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Source link: http://archive.mises.org/5867/financing-the-empire/

Financing the Empire

November 9, 2006 by

The adoption of the Federal Reserve central bank, the breaking of the last linkages with gold, and the further dollarization of the world banking system has only enhanced the economic arm of US imperialism. Nowadays, the US Treasury can issue bonds in astronomical amounts only to be absorbed seemingly harmlessly by the Fed and central banks around the world. For its part, the Fed pays for the bonds with a simple electronic bookkeeping entry in its accounts and no one is the wiser. FULL ARTICLE

{ 128 comments }

Björn Lundahl November 10, 2006 at 1:47 pm

Eric

“When I said the fed was not a counterfeiter, I meant only that they are not, technically, breaking the counterfeiting laws. Economically, however, their actions are the same as a counterfeiter. And that is the point I think many of us are trying to say”.

Yes, sorry for misunderstanding you. I think that libertarian ethics and Austrian economics prove that governments all over the world are counterfeiters.

Björn Lundahl
Göteborg, Sweden

Corbett Coburn November 10, 2006 at 3:13 pm

Corey & Dr. Thorton:

Thanks for the information about http://www.pecunix.com
and http://www.gold-pages.net/. Neither presents a viable option for placing our economy on the gold standard. Nor does defining the dollar as a particular weight in gold & liberating the government’s gold holdings.

The problem is that we must do away with the federal reserve, remove all of the federal reserve notes from circulation & give the people holding these notes their equivalent in gold or silver. And we have to do it all without destroying the economy.

Unfortunately, we have no idea how many federal reserve notes exist, so setting the value of an ounce of gold & giving people a set time to redeem their dollars is impossible. Someone (and you can bet it’s not going to be some government) is going to be left holding dollars when the gold runs out. What do we do for them?

Doing away with legal tender laws and allowing people to set up their own gold accounts will wreck the economy & screw everyone who is now holding dollars. The price of gold will skyrocket as the value of the dollar plummets. People who have gold now (governments & the like) will make out like bandits. Those who hold dollars now will see their savings destroyed in a matter of days. Nothing but economic chaos & ruin can be expected by following this course.

I’m not saying going back on the gold standard is impossible. All I’m saying is that we need to have a concrete & practical plan that takes all the factors into account. So far, no one’s offered such a plan.

One reason I am no longer a libertarian is that libertarians tend to confuse wishful thinking with reality and they are unwilling to put in the thought or the work necessary to bring any of their wishes to fruition. Essentially, they want the political equivalent of the free lunch. Until libertarians grow up & realize that spouting theories doesn’t change reality, libertarianism is an exercise in futility.

Björn Lundahl November 10, 2006 at 4:13 pm

Taking Money Back
by Murray N. Rothbard

http://mises.org/rothbard/moneyback.asp

As I have pointed out, the adoption of a 100% silver reserve money standard would be much easier than an adoption of a 100% gold reserve money standard.

Björn Lundahl

Björn Lundahl November 10, 2006 at 6:16 pm

One of the reasons for me being a libertarian is that libertarianism is reality, because, it is based upon true ethical and economical principles. I do not know of any other ideology which can deliver that. Other ideologies are based upon whims.

Or as Hans-Hermann Hoppe puts it in his book “The Economics and Ethics of Private Property”, page 234 and 235:

“In the present situation of a world-wide crisis of governmental legitimacy, of the collapse of East Bloc Socialism and enduring stagnation of the Western Welfare States, the chance for Austrian rationalism to fill the philosophical vacuum that has appeared with the retreat of positivism and to become the paradigm of the future is as good or better than ever. Now as before it requires moral courage as much as intellectual integrity to propound the Austrian social theory – the opposing statist battalions still represent a formidable majority and are in control of a far larger share of resources. Yet with the total breakdown of socialism and the concept of social ownership staring everyone in the face, the antithetical Austrian theory of private property, free markets and laissez faire cannot but gain attractiveness and win support. Austrians have reason to believe, then, that the time has come when they may succeed in bringing about a fundamental change in public opinion, by reclaiming ethics and economics from the hands of the positivists and the engineering powerful and restoring public recognition of private property rights and free markets based on such rights as ultimate, absolute principles of ethics and economics”.

Björn Lundahl
Göteborg, Sweden

averros November 10, 2006 at 6:47 pm

Corbett Coburn –

Until libertarians grow up & realize that spouting theories doesn’t change reality, libertarianism is an exercise in futility.

You’re demonstrating uncommon maturity by making unsubstantiated claims and ad hominem attacks branding your opponents as juveniles.

If you claim that some theory is false, point out the logical error in it or a demonstrable conflict with empirical observations. If you cannot, you must shut up and accept it to be true, if you have any intellectual honesty.

In fact, if you think that bowing to the “common wisdom” constitutes maturity you’re wrong. It is merely feeble-mindedness.

