Thanks for your input earlier Paul – I have a question . I’ll paste your analysis below.

“Day 1) We’re good: depositor deposited $100 in checking account.
..ASSETS..|..LIABILITIES
——————————–
$100 cash.. | $100 checking deposit
Day 2) Already fraudulent $90 loan is created here (10% reserve maintained).
..ASSETS..|..LIABILITIES
———————————
$100 cash…|.$100 checking deposit
.$90 Loan…|..$90 checking deposit (thin air)

This may be what you call leveraging, but it is also FR lending and it increases the money supply by virtue of increasing checkbook deposits by the amount of that $90 loan.”

Where does the $100 that was deposited in the first instance come from ?

Surely its only source can be government spending or (gulp) money creation?

Try the analysis assuming no savings or deposits exist in the private sector, and the FED and government are unwilling to intervene or spend?

how will that effect the analysis?

Sorry for my poor writing style, its very difficult to understand. But I really think the orthodox view of the monetary financial sector is a FERP = Flat Earth Research Program.

Cheers.

Thanks for your input earlier Paul – I have a question . I’ll paste your analysis below.

“Day 1) We’re good: depositor deposited $100 in checking account.
..ASSETS..|..LIABILITIES
——————————–
$100 cash.. | $100 checking deposit
Day 2) Already fraudulent $90 loan is created here (10% reserve maintained).
..ASSETS..|..LIABILITIES
———————————
$100 cash…|.$100 checking deposit
.$90 Loan…|..$90 checking deposit (thin air)

This may be what you call leveraging, but it is also FR lending and it increases the money supply by virtue of increasing checkbook deposits by the amount of that $90 loan.”

Where does the $100 that was deposited in the first instance come from ?

Surely its only source can be government spending or (gulp) money creation?

Try the analysis assuming no savings or deposits exist in the private sector, and the FED and government are unwilling to intervene or spend?

how will that effect the analysis?

Sorry for my poor writing style, its very difficult to understand. But I really think the orthodox view of the monetary financial sector is a FERP = Flat Earth Research Program.

Cheers.

What has that got to do with anything?

Nothing.

Its a strange ideology. It sounds like taking bridging credit and elevating it to the status of a major philosophy. If it adds to the money supply then its inflationary and since its fiduciary money supply its potentially deflationary. Because it can dissapear again in an unpredictable fashion.

To repeat….. the two concepts are unrelated. Just because you think a bank is ‘adequately backed’ after the creation of more fiduciary money, and hell it may well be. But just because its adequately backed it does not mean that what it is doing doesn’t add to the money supply. And if it adds to the money supply then its inflationary.

“…. as call options don’t affect the value of their base security…..”

Well that’s debatable too. They ought to affect it. Because the owner of those call options will obtain possesion of the base security if the price of that base security rises above the call price during the option period. And then he may sell these securities at the current price pocketing the difference and helping drive the price down.

“.. checking account dollars don’t affect the value of the paper dollars….”

This sounds like “As the potato grows on the highest branches, so too will the tomato roll up the sides of hills left unchecked.”

“OK. I’ll commit to defining inflation as a fall in the value of money. This same definition has been standard since way before Keynes came along, so I don’t think I’ve fallen for any Keynesian falsehoods here.”

Nevertheless, you’ve fallen for a falsehood; I’ll not blame Keynes. Defining inflation as price increases was a con established by some class of individuals interested in focussing the masses on the effects of inflation and to keep them from actually understanding its causes. Defining inflation in terms of its symptom rather than the actual problem is only useful as a tool of confusion.

“I was talking about the colonial period, roughly 1690-1790, where barter was in fact displaced by paper money. Do a search for books by Curtis Nettels, Andrew McFarland Davis, and John McCusker, if you don’t want to take my word for it.”

The time you are thinking of is described by Rothbard in “The Mystery of Banking”. The British and American economies were both on a well established commodity based money economy by that time. They certainly were not in a barter economy in 1690. See

http://mises.org/mysteryofbanking/mysteryofbanking.pdf :

“The first government paper money in the Western world was issued in the British American province of Massachusetts in 1690… It [Massachusetts] tried to borrow 3 to 4 thousand pounds sterling from Boston merchants, but the Massachusetts credit rating was evidently not the best. Consequently, Massachusetts decided in December 1690 to print £7,000 in paper notes, and use them to pay the soldiers. The government was shrewd enough to realize that it could not simply print irredeemable paper, for no one would have accepted the money, and its value would have dropped in relation to sterling. It therefore made a twofold pledge when it issued the notes: It would redeem the notes in gold or silver out of tax revenues in a few years, and that absolutely no further paper notes would be issued.”

