater than the inflation of the British Pound (with a fractional-reserve banking system) in 17th century?
http://mises.org/daily/2564
Good article. The article says that the Bank of Amsterdam had a 100 percent reserve banking system in 17th century. This I know. But not answer to my question: Why the inflation of Dutch Guilder (a case for 100 percent reserve banking system) was greater than the inflation of British Pound (that had a fractional-reserve system, according to Rothbard) in the 17th century?
The article answered your question. State subsidised minting and legal tender laws to accept the coin minted in the shape of the Dutch Gulder.
Figure 2
Total Mint Output of the South Netherlands, 1598–1789*
Period Gold Silver Copper Total
1628–29 153,010 2,643,732 4,109 2,800,851
1630–32 364,414 8,838,411 6,679 9,209,503
1633–35 476,996 16,554,079 17,031,075
1636–68 2,917,826 20,172,257 23,090,083
1639–41 2,950,150 8,102,988 11,053,138
1642–44 2,763,979 1,215,645 47,834 4,027,458
* In guilders
Source: Jan A Van Houtte and Leon Van Buyten (1977, p. 100).
Dr. Douglas French:
Amsterdam was a case for 100 percent reserve banking system.
I have data on the purchasing power of the Dutch Guilder:
http://www.iisg.nl/hpw/calculate.php
I have also data of purchasing power of the British Pound:
http://www.measuringworth.com/calculators/ppoweruk/
Therefore, Dear French, the Dr. has know about the case of Amsterdam in 17th century, I ask: Why the inflation of the Dutch Guilder (with a 100 percent banking system) was greater than the inflation of the British Pound (with a fractional-reserve banking) in 17th century?
how is amsterdam a case for a 100 precent reserve system??
is there a 100 precent reserve system in place now??
Mercantilism…the British had a far more extensive empire. England was an island that could control its trade much easier than Holland. England took the raw material from its colonies and manufactured trade goods at home for sale back to the colonies and other countries.
The British did not have a far more extensive empire, until the second half of the eighteenth century. That idea is skipping over whatever brought that about.
England is not now and never has been an island, let alone one that could control its trade much easier than Holland. Quite apart from the offensiveness of lumping the rest of us in with England, it wasn’t possible to get free trade within the whole island until formal unification in 1707, and until then Scotland had its own, distinct army and navy and attempts at setting up colonies.
Holland also “took the raw material from its colonies and manufactured trade goods at home for sale back to the colonies and other countries”, so this is not a distinguishing feature.
Nikolaj,
Ron Paul on competing currencies.
Enjoy.
-Dix
In my opinion this sound money act of Utah’s is the most important signal for freedom since the collapse of the Berlin Wall. I only hope that it is passed.
If passed I expect the Feds will find some way to destroy it.
++++++++++
I was thinking the same thing…..
“Since gold coins aren’t a standard currency, he said, he had questions about how the state would comply and how, for example, it could give change on a transaction. ‘Do they chip off a chunk of an ingot?’ he asks.”
I always love how state employees are so small minded…….
are there us gold coins that are still legal tender?? and people pay teh govt in gold so the govt can keep it?? so the govt can (then own) and spend the gold on what??? more govt???
“Simpson goes on to say parties can contract in gold if they want to anyway.”
well they can right??
now if the govt requires its payment (taxes) aside from liscence fees in its own currency it would likely be difficult to have gold have broad spending power in a way that can affect the economy like the amount of circulating paper-dollars and various forms of dollar-currency can.
probably a fake story.. a lie in other words.
to avoid the ravages of inflation?
what ravages???
Utah Sound Money Act….why is gold sound money?? what does sound mean in a money context.
if the govt required payment in gold would it still be sound??
No, james, the state will not *require* payment in gold. It will *allow* payment in gold, and/or silver. It will also *allow* for the minting of gold and silver, and the *use* of gold and silver commercially WITHOUT capital gains taxes and other hefty taxes levied on each and every transaction. That also answers the question “well can’t they [already transact in gold]?” Well, yes, at _SEVERE_ disadvantage, yes they can.
“it would be far better to suffer a one-shot deflationary contraction of the fraudulent fractional-reserve banking system, and go back to a sound system of 100% reserves.”
http://murrayrothbard.com/Bank_Crisis.html
was rothbard referring to amsterdam (centuries before he was born) here or is the linked to article a fraud and lie??
Exactly, why is gold considered safe? It is as prone to speculation as oil. Many will say its rise in dollars is attributable to an inflated dollar but I think that is only part of it, the rest is speculation.