George Thomas Kysor November 10, 2006 at 10:47 pm

Michael F. Sproul:

“…there are limits to the Fed’s actions…”

Really? What specifically limits the Fed’s actions? How can the acceptability of your IOUs possibly relate to the acceptability of the Fed’s dollars?

Mike Sproul November 10, 2006 at 11:26 pm

G. Kysor:

Just as I can’t force people to accept my IOU’s, the Fed can’t force people to accept its IOU’s. This is obvious for people outside the US. Even inside the US, people have a choice of how many FR notes they want to carry.

Eric November 10, 2006 at 11:46 pm

Mike:

You are right, for those outside the FED’s control. But for we poor fools inside the US, the FED has “legal tender” law to force us to accept their money, and they can create it at will. We can’t create our own money, since legal tender law won’t allow it. So, we would have to use barter or if we did try to use something else, we’d still have to pay our taxes with Fed notes and anyone who refuses to pay us with, say, gold, would simply go to court and they would make a judgement in terms of federal reserve money.

You also didn’t respond to the point that when the FED retires money, they don’t pay interest on the time they held assets (which they can use for any purpose) which they had purchased using newly created money.

So, this is like the embezzler who borrows from the company safe, goes to the track over the weekend and wagers the money, and then returns it before anyone notices. Only the FED keeps the borrowed money forever (at least so far). And what happens if the assets the FED buys are lost or destroyed, how would they retire the money then? Sort of like if the embezzler loses his bet at the track.

Björn Lundahl November 11, 2006 at 1:54 am

We can all be rich! Hurray! I am a genius! Hurray!

All people should be allowed to print dollars under the condition that we all commit ourselves to offer them as loans, which would be a very good thing. We would not need to work anymore! As long as the loans we make are backed with property, everything is just fine. We could even make more backing and provide more security through not lending out more “money” than the value of the properties which we already own (our houses, cars etc). If we all also call ourselves “The Federal Reserve”, it will be even better! I wonder if I will receive the “Nobel Prize” for this? I am a Swedish guy and I live in Sweden, so the Nobel Prize committee should really recognize me with such a genial idea. But the Nobel Prize committee is in Stockholm and I live in Göteborg (only the second largest city in Sweden)? I know it! They will discriminate me for being a “Göteborgare” (an inhabitant from Göteborg). That is why I will not receive the “Nobel Prize” for this genial idea. That is the only reason. They might change their minds if I also suggest that all people should be allowed to print kronor (Swedish currency). Naturally, the printing of kronor must be done under the same specifications that I have suggested for being allowed to print dollars. Those specifications are of the greatest importance for making this a very good thing and for not being called counterfeiting and that “printing money out of thin air” have been done.

Björn Lundahl,
Göteborg, Sweden

Mike Sproul November 11, 2006 at 5:54 pm

Eric:
“A counterfeiter too could say that the items he bought with the fake money are owned by the counterfeiter and he could someday return these items for the fake dollars he printed. But would that really happen?”

If it did happen, he wouldn’t be a counterfeiter.

Mike Sproul November 11, 2006 at 6:01 pm

Eric:

Take a look at the way the dollar has invaded Mexico. It will give you an appreciation of just how ineffective legal tender laws are. Or look at the history of the Assignats or continental dollars. People were flogged and executed for refusing them, but they still lost all value.

As to the interest the Fed earns, consider that 19th century note-issuing banks generally claimed they were unprofitable. The cost of printing, periodic redemption, chasing counterfeiters, etc. ate up the profit. They were mainly issued as a form of advertising. It seems likely that the Fed’s profit on notes is the same or worse as it was for private banks. Simple economic logic indicates that if note-issue were so profitable, then rival currencies (foreign money, checks, etc.) would compete away those profits.

George Thomas Kysor November 11, 2006 at 8:55 pm

Michael F. Sproul:

“…the Fed can’t force people to accept its IOU’s.”

1.) The Fed does not currently issue IOUs for gold or silver. The Fed now issues nothingness denominated in dollars. How can you claim that a note for nothingness is an IOU?

2.) Yes, the Fed can’t force people, but, of course, law enforcement agencies can. However, don’t people’s valuation of the dollar ultimately determine its usefulness?

Björn Lundahl November 12, 2006 at 4:26 am

Some remarks about my above example with the headline “We can all be rich! Hurray! I am a genius! Hurray!”

If we print the money under those specifications that I have suggested, we would still be counterfeiters.

If we returned all the property after a while, we would still have been counterfeiting and we still would be counterfeiters.

If we make new loans, we are counterfeiting again.

Despite the fact that old loans are amortized, the central banks and the commercial banks all over the world makes new larger loans and the money supplies increases all the time to new heights.