Just to recap: paper money didn’t directly replace barter here, nor did it ever do so in history. Study Mises’s regression theorem. It has a lot of insight to offer on how money evolved and the very nature of money itself.

“I buy a loaf of bread from the grocer with an IOU that I pay off in a few weeks. I bought the bread with the IOU. The IOU is money.”

Dig into some Mises sometime. You are odds with him on this very fundamental point.

Now it may depend what one thinks normal is. I think normal is nominal GDP being more or less static and consumer goods prices falling all the time. Whereas if you think normal is price stability, and that the money supply ought to expand with real GDP then that’s another thing.

But consumer goods price stability doesn’t imply monetary coherence, or good outcomes, or the avoidance of bubbles, or monetary stability, or stable aggregate demand, or the best of all possible investment markets….. well it doesn’t mean any of those things.

Quite the contrary.

After all consumer goods prices were pretty stable in the 20′s. And consumer goods prices were growing only slowly in the 90′s. And because they were looking at consumer prices for arbitrary reasons, we get the crash of 29, and the runaway debt of the 2,000′s.

It’s not inflationary on real bills principles. To repeat from my previous post:

Bank A
…ASSETS……………..LIABILITIES
1) 100 ounces of silver…100 paper dollars
2) IOU worth $200………200 paper dollars

Bank B
…ASSETS……………..LIABILITIES
1) 50 paper dollars…….50 checking account dollars
2) IOU worth $100………100 checking account dollars

Bank A starts the fractional reserve process going by issuing 200 paper dollars in exchange for the $200 IOU. Bank B then keeps the process going by issuing 150 checking account dollars, each of which is, in effect, a call option on paper dollars. The real bills view of this loan expansion process is that neither bank causes inflation, since both have adequately backed the money they have issued. Just as call options don’t affect the value of their base security, checking account dollars don’t affect the value of the paper dollars. Still no fraud and no inflation. Every dollar is backed by assets worth one ounce of silver. The error of the Austrian view is that they insist that every dollar must be backed by silver itself, rather than something equal in value to the silver.

Paul:
“The thing you neglect to commit to is whether you think a rising money supply is inflation, or the fall in the purchasing power of money is inflation. I have said and maintain that, the former is inflation and the latter merely the symptom of it. You seem to think, although I have not noticed you commit to this position, that the latter is inflation. If this is so, you have been mislead by a magnificent Keynesian con and this would be the partial cause of us not connecting, and also the source, in my opinion, of your confusion.”

OK. I’ll commit to defining inflation as a fall in the value of money. This same definition has been standard since way before Keynes came along, so I don’t think I’ve fallen for any Keynesian falsehoods here.

“it is well established that the United States was on a gold standard long prior to this fiat paper money system it has been on since 1913. Gold or silver money replaced barter in the world many centuries ago. Paper always only followed commodity money, and paper never directly replaced barter.”

I was talking about the colonial period, roughly 1690-1790, where barter was in fact displaced by paper money. Do a search for books by Curtis Nettels, Andrew McFarland Davis, and John McCusker, if you don’t want to take my word for it.

“An IOU is not a claim on present goods and is therefore not a money substitute”

I buy a loaf of bread from the grocer with an IOU that I pay off in a few weeks. I bought the bread with the IOU. The IOU is money.

Yancey:
“You sort of avoided my questions. So the US Dollar is “overbacked”. So what is it overbacked with? If it is adequately backed, then what is the source of the undeniable inflation we see in the US?”

The dollar is backed by the gold and bonds held by the Fed, just like the dollars in my example above are backed by the silver and the IOU’s. Inflation can be caused when the quantity of money outruns the assets of the issuing bank. It can also be caused when the issuing bank starts conducting open market operations at a reduced value. In my paper dollar example above, suppose an interest rate of 5%, and suppose that the bank suspends convertibility for one year. If people really want the silver, and the bank won’t give it to them for one year, then the value of the dollar will fall to about .95 ounces. Thus the issuing bank can choose to conduct open market operations anywhere between .95 oz/$ and 1.0 oz./$. Anything less than 1oz/$ is inflationary and fraudulent, but could explain why we have had inflation even though the Fed does not seem to be losing its assets. This is explained in the same paper you downloaded above:

http://www.geocities.com/sproulmike/nofiatmoney122205.doc

If that money started coming in you would have to tax more than you spend and simply retire the cash to avoid very high inflation. Not retire debt mind you. Just retire the cash.