Gold is currently treated as a commodity, so yes, it will rise and fall like anything else. When gold is convertable (dollars can be converted to gold when inflation arises), or when the money supply (gold) is fixed, inflation is either seriously curbed (former) or essentially eliminated (latter).
People still buy gold when global economies tank because it has been considered a relatively stable investment for thousands of years. No paper currency can hold a candle to gold.
Doesn’t the purchasing power of money (including gold/silver) fluctuate based on the demand for money, just like all other non-monopoly goods and services?
I believe the article needs an edit. At this moment, “Simpson” is shown. Perhaps Sen. Alan Simpson was in your head as you typed this.
Thanks for the article. I just wish it had some sort of a rebuttal to the common argument presented by the Utah State professor. If it had, I would find it better for mass consumption (to be posted for non-Austrian thinkers).
Also, it would be interesting to read an analysis of the bill’s merits and economic effects–such as those referenced in the comments above–from an Austrian perspective.
Dr. Douglas French.
Your article (http://mises.org/daily/2564) was very good, because mentions a case for 100 percent reserve banking system in 17th system.
But not answer to my question: Why the inflation of Dutch Guilder (a case for 100 percent reserve banking system) was greater than the inflation of British Pound (with a fractional-reserve system, according to Rothbard) in the 17th century?
Dr. Douglas French.
Your article (http://mises.org/daily/2564) was very good, because mentions a case for 100 percent reserve banking system in 17th.
But not answer to my question: Why the inflation of Dutch Guilder (a case for 100 percent reserve banking system) was greater than the inflation of British Pound (with a fractional-reserve system, according to Rothbard) in the 17th century?
“The “competing fiat currencies” is a misguided and confused inflationist doctrine proposed at one point by Hayek and advertised these days by Selgin, White and co. The best critique of that doctrine was provided by Rothbard, and it is based on Mises’ regression theorem.”
Nikolaj (typically) misrepresents my and Larry’s views. Yes, we have discussed the competing fiat monies idea (and, I suppose) “advertise it” to that extent. But we also show why we think it is unworkable, Those interested in the truth concerning our position are encouraged to read the relevant sections of Whites _Theory of Monetary Institutions”_ and of his and my _JEL_ article, “How Would the Invisible Hand Handle Money.”
By the way, the Bank of Amsterdam frequently held less than 100% reserves during its career. The contrary view is a popular myth. In fact so far as I’m aware there has never been a 100% reserve “bank” (that is, gold warehouse) of any duration in modern (say, post-1700) history.
Translation: “The Utah state Government will gladly take any physical gold you want to hand over.”
Professor Stevens counters that gold would not work as currency “because there isn’t enough of it”. That has proven to be false over the centuries that gold has been used as currency.
What todays economists have a problem with is the fact that having a gold based currency, inflation through bookeeping is impossible. As the economy expands and a unit of gold buys more goods people who have a pension [based on a gold backed currency] would actually see an increase of his/her purchasing power. Government organizations could no longer expand by the mere printing of fiat currency. Wars would be difficult to finance without hoarding in treasuries.
Deflation would be the norm, rather than some central bank “targeted” inflation.
Utah would post a new exchange rate every day? The government would buy a big safe for every office that sold licenses and permits. Private armored car services would collect the gold? I suppose every office would need a security camera system? And a scale to weigh the gold? Or would only official gold bars be accepted? And a means to assay the gold?
Americans muse over the history of currencies as their government and the Feds connive the greatest period of inflation the world has ever seen. America’s fiat, over manipulated dollar will be saved from collapse by astounding inflation in America – it has already started, in a very controlled way the price of gasoline has crept upward as fast as the market will bear in Arab interests, in Saudi interests, food is next, then clothing, them manufactured goods!
Dreaming about interfering in the processes afoot in the nation today, with Gold, Silver or any other forms of money will be dealt with as firmly as Saddam Hussein, JFK, or anyone else who tempts the powers that be, with the truth!
America is in the grips of a monetary lie, and it must be adhered to, in order to keep the Uber-Rich happy and secure! Corporations are answerable to shareholders, and these shareholders have the ultimate power in America! Groups of them decide our fate! Witness, the death of the electric car! Don’t believe me! Google, torrent, the documentary, “Who Stole The Electric Car”, decide for yourself who is in power.