If all legal tender laws in all countries were abolished and this so called business were still going on, the central banks and the commercial banks, naturally, would still be counterfeiting.

Legal tender laws should be abolished, but this is not in any way, enough.

The true way to stop central banks counterfeiting is to abolish them and to abolish all fractional reserve banking and to replace this destructive system, with a 100 % gold or silver reserve money.

Björn Lundahl
Gothenburg, Sweden

Image Gothenburg (Göteborg):

http://commons.wikimedia.org/wiki/Image:Gothenburg%2C_Sweden%2C_from_the_%C3%84lsborgs_Bridge.jpg

Björn Lundahl November 12, 2006 at 4:48 am

Some information about legal tender laws.

I quote from the book What Has Government Done to Our Money? :

“The ordinary law of contract does all that is necessary without any law giving special functions to particular forms of currency. We have adopted a gold sovereign as our unit…. If I promise to pay 100 sovereigns, it needs no special currency law of legal tender to say that I am bound to pay 100 sovereigns, and that, if required to pay the 100 sovereigns, I cannot discharge my obligation by paying anything else.” Lord Farrer, Studies in Currency 1898 (London: Macmillan and Co, 1898), p. 43. On the legal tender laws, see also Mises, Human Action, (New Haven: Yale University Press, 1949), pp. 32n. 444”.

http://mises.org/money/3s5.asp

Björn Lundahl

brock barnes (Saturdaynightspecial) November 12, 2006 at 7:17 am

“Until libertarians grow up & realize that spouting theories doesn’t change reality, libertarianism is an exercise in futility.”

And gold theory appears the most futile of all libertarian principles. Opponents of libertarian theory behave as though there were options – but this can only mean more socialism. Socialism is not the option, it’s to be avoided, and then the only choice is libertarian principles.

The only option to maintain what freedom we have remaining (and to get back the freedom we lost) is to advocate libertarian principles – this is the only possible resistance to socialism. Socialism makes us less free and leads to more government control; more government, less freedom. Any struggle for freedom is always worth the losses, no matter how long the struggle is and how much the costs.

Socialism is a sick economic theory – libertarianism is the only theory that mitigates or removes the sickness. What keeps me alive and healthier is the sound (and practice) of libertarian theory. Libertarian theory is reality, socialism is fantasy and delusion (psychosis). If you capitulate, then you admit defeat and allow your bodies to self-destruct. What kind of person allows a government (rather than themself) to control them ? Knowing our corrupt, lieing politicians, how can anyone rationalize conceding control (over us) to them ?

Make government our servants, not our masters.

Björn Lundahl November 12, 2006 at 8:32 am

Someone might wonder which property I was referring to that we would return in my above comment when I wrote:

“If we returned all the property after a while, we would still have been counterfeiting and we still would be counterfeiters”.

We could return, for example, U.S. government bonds and other U.S. government securities etc that we have bought (for the printed money we had made). Then we would have behaved in a manner that the Federal Reserve always does.

This must not to be confused with a 100 percent gold (or silver) reserve money standard. Under that standard, it is not possible for the Federal Reserve (or us, under above mentioned specifications) just to print money out of thin air. If the Federal Reserve would be allowed to exist under that standard (for what purpose?), it has to have had acquired the gold first before it could issue gold notes of that certain amount of gold* and before it could make loans through, for example, market operations. Those gold notes would be receipts (gold claims) and the Federal Reserve has to store the gold for safekeeping until the owners of those gold notes claims the gold or until they have repaid the borrowed gold notes. The total money supply has not increased as the gold stored at the Federal Reserve is not an effective part of it and is therefore not counted as money. The total money supply has not either decreased, as mentioned gold notes, which are used as money, have replaced the gold as an effective part of the money supply.
Björn Lundahl
Göteborg, Sweden

• In other words, the Federal Reserve has to be productive through enterprise or work to acquire the gold, which of course, it never has been.

Björn Lundahl November 12, 2006 at 10:27 am

History shows us that money has its origin as a marketable commodity like gold or silver.

I quote from answers.com:

“The modern monetary system has its roots in the gold of medieval Europe. In the Middle Ages, gold and gold coins were the common currency. However, the wealthy found that carrying large quantities of gold around was difficult and made them the target of thieves. To avoid carrying gold coins, people began depositing them for safekeeping with goldsmiths, who often had heavily guarded vaults in which to store their valuable inventories of gold. The goldsmiths charged a fee for their services and issued receipts, or gold notes, in the amount of the deposits. Exchanging these receipts was much simpler and safer than carrying around gold coins. In addition, the depositors could retrieve their gold on demand”.

http://www.answers.com/topic/money

Logic also tells us that money could only arise from a marketable commodity like gold or silver and I quote from Man, Economy and State, by Murray Rothbard:

”One of the important achievements of the regression theory is its establishment of the fact that money must arise in the manner described in chapter 3, i.e., it must develop out of a commodity already in demand for direct use, the commodity then being used as a more and more general medium of exchange. Demand for a good as a medium of exchange must be predicated on a previously existing array of prices in terms of other goods. A medium of exchange can therefore originate only according to our previous description and the foregoing diagram; it can arise only out of a commodity previously used directly in a barter situation, and therefore having had an array of prices in terms of other goods. Money must develop out of a commodity with a previously existing purchasing power, such as gold and silver had. It cannot be created out of thin air by any sudden “social compact” or edict of government”.

http://mises.org/rothbard/mes/chap4b.asp

Björn Lundahl, Göteborg, Sweden

M E Hoffer November 12, 2006 at 11:14 am

Bjorn,

I was wondering how you feel about competitive private currencies in a jurisdiction without Legal Tender laws (?)

Björn Lundahl November 12, 2006 at 12:16 pm

M E Hoffer

”I was wondering how you feel about competitive private currencies in a jurisdiction without Legal Tender laws (?)”

Hi, private competitive currencies would be satisfactory as long as they are only receipts for a certain amount of gold, silver or any other marketable commodity (which is specified on the receipts) and the issuer does not print more receipts than the amount of commodities which are deposited.

Björn Lundahl

M E Hoffer November 12, 2006 at 1:10 pm

Bjorn,

With this: “or any other marketable commodity”, and your preface of “Gold, Silver…”, would you limit the definition of “marketable commodity” to tangible goods, i.e. wheat, copper, orange juice?

Or, would you also accept “intangibles”–Corporate securities(shares of stock, various classes of debentures, and the like)–as fitting with your definition?

Hypothetically: Jeff’s new currency (denomination), micro-sharesGE, have a face value of (GE:NYSE)/1000. Jeff has TrustCoNYC hold 1000 GE shares and issues 1,000,000 microsharesGE.

I hope that was clear. Would that fit your definition?

tarran November 12, 2006 at 1:24 pm

M.E. Hoffer,

I would expect such debentures would not rise to the level of a money in that there would not be much of a demand for them.

The company backing its bank-notes with GE stock is dependent that GE won’t go bankrupt and evaporate (something won’t happen to gold), and that the value of its holdings won’t be diluted by GE issuing new shares (yes, miners dig new gold out of the ground too, but the risk for significant dilution is much higher with shares of stock).

I suppose that in a free market for money, enough people could presumably prefer such a currency to make it a viable medium for exchange, but it would be extremely unlikely.

Björn Lundahl November 12, 2006 at 2:13 pm

M.E. Hoffer

Above answer is a good one (tarran)!

You must remember that gold and silver were those commodities that evolved as money in a free market.

Björn Lundahl

Mike Sproul November 12, 2006 at 2:35 pm

G. Kysor:
“1.) The Fed does not currently issue IOUs for gold or silver. The Fed now issues nothingness denominated in dollars. How can you claim that a note for nothingness is an IOU?

You are confusing a currency that is phtsically inconvertible with one that is unbacked. The dollar is not physically convertible, but it is financially convertible, meaning that it can be returned to the Fed in exchange for the Fed’s assets. If the Fed had no assets, and did not conduct open market operations, you’d have a point. But as it is you are mistakenly confusing the Fed with a counterfeiter.

2.) Yes, the Fed can’t force people, but, of course, law enforcement agencies can. However, don’t people’s valuation of the dollar ultimately determine its usefulness? ”

If that were true, then issuers of rival moneys could earn a free lunch by issuing their own money, with no stable solution short of the dollar falling to zero value.

M E Hoffer November 12, 2006 at 3:14 pm

tarran,

With this: “…and that the value of its holdings won’t be diluted by GE issuing new shares.” you outline a potential risk, for sure. Though, on the other side, GE, currently, pays a dividend, and that stream coupled with the proceeds of option writing(calls) could be used to create an interest-bearing version of Jeff’s new microshareGE, or could be used to purchase puts–to give microshareGE holders a minimum assured valuation (assuming, of course, DTCC solvency)

Bjorn,

Good point in regard to Au & Ag

Björn Lundahl November 12, 2006 at 6:07 pm

M E Hoffer

In a truly free society people can use any currency which they want.

If you believe that you can in a free market, for example, go to the grocery and convince the shopkeeper that your “monies” are reliable and secure “monies” and he accepts them. Well, that is fine.

But you must understand that money is a market phenomenon. Money has evolved because of the fact that a barter system is an inefficient system. That, by itself proves that money is being used just because it is a commodity that is generally demanded and accepted and is therefore suited as a general medium of exchange.