Or they’d have to jack up the RAR which would actually be a good thing.

The central bank has no backing whatsoever except as monopoly counterfeiter. Its hard to know quite what you were driving at.

You sort of avoided my questions. So the US Dollar is “overbacked”. So what is it overbacked with? If it is adequately backed, then what is the source of the undeniable inflation we see in the US?

“We must be talking at cross purposes here. A rising money supply is one thing, and a fall in the value of money is another. Sometimes they have happened together and sometimes not, but they are not identically equal.”

What you are saying is entirely true. The thing you neglect to commit to is whether you think a rising money supply is inflation, or the fall in the purchasing power of money is inflation. I have said and maintain that, the former is inflation and the latter merely the symptom of it. You seem to think, although I have not noticed you commit to this position, that the latter is inflation. If this is so, you have been mislead by a magnificent Keynesian con and this would be the partial cause of us not connecting, and also the source, in my opinion, of your confusion.

“For example, when the first paper money was issued in the American colonies, the new money displaced barter.”

You are mistaken both from a theoretical and empirical perspective. From the theoretical, you are contradicting Mises’s regression theorem. From the empirical, it is well established that the United States was on a gold standard long prior to this fiat paper money system it has been on since 1913. Gold or silver money replaced barter in the world many centuries ago. Paper always only followed commodity money, and paper never directly replaced barter.

“There was much more money (obviously, since there had been almost none before) but there was little or no fall in the value of that money as more was issued.”

The only reason a general increase in the supply of money might not lead to an apparent rise in prices, as was the case in the 1920s, is because increases in productivity increase the demand for money concurrently with this increase in money supply. Without the rise in productivity, inflation would necessarily lead to increases in prices. Regardless, inflation of the money supply always tends to reduce the purchasing power of money in respect to what it would have been had the inflation not taken place.

“The grocer accepted it [the IOU] as a money substitute. Is it fraudulent and inflationary at that point? I wouldn’t say so.”

The persistent theme in your argument is the conflation between credit and claim transactions. An IOU is not a claim on present goods and is therefore not a money substitute; it is a claim on a future good. The trade for the present goods, groceries, for the IOU was a credit transaction. Future goods do not and cannot function as money. Money is and necessarily must be a current good. The grocer lent present goods for the future good of the IOU. That IOU will not be able to function as money unless the community deems it a claim to a present good. If it is accepted as money, and hence as a present good and yet is not redeemable as a present claim for money, then it has been fraudulently misrepresented as a claim on present goods to those accepting it as money. The grocer, once again, did not take the IOU to be a claim against present money. Also, which I emphasize, a check is not an IOU: it is deemed to be a claim against current money.

If that was as clear as mud, what I suggest is following these two links (there must be 100 similar ones on mises.org) which provide the typical Austrian description of the distinction between a credit and a claim transaction and the implication this difference has on money. Search on “transaction”, or “claim” or “credit” and you will come to more eloquent but hopefully essentially identical elaborations on what I am arguing.

http://mises.org/daily/363
http://mises.org/rothbard/austrianmoneysupply.pdf

What’s the problem here? We all know that it takes monetary base and fractional banking BOTH to produce a lot of extra money.

Why try and put it all on one head when its a two-headed beast. People such as myself don’t wish to go down to the local branch of the local bank and arrest all the lending officers. But its a stupid system. And you wouldn’t lend your gold coins to the bank on that basis when there was fiat competition instead.

The vast overwhelming share of the money supply is fiduciary money. On the other hand that fiduciary money does pyramid on top of printed cash money. Ergo its a two-headed beast. So why pretend otherwise?

I would say there must be a problem going on here with regulating banks as an initiation of force. But one shouldn’t let any such thing mess with ones monetary analysis.

The key here is to think what the attitude would be if prices were dropping for the last 500 years under non-fractional reserve. And they charged to hold on-call deposits and paid interest on term loans.

And if there were hundreds of different private coiners with different individual designs of coins in several metals. THEN if the banks lent out your coins while they were charging you to wharehouse them you most definately would consider it fraud.

“Saying that new money=inflation is like saying that issuing new corporate stock=falling stock prices.”