America is now entering a phase of corruption that typifies an aging society! Nothing Americans can do will remedy this fact of societal development – just as our Capitalist Corporations age and end in self-destructive patterns, the nation has done! We the proletariat, the plebs, the peons, the patriots, must learn to adapt to the changes and d survive to live another day, drive Asian designed, and next, Asian built cars, eat more veggies, more pork, less beef. live in smaller more economical, cheaper domiciles, dress less extravagantly, entertain ourselves more cheaply, like video games, computers and their games from Asia, pay more taxes to the Uber-Rich in control, live with part-time poor paying jobs, suffer lives in the service industries, and return to tent-cities without even medical care to lick out wounds, to restore our souls, to consolidate our knowledge, reconciled to the fact that these are the rewards for a strict faith in Capitalism, and the corporate myth. Our democracy is fatally infected with Capitalism, the only cure: a strong dose of Socialism, was rejected with Obama’s health care schemes, GM and the corporatists got the gold instead sealing the working mans fate to a degrading non-union life of slavery without social recourse – slavery in modern times! Workers without a voice! The Corporatist dream! So sad, but true for American workforce.
Gold would not save the naive working class of America, Silver money would make no difference. China offers little silver bars to their slave-labor as consolation for their abominable circumstances! So What! Still, unfair manipulation of labor! The closest American workers ever got to parity with the Uber-Rich was with the powerful UAW and that situation was broken down by the withdrawal of American Capital and the building of ultra modern factories with that capital in Asian countries! The bastard capitalist, addicted to ROI, is relentless in his drive and will stop at nothing to get ROI! beware this evil monster and know him for what he is! for what he is not! Watch for his v evil propaganda machine in America! It is not designed to build our country, it is designed to fool us into making the Capitalist richer!
Take a breath Uncle B. You are probably quite right to suspect the existance of a Financial Elite which uses the tool of Fiat Currency to defraud the rest of the populace, with finger puppet politicians and bureaucrats doing their bidding, however you unfairly impugn capitalism with your expansive brush of tar. Capitalism is simply the use of savings to create capital goods which can create more wealth. It is this wealth which is the set of bootstraps by which all society lifts itself from one economic stratum to another. Capital goods magnify the efforts of individual workers, enabling the productivity rises which justify/fund good wages. The production produced by the workers using capital goods is willingly purchased by buyers in a free, uncoerced exchange. By definition, the two parties to the exchange are better off afterwards (marginal utility and all that).
Where capitalism is smeared is when capitalists attempt to prevent or reduce competition by unfair means, typically by using the coercive power of elected and bureaucratic officials, a corruption of fair process.
You unfairly malign capitalism when the real problem is cronyism and corruption. True capitalism is an inherently good and wealth-creating, standard-of-living enhancing process. You seem unwilling to recognize that adoption of REAL money would eliminate one of the main mechanisms by which ordinary people are defrauded by inflation. Your revulsion of ROI implies a denial of the means by which projects (expenditures) can be (best?) prioritized. How else to determine the best application of savings (deferred consumption)?
The Pioneer immigrants tried socialism (from each according to his ability, etc, etc) and starved until they switched to a system wherein one would reap the rewards of his own work (By the work of your hands shall you eat.) ‘The trouble with socialism is that you eventually run out of other people’s money – Thatcher’. Russian communist era saying “They pretend to pay us and we pretend to work.”
there may not be enough gold to suitably cover our economy. Why not have competing NON fiat currency. When copper rose in value, the government started removing it from circulation, today’s penny is mostly zinc. what if we could coin in many metals, gold silver copper, even aluminum has intrinsic value. why restrict it to metal? why not a currency based on Current,,( electricity) Image a money that was redeemable for Power, you could have a kilowatt coin a megawatt bill. Even Human power, some alternate currency experiments us the unskilled man hour, as the standard (http://www.ithacahours.org/)
ANYTHING would be better than Fiat Currency
There are many good reasons why gold and silver ended up as the monetary commodities. For one thing, as a store of value they represent effort already expended, and thus can be physically identified as ‘savings’. One of the problems with the kilowatt-hour coin concept is that it represents a promise of power, it is not itself a unit of power. In this respect it is rather like fiat currency, a promise to pay (retire an obligation) in the future.
The observation that there is not enough gold has been many times. It is incorrect to assume that, given today’s price per ounce, the total value of gold reserves and private holdings, means that there is insufficient gold. Today’s price does not reflect the valuation which would be given to make the money supply adequate. That valuation would shift to meet the need. Gold exchange can be transacted electronically in any quantity necessary, to however many decimal places are necessary.
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