I quote from the book “The Economics and Ethics of Private Property”, by Hans-Hermann Hoppe, page 62:

“Empirically, of course, the commodity that was once chosen as the best-because-most-universal-money is gold. Without government coercion gold would again be selected for the foreseeable future as the commodity best performing the function of money. Self-interest would lead everyone to prefer gold – as a universally used medium of exchange – to any other money. To the extent that every individual perceives himself and his possessions as integrated into an exchange economy, he would prefer accounting in terms of gold rather than in terms of any other money, because gold’s universal acceptance makes such accounting the most complete expression of one’s opportunity costs, and hence serves as the best guide in one’s attempts to maximize wealth. All other monies would be driven out of use quickly, because anything less than a strictly universal and international money such as gold – national or regional monies, that is – would contradict the very purpose of having money in the first place”.

Björn Lundahl
Göteborg, Sweden

M E Hoffer November 12, 2006 at 7:24 pm

Bjorn,

This: “That, by itself proves that money is being used just because it is a commodity that is generally demanded and accepted and is therefore suited as a general medium of exchange.” Is, no doubt, true.

Also, I think 3(H) lays the proper map of the topography one would encounter in a “wealth-based” monetary system.

The problem, as I see it, is that there lies a grand chasm between where we are now, and that land where 3(H)’s Map becomes useful.

The brief surmise is that: People are fairly comfortable with holding corporate securities. Corporations are, in greater number, bypassing Investment Banks’ underwriting departments in favor of direct-to-investor appeals. They, the Corporate CFOs, might as well take the next step: Gene-splice their security offerings with an assortment of derivatives and offer the resultant hybrids as a palette of currency substitutes that could compete against everything from savings accounts to lottery tickets.

The value of people’s currency holdings, no matter if the nominal number stays static, oscillates everyday. They are already taking risks, they might as well start getting paid for them.

George Thomas Kysor November 12, 2006 at 8:21 pm

Michael F. Sproul:

1.) What are the Fed’s assets?

2.) How can the dollar be returned to the Fed in exchange for the Fed’s assets, i.e., what is the procedure one must follow when exchanging dollars for part of the Fed’s assets?

3.) Don’t people’s valuation of the dollar as well as of goods and services establish prices?

4.) If so, doesn’t it follow that when people’s valuation of the dollar lessens then prices increase if the other factors remain unchanged?

5.) Isn’t it also true that as people’s valuation of the dollar continually decreases there will eventually come a point where people’s acceptance of the dollar will decline?

Jim November 12, 2006 at 10:30 pm

Mike Sproul,

The problem is that the bulk of Fed’s “assets” are government bonds. Counting that as if it were real reserve assets has two problem:

(1) In contentional banking, an IOU from a client is not a bank’s reserve asset. Deposits are reserve assets, but IOU’s are money already lent out.

(2) What is government bond? It’s a stack of Fed notes at a maturity date. So even if the Fed actually undertook to exchange bond for Fed notes printed earlier, it’s just a matter of exchanging one stack of Fed notes for another. Regardless which stack is left outside the Fed’s door, new money has been introduced to dilute existing money.

There was a time when government bonds are not allowed to be counted as reserve assets for banks, as logically how it should be (see point 1 above). It was changed either during the Civil War or WWII to accommodate the government cash requirement.

Jim November 12, 2006 at 10:45 pm

There are currently only $750 billion dollar cash currency in circulation, two thirds over seas. So $250 billion dollars is enough for a $12 trillion domestic dollar economy. Why? Because money change hands, and people can write checks; cash transactions are relatively rare for large transactions. So $750 billion divided by 150,000 tons works out to be about $170 per troy ounce (not a typo). Of course, there are other currencies in the world that need to be converted into gold too if the whole thing is to work and not all gold in the world can be minted into coins, but the gold price does not have to be astronomical to make it work

Of course, silver coins as a supplemental currency for transactions under $100 (about what the original 19th century $5 is worth today) would still make a lot of sense because gold coins probably should not be made much smaller than 1/5 or 1/10 ounce . . . or roughly somewhere around $65-130 after seniorage at current price.

Jim November 12, 2006 at 11:00 pm

Corbett,

I’m afraid you may have it backwards. It’s not any attempt of going to gold standard that might destroy people’s savings, but a collapse of the dollar (and wiping out of savings of the ordinary man) that will bring forth the return to gold standards.

Like the numbers I gave in the previous post, it takes only $250 billion cash to run a $12 trillion economy. If all the dollar in the world were converted to all the gold in the world today, the conversion rate would be $170/oz. Of course, not all gold is available for conversion and other currencies need to convert too in that scramble. However, given this baseline number, the price of gold does not have to be astronomical in 2006 dollars. On the other hand, I suspect, when the economy does go back to gold standard, despite the government’s wishes, the price of gold will be much higher. Eventually even the tax collectors give up the currency when inflation is truely rampant, because the tax revenue at the end of the collection period is reduced to next to nothing due to inflation, so the government has to print even more money to make up the short fall. Eventually, even the government wants a sound money :-) Of course, by then, the middle class savers would have been wiped out.