“Not quite. It’s more like saying that new money=inflation is like saying new corporate stock=more corporate stock. That’s more precise.”

We must be talking at cross purposes here. A rising money supply is one thing, and a fall in the value of money is another. Sometimes they have happened together and sometimes not, but they are not identically equal. For example, when the first paper money was issued in the American colonies, the new money displaced barter. There was much more money (obviously, since there had been almost none before) but there was little or no fall in the value of that money as more was issued.

“Also, the issuing new corporate stock is done by the owners of the current stock. If the owners don’t want to issue the stock, they don’t. The influence of the new issue on the price of the current stock affects all stock holders equally, no one is benefiting at the expense of others.”

And new money can be issued by a bank that plainly announced its intention to issue it before it started business, and the bank’s customers accepted the bank’s money with full knowledge of this.

“The point where this IOU circulates as money is the point at which it is accepted as a money substitute”

The grocer accepted it as a money substitute. Is it fraudulent and inflationary at that point? I wouldn’t say so.

“But let’s consider real bills in this case: the real bills concept gets real hairy and wild: Let’s say the grocer tires of waiting for your money, and rather than trying to sell it to an investor who will trade his savings to the grocer for the note, the grocer instead sells it to his bank, who (common FR theme) buys the note, not with money it saved from producing and selling goods and services, but from creating a new checkbook deposit in its books. Then, again, yes we have inflation and fraud. Debt has been monetized, as they say. There is now more money in circulation. The bank has a new IOU asset in its books, and a corresponding cash liability created from thin air. This is fraudulent and inflationary.”

Either the customer’s IOU circulates as money or the IOU is handed to the bank in exchange for the bank’s IOU, which then circulates as money. In the first case the IOU is backed by the customer’s assets, and in the second by the bank’s assets. In neither case is there fraud or inflation.

“1. my understanding is that this serves only as leveraging activity upon the existing money base (or high powered money issued by the FED/govt.”

My post on this thread at January 18, 2006 03:51 PM, gives the illustration of how fractional reserve lending increases the money supply. In that illustration, this inflationary event occurs on day 2 where the bank creates checkbook deposits of $90 from thin air in the process of lending that same $90 out. I have copied that part here:

Day 1) We’re good: depositor deposited $100 in checking account.
..ASSETS..|..LIABILITIES
——————————–
$100 cash.. | $100 checking deposit
Day 2) Already fraudulent $90 loan is created here (10% reserve maintained).
..ASSETS..|..LIABILITIES
———————————
$100 cash…|.$100 checking deposit
.$90 Loan…|..$90 checking deposit (thin air) <- fraudulent loan is created here

This may be what you call leveraging, but it is also FR lending and it increases the money supply by virtue of increasing checkbook deposits by the amount of that $90 loan.

“2. I also thought (could be wrong though) that only trasactions between the government and Central bank could increase or decrease the amount of high powered money in the banking system (we can call them reserves I guess).”

Almost. Actually, the FOMC activity that occurs weekly is between the fed and certain favored financial institutions that have already bought these treasury securities in the past. The fed buys these older securities from there, but I think it is fair to say that economically it doesn’t matter if they buy direct from the treasury, or from a third party. Either way, it tends to keep demand up and interest rates down for these treasury securities. However, this way, it directly injects the new high-powered bank reserve money into the economy as you mention.

“3. All money (net holdings) we have in our possession whether it be an accounting entry or cash/coin is the result of “money creation” by a central bank. The fractional reserve system is merely leveraging activity upon the money base.”

Not really. More new money is generated via bank credit expansion through FR lending than is generated by the fed’s open market operations which creates the new reserves. It certainly is true that it is the fed’s continued open market operations that make it possible for the banks to continually expand the money supply via credit expansion. It’s a very synergistic operation. The banks depend on the fed to create new reserves, and the fed depends on the bank to expand credit based on these new reserves. It’s one big happy family I think is a fair thing to say.

“Question: How can a commercial bank or business buy a bond if it has no free reserves or savings with which to make the purchase?”

It can’t. The former requires reserves to create the new credit. The business just plain needs the savings. Of course, if the business borrows from the bank, it amounts to the bank requiring the necessary reserves. The fed actually penalizes the banks for being over-loaned up and having less than the legal required reserve limit.

“No govt spending = no free reserves.”