Currently, the cash in circulation is growing at 6% per year, and if the BLS GDP growth is published at 2% using 2.1% inflation adjustment, the real GDP growth may well be negative. Negative real GDP growth coupled with 6% cash currency growth (which actually undersates inflation because the reported overseas underworld dumping dollar in favor of Euro means the velocity of money is picking up), well, that makes for a very volatile mix.

Björn Lundahl November 13, 2006 at 1:35 am

M E Hoffer

”I was wondering how you feel about competitive private currencies in a jurisdiction without Legal Tender laws (?)”

My earlier answer:

“Hi, private competitive currencies would be satisfactory as long as they are only receipts for a certain amount of gold, silver or any other marketable commodity (which is specified on the receipts) and the issuer does not print more receipts than the amount of commodities which are deposited”.

I want to add that people in a free market have not the right, in trade, to call “their own type of money (or currency)” as money, because money is logically something that is already in use as a general medium of exchange and to refer to this definition is therefore something very wrong.

So the issuer of a receipt of something which is not used as money has not the right to label this something as money or currency.

Björn Lundahl,
Göteborg, Sweden

adi November 13, 2006 at 2:43 am

Mike Sproul’s monetary theory is at odds with our Austrian monetary theory;

1) Sproul claims that people will hold dollars as an asset since Fed’s money is supposedly backed by the Govt’s papers (which promise to pay some amount later) and Govt can buy back these papers later using tax money (dollars) taken forcefully from the people. In Mike’s theory Govt could just sell more bonds to Fed and Fed could increase money supply since now more dollars are backed by the new good quality paper.

*Austrian theory is about transaction motive to hold money since people decide to hold some cash balance by marginalistic principles. One commodity from the group of commodities arise as a money. Origin of money is in exchange.

2) Sproul claims that we must have a elastic currency; so that amount of money in circulation is determined by the needs of trade & industry. This is impression what I have got by reading some of his papers. Is there some relation between Sproul’s and Fekete’s Real Bills Doctrines?

* Any amount of money can serve equally well; prices adjust. Austrian theory is not a quantity theory since marginalist principles determine the needs to hold cash.

brock barnes November 13, 2006 at 4:05 am

“The modern monetary system has its roots in the gold of medieval Europe. In the Middle Ages, gold and gold coins were the common currency. However, the wealthy found that carrying large quantities of gold around was difficult and made them the target of thieves. To avoid carrying gold coins, people began depositing them for safekeeping with goldsmiths, who often had heavily guarded vaults in which to store their valuable inventories of gold. The goldsmiths charged a fee for their services and issued receipts, or gold notes, in the amount of the deposits. Exchanging these receipts was much simpler and safer than carrying around gold coins. In addition, the depositors could retrieve their gold on demand”.

Plastic Credit and Debit cards and other types of electronic banking can make coinage feasable. You can’t use paper receipts because of computer printers because these receipts would have to be checked for legitimacy. Silver can be used for small transactions. Gold can be used for expensive transactions if any person lacks credit. Few people today carry large quantities of cash.

Metal could eliminate currency and the world could all use gold and silver. Lenders could then also use “gold clauses.”

Saturdaynightspecial November 13, 2006 at 4:28 am

“Yes, Dr. Thornton, and just wait until the US tax and economic base gets beefed up with another 20 million Third World workers and their brand new US citizen offspring. Mass immigration provides us with the best of all worlds for an imperialist: a multicultural empire that doesn’t have to be maintained abroad.”
Posted by Reactionary at November 9, 2006 1:32 PM

That’s an idea for more immigration controls – it can hamper/restrict invasion and occupation because government won’t have the neccessary manpower. Mass movements of people wreak havoc on economies. But ideas implemented by governments always look appealing (and end up having perverse results). What causes all the problems (what makes Mexicans immigrate) ? Population growth. What’s the solution ? Tell all the Popes to shut up or teach people about the benefits of birth control.

banker November 13, 2006 at 6:25 am

I must be guilty of contributing to the decline of America. I hopped on an airplane and went through customs. Oh my God! I moved from one country to another! Oh my God! America is being taken over, run for the hills!

Hmm..
The IRS is immigration independent; the Federal Reserve is immigration independent; socialists/populists coming to power are immigration independent.
Please tell me why the immigration issue is being brought up in this article by commenters?

Also, what is the difference between a “Third World” worker and a “first world” worker? Is it genetic? cultural? Are your parents superstars and “third world” parents crap (referring previous poster)? I am baffled.

Jim November 13, 2006 at 9:02 am

Movement/relocation and procreation are two of the most fundamental natural human rights, the attempted control over which would inevitably lead to monstrously corrupt government. What’s the solution? A “one-child” policy or a “hukou” system that binds idividual to the land? in other words, a modern day serf system? Shall we have a street section level busy-body system to enforce that or a Berlin Wall to prevent migration?

People move not because of population growth. People move because of the draw of money, i.e. in search of better opportunity. Places like upstate NY are being depopulated (a drastic population decrease in the last couple decades) because the youths born there prefer to add themselves to the crowding in New York City, where there is more opportunity. The absurdity would be obvious if someone suggested building a fence around the city so that new comers from upstate would not be allowed in, lest some of them overcrowd one-bedroom or studio apartments with two, three or four unrelated “roommates.”

Fiat currency is part of the reason behind the migration. Money is created in the Federal Reserve system, and the Federal Reserve Bank of New York is the very center of the Federal Reserve system, with all the other Federal Reserve banks supposed to follow the steps of NY in money creation. Money creation naturally draws goods and population to money . . . it’s just an amplified version of the gold rush of 1849. New gold coming out the ground back then was making an egg in San Francisco worth more than half a dozen eggs in Minnesota. For the same reason, a sandwich or taco is worth twice as much in New York City as in Up State, and 10 times as much as in Mexico. No wonder the youths from Upstate and Mexico want to come to the city.

Jim November 13, 2006 at 9:26 am

Brock,

We both agree that there is enough gold (and/or silver) to monetize the economy. Warehouse receipts and the electronic equivalent of can drasticly help increase the velocity of money . . . since total money supply is the outstanding specie count multiplied by the velocity of money, the objection of “not enough gold” is quite erroneous and well addressed by Mises himself, who more or less concluded that any sizable amount of gold can monetize any sized economy, due to the velocity factor.

There is nothing modern about the “modern monetary system.” The Mongols enforced a paper/silk/mulbury-leaf fiat money system on 1/4 the world back in the 13th century. While it is true that sometimes people prefer carrying warehouse receips instead of specie, especially if the specie is silver, which historically was almost always an order of magnitude greater in quantity for the same amount of goods and services, the complete replacement of specie by fiat currency always required the strong arms of the government. Mongol rulers confiscated all monetary gold and silver inside their domain; any outside traders would have to exchange their specie for the mulbery-leaf money on entry, then exchange back to specie on the way out. In other words, like the dollar-gold exchange standards before Nixon closed the gold window in the early 1970′s. European traders found the Mongol fiat money system incredulous. The system collapsed in less a hundred years, and the China (and its surroundings) went back to silver standard. After that, European traders obviously found no difficulty moving boat loads of silver half way across the globe in order to engage in trade with that country.

Reactionary November 13, 2006 at 9:28 am

banker,

The entire US welfare state and its accompanying fiat banking system are based on enrolling ever more suckers into the Ponzi scheme. The government is very protective of its enterprise, and even criminalizes discrimination based on race or national origin.

Jim,

There is no fundamental right to move/relocate. In a libertarian society, all movement would have to be with the permission of the adjacent property owners.

Jim November 13, 2006 at 10:07 am

Reactionary,

Of course, it goes without saying that the move/relocation has to be financed by the individual him/herself and without encroaching upon the property rights of others. I was not endorsing squatting, for example. On ther other hand, there is no such property rights as “collective ownership of a country/state.” The boundary of a nation-state itself is nobody’s property, just like the air we breath and burn in our cars is nobody’s property and the government can not presume to collect rent on that. There is no such thing as collective ownership. What is mine is mine, what is yours is yours; what is neither yours or mine is not collectively owned by us.

Jim November 13, 2006 at 10:24 am

Man-made fusion or laser creating gold will have little effect on the price of gold in terms of other commodities so long as it takes more than the energy contained in 10 barrels of oil to make an ounce of gold.

Reactionary November 13, 2006 at 10:28 am

Jim,

You and your wife probably own your home as joint tenants. The assets of a business entity are collectively owned by its shareholders. Collective ownership of property is a common and logical concept. There are private communities all over the United States that have commonly owned entry ways patrolled by armed guards.

Jim November 13, 2006 at 10:41 am

Join ownership and collective ownership are very different concepts. The examples you gave regarding marrital property, shareholding and gated communities are joint ownerships that participants voluntarily and explicitly enter into.

Collective ownership of a state, its borders etc., however is an entirely different concept. It’s the intellectual basis for the worst collectivism because the supposed members of the collective is inducted/abducted into it by the tyranny of majority without ever giving an explicit consent. For example, the collective rule regarding what is “legal labor” and whom the property owner can rent to, why should the state collective have any say on the interaction between two willing adult parties? Barring immigrants is as silly as barring goods and service from neighboring towns. Sure, it may help the local monopoly, but it is certainly detrimental to the consumers.