Actually, the fed is not constrained by necessity to buy government bonds to create new bank reserves. It just does it that way. I could just as easily accomplish the same end by buying stocks and bonds in Halliburton, Boeing, Anteon, and/or any other firm that sells securities in USD.

“So if the government / FED don’t dreate money from thin air – where do we get our money from?”

To recap, the increase in the money supply comes from the fed’s FOMC operations which creates new (high-powered banking reserve) money and (to a larger extent) from the commercial bank’s credit expansion via FR lending.

“Hi Paul, how is there suddenly more money?
1. my understanding is that this serves only as leveraging activity upon the existing money base (or high powered money issued by the FED/govt.”

But monetary base is not the only money. That part of the money supply which is not cash is called ‘fiduciary money’. You might call it an ‘on-call committment to supply cash’. And in practice it has the same effect on demand as the cash itself.

Now its true that only the central bank can create cash. But the other banks can create fiduciary money.

I’m not saying that they ought not be allowed to do this on the basis that doing so currently represents wicked behaviour. I would do so on the basis that the resultant system is such a hopeless one. And some would say the worm in the apple of modern capitalism.

I, myself, would stop short of calling it fraud or larceny because it is many generations since any banker has worked under non-fractional reserve.

But its just a stupid and unstable system. Which predjudices against metals and in favour of fiat, lends itself to political manipulation, slows down the transmission of information, and makes some Keynesian assumptions seem almost plausible to the laity.

But it might be a better world if it were one day considered fraud again.

Fraud and most grievous fraud.

People point out that fiduciary money cannot be created except on top of the creation of cash. While this is technically true in practice the system as it stands is better understood by looking at it the other way.

If an on-call committment is created then sooner or later it may need to be backed up by newly printed cash. The unpredictable nature of whether this happens or not and when strikes me as an obstacle to explaining how the bizzare system currently works. No-one is in a position to know when the truck is leaving the mint and where exactly its headed.

The principle is that the creation of fiduciary money may at some stage call forth this cash.

1. my understanding is that this serves only as leveraging activity upon the existing money base (or high powered money issued by the FED/govt.

2. I also thought (could be wrong though) that only trasactions between the government and Central bank could increase or decrease the amount of high powered money in the banking system (we can call them reserves I guess).

3. All money (net holdings) we have in our possession whether it be an accounting entry or cash/coin is the result of “money creation” by a central bank. The fractional reserve system is merely leveraging activity upon the money base.

Question: How can a commercial bank or business buy a bond if it has no free reserves or savings with which to make the purchase?

Answer the government / central bank must run a deficit / create money …there is no other way it can be done. No govt spending = no free reserves.

The government / Central banks dealings create the money base, and it is from this money base that the fractional reserve system operates. No money base = no fractional reserves.

So if the government / FED don’t dreate money from thin air – where do we get our money from?

We can’t say governments use bonds to spend – unless we assume that free reserves automatically fell our way before the government actually created them. Without the free reserves we can’t buy the bond.

Few people realise this…I can’t understand why.

“Saying that new money=inflation is like saying that issuing new corporate stock=falling stock prices.”

Not quite. It’s more like saying that new money=inflation is like saying new corporate stock=more corporate stock. That’s more precise.

Also, the issuing new corporate stock is done by the owners of the current stock. If the owners don’t want to issue the stock, they don’t. The influence of the new issue on the price of the current stock affects all stock holders equally, no one is benefiting at the expense of others.

Secondly, the new stock is sold for money, which is claims on present goods that have already been worked for, backed by production, saved, and now made available for investment. The money provided to the company to spend on production comes from savings, not from new money printing.

A way to introduce the FR banking influence to this scenario would be if the new corporate stocks were issued by the firm, and sold directly to banks which on adding these new stocks to its asset side of its spreadsheet, added on its liability side new checkbook deposits from thin air which it used to pay for this new issue. Now you have a pretty illustrative FR situation. How did the bank pay for the stock? By selling not dollars it earned by providing a good or service, but with dollars it created in its books. If only we private common schmucks could acquire assets with such a technique endorsed by the state courts, wouldn’t we all be happy? Except no, because the financial world would be in even worse upheaval than it already is with this fraud restricted as it is, only to the privileged banking industry.

“What if I go to my local grocer and I want a loaf of bread, which costs 1 oz. of silver. The grocer accepts my IOU, and he then uses it to buy supplies, and the IOU circulates as money. Would you call that fraudulent and inflationary? I wouldn’t.”