Reactionary November 13, 2006 at 10:59 am

Jim,

Whether barring immigrants is silly depends on the immigrant. Gated communities operate on the principle that allowing entry only under certain conditions to certain types of people enhances every member’s property values. Collective ownership is key to realizing that goal. Current US immigration policy is a clear illustration of the tragedy of the commons.

Jim November 13, 2006 at 11:22 am

Reactionary,

Government is about as prescient in determining which immigrant will enhance “every membmer’s property value” as its capacity in counter-acting economic cycle, spotting what’s the up and coming technology, providing healthcare to everyone, etc. etc. Which is to say, not at all. The private employers are far better at determining which immigrant can render valuable service.

“Collective ownership” is the intellectual basis for all sorts of hare-brained schemes from environment to social wellfare. Collective ownership of borders is the intellectual basis for trade restriction (including immigration, which is a restriction against trade in labor) and warfare among nation-states. National borders is not a real property. Real property should be able to be privatized if need be. I want my personal slice of that border :-) In reality, so-called collective ownership of national borders is little more than saying the government should have the right to tell individuals within that border what to do in commerce.

Reactionary November 13, 2006 at 11:55 am

Jim,

It is not really much of a jump from a neighborhood or clan deciding who gets to come and go to a nation deciding the same thing. I agree that it gets to be absurd for an artificial empire like the US, in which the concept of nationhood has been decoupled from common ancestry, and even from geography to a some extent.

Jim November 13, 2006 at 12:02 pm

Reactionary,

There is a huge difference between a gated community and a national state:

1. People join the gated community voluntarily.

2. People can buy into and sell out of gated communities. Citizenship in nation-states are not tradeable, and the cost of relocating to a different country is a lot higher than relocating between different gated communities.

3. As far as I know, there are no plubmers’ or electrician’s or house-cleaners’ unions or ordanances that ban the use of service providers coming from ouside the gates. In other words, gated communities are libetarian voluntary joint ownerships, not “collective ownershps.”

Anthromorphising the State is the intellectual root of collectivism. Joint owerships like gated communities are indeed legal persons, and rightly so because each individual member can indeed buy and sell his share of the stake. The State is not really a legal person, and each individual member can hardly be held responsible for what the State does (otherwise, you may as well endorse terrorism and collective punishment). That’s the root cause for the tragedy of commons: the fanciful ideas about the state as “collectively owned” by the individuals in a society is nothing more than a fantasy. The massive debt borrowed in our name is not accountable to anyone. The nanny-state legislations put in our names are no different from tyranny against the individual.

Jim November 13, 2006 at 12:09 pm

Reactionary,

Here is a simple litmus test between real joint ownership and fantasy “collective ownership” concept invented to make you submit to the collective: Can you privatise and sell your share of the stake? If you can not sell and make the sale financially accretive to yourself, that means the “collective ownership” is nothing more than a fanciful notion invented to make you submit to the “greater good.”

Jim November 13, 2006 at 12:11 pm

Reaction,

BTW, that’s the difference between a shareholding company and a “commune.”

Reactionary November 13, 2006 at 12:19 pm

Jim, I’ll address your points in turn.

1. What about children? And the “gated community” is actually inapt, since they rely entirely on state-enforced legal definitions to form themselves.

2. That is true so far as it goes, but minority shareholders are forced to surrender their interests for less than they think they’re worth all the time. This would be no different in a so-called “anarchist” society.

3. I love how libertarians make the terminology up as they go along. Somewhere along the way you’ve been taught that “collectivism” is some horrible evil (and it can be), when sports leagues, religious orders, families, and mutual insurers are all examples of collective ownership. So you come up with a truncated phrase, “libetarian voluntary joint ownerships.” In any event, the fact that a gated community allows contractors to come and go does not detract from its exclusivity. And most covenants you’ll see reserve the right of the community homeowners’ association Board to bar entry to anyone in their discretion.

The problems you recite result to a large extent from the devolution of the traditional nation into the modern social democracy. Anarchists paint themselves into a corner, because the fact is that human beings are social animals who build communities with collective decision-making in order to function. So the anarchist either has to concede he is really a minarchist, or he has to join his Marxist kin and be a perpetual leveller of traditional, organic society.

Francisco Torres November 13, 2006 at 3:13 pm

Anarchists paint themselves into a corner, because the fact is that human beings are social animals who build communities with collective decision-making in order to function.

Humans are social animals, but they do not make decisions collectively – that is only apparent. People confuse the decision network generated through the billions of individual decisions, that performs the same as a neural network, with a collective decision. Each individual still makes his or her decision individually. We are certainly NOT Borgs.

Besides that, the decision making process into which government bureaucrats involve themselves hardly represents a collective-decision network, but rather a top-down, regimental-like structure.

People tend to think that democracy and voting represent decision making processes, a priori of implementation. In reallity, it is the acquiescence of PREVIOUS decisions made by politicians, a posteriori – hardly a collective decision.

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