The point where this IOU circulates as money is the point at which it is accepted as a money substitute i.e. people have been persuaded to believe it to be necessarily redeemable on demand for real money. To the extent that this belief is true is the extent to which this scenario is not fraudulent.

If people do not believe it to be redeemable on demand for real money, they will not accept it as money, it will not circulate, and it will remain simply an IOU and the status of your transaction with the grocer remains a credit transaction. The grocer must wait for his money at the terms agreed and with risk and the wait will remain his unless he can actually sell that note to someone else willing to take the risk of the loan.

But let’s consider real bills in this case: the real bills concept gets real hairy and wild: Let’s say the grocer tires of waiting for your money, and rather than trying to sell it to an investor who will trade his savings to the grocer for the note, the grocer instead sells it to his bank, who (common FR theme) buys the note, not with money it saved from producing and selling goods and services, but from creating a new checkbook deposit in its books. Then, again, yes we have inflation and fraud. Debt has been monetized, as they say. There is now more money in circulation. The bank has a new IOU asset in its books, and a corresponding cash liability created from thin air. This is fraudulent and inflationary.

Paul:
Saying that new money=inflation is like saying that issuing new corporate stock=falling stock prices. But we all know that as a corporation issues new stock, and gets equal-valued assets in exchange, there will be no fall in the stock price. The real-bills view (I hope you don’t have the idea that I’m a Keynesian–eeew!) is that this is true of all financial securities–including financial securities that happen to be used as money.
By the way: What if I go to my local grocer and I want a loaf of bread, which costs 1 oz. of silver. The grocer accepts my IOU, and he then uses it to buy supplies, and the IOU circulates as money. Would you call that fraudulent and inflationary? I wouldn’t.

Yancy: I’d say the dollar is actually overbacked. I remember that there’s something like $3000 in currency per capita that has been issued by the Fed, while surveys show people hold about $100 per capita. Of course a lot of that is held abroad, but for the sake of argument suppose that the missing $2900 has been accidentally lost in fires, landfills, etc. That means the Fed has about 30 times more backing than it needs. The problem is that the real bills view says that the amount of backing per dollar specifies the MOST the dollar can be worth. But if the Fed chooses to conduct open market operations at a lower value, it can get away with it. That, incidentally, would be fraud.

Fair enough. Then let’s continue:

“but is this inflation? Is it fraud…”

Let’s answer the second first: “Sione is correct that I have been tricked into this barter transaction by the lie of Sproul Banking, and that I will lose time and happiness in the process”. So, YES. It’s fraud.

Now for the first. It is an increase in the money supply, simple as that so YES, it’s inflation as well. The fact that this inflation comes about by monetizing debt even if backed by non-monetary goods, does not change this in the least.

Mike’s position is basically this: The Austrian view on inflation and its relation to credit expansion is confused and wrong. My position is he’s confused, and wrong, and I’ve put my meager attempt at an argument for that position out already.

So rather than me repeat my worn out arguments on why this is inflation, I challenge you to find any description of credit expansion or inflation in the Austrian literature that would lead in the slightest to conclude in Mike’s favor. We could discuss your interpretation of it.

Assuming that to be impossible, find the most compelling argument in the Austrian literature that concludes against Mike’s position and dissect it yourself, showing that the Austrian position of equating an increase in the money supply to inflation is a wrong and or misguided or incomplete view. We could discuss that.

I’m already convinced the Austrian view is sound and justified. Re-read the literature and tell me what you think.

I have read a lot of what you have recommended already during the RBD debates, I am partially playing Devil’s Advocate here, and partially just trying to clarify my own thinking on this issue; and this clarification is aided by the ongoing debate.

If the 200 Sproul dollars are solidly
backed by Farmer Ted’s assets, then the entire exchange with me reduces to a barter transaction. Now, Sione is correct that I have been tricked into this barter transaction by the lie of Sproul Banking, and that I will lose time and happiness in the process, but is this inflation? Is it fraud if Sproul Banking promises to redeem in silver or IOUs instead of silver alone? It seems to me that the inflation arises because of the increased supply on the market of the monetized assets; for example a lot of people like me are trying to sell tractors or wheat for silver, thus devaluing the IOU and the Sproul dollars being backed by them.

Mike Sproul,

Do you consider the US dollar to be adequately backed? What does the Federal Reserve back it with? If it is adequately backed, why do we see constantly rising prices? If it isn’t adequately backed, then how would the Federal Reserve/US Government correct this?