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Source link: http://archive.mises.org/9425/shelton-on-gold/

Shelton on Gold

February 12, 2009 by

A crisis brings out the worst and best in everyone, so here we see the Wall Street Journal running an article by Judy Shelton, in which she says “Given that the driving force of free-market capitalism is competition, it stands to reason that the best way to improve money is through currency competition. Individuals should be able to choose whether they wish to carry out their personal economic transactions using the paper currency offered by the government, or to conduct their affairs using voluntary private contracts linked to payment in gold or silver.”

Outstanding, and more radical than I can recall her previous position. I’m under the impression she used to favor a 19th century style gold standard or even a Bretton Woods type system. Here she seems to argue the pure Hayekian-Rothbardian view that government should just let markets completely manage money.

Nice to see. (Thanks Benjamin Weingarten)

{ 29 comments }

J Cortez February 12, 2009 at 9:25 am

Excellent. I especially like the part where the piece mentions two Fed economists’ study showing commodity standards outperform fiat ones. Ideas like this need to be spread far and wide.

Kurmudjin February 12, 2009 at 10:06 am

Bravo to Ms. Shelton!

My jaw dropped when I saw this on page A13 this morning.

Pure Austrian arguments, and, as Cortez noted above, she used the Fed’s own studies, as well as the constitutional argument, in addition to “consumer confidence” arguments that have been all the rage with Keynesians of late.

The message is spreading!

billwald February 12, 2009 at 12:32 pm

Is it illegal to make private contracts involving gold? I don’t think so . . . as long as the taxes associated with the transaction are paid.

Consider poker chips . . . could not a casino use gold for poker chips as long as winnings
were reported to the IRS in legal tender?

Chad Rushing February 12, 2009 at 1:44 pm

I was absolutely stunned to read an article this economically and intellectually solid in a mainstream newspaper.

Perhaps, the American people are finally getting to the point where they realize that what we have been doing for decades is not working and that it is time to try something else; one can only hope. Few things grab the average individual’s attention more than him taking a direct hit on his pocketbook (or retirement account).

Briggs Armstrong February 12, 2009 at 3:26 pm

Who knew that the Fox Street Journal still had a decent reporter? I thought Murdoch got rid of them all. Thanks for posting the link.

Bruce Koerber February 12, 2009 at 3:27 pm

February 12, 2009
Gold Is Like The Water Of Life!

Gold is the drink of water brought to a desolate and disease-ridden city! Ron Paul and Peter Schiff and the Mises Institute are busy repairing the aquaduct to bring fresh drinking water to the disease-infested inhabitants of that abominable city (now called the Obamanable city).

Socialism and fascism have plagued the city for generations and the corrupt power elite that operate like the ancient tyrannical governors of the Ottoman and Persian empires have usurped their power from a Congress filled, like snakes in a den, with ego-driven interventionists.

These tyrants like to have the people in the city weak and overcome with thirst. That way they can be more easily perverted and oppressed and their weakness makes the tyrants feel strong.

The aquaduct is close to completion. Some of the fresh water is being carried in by foot (Campaign For Liberty) reaching the inhabitants and now there is the growing sense is that these tyrants have been stealing their wealth and deliberately denying the water of life to everyone. The stirrings of a rebellion is beginning.

Soon the water will reach the city and the masses will have a choice to make: live in the health and wealth of a gold standard or allow the tyrants to rob generation after generation of their prosperity and “hope!” (Irony there!)

As the water enters the city the cry of joy goes out! This is followed quickly by the cry: “END THE FED!”

Oil Shock February 12, 2009 at 3:46 pm

WSJ regularly publishes editorials by Ms. Shelton advocating the Gold standard. I enjoy reading them. I am not really sure if Judy is an austrian, but I don like her opeds.

David Spellman February 12, 2009 at 3:53 pm

All it would take for gold and silver to rapidly take over as the medium of exchange is to change the legal tender laws. As pointed out in the article, the only contracts enforced by the government owned courts are federal reserve note denominated.

If all contracts were enforced no matter what medium of payment was specified, then gold and silver would rapidly destroy the federal reserve note. Oh, but that would be bad for the people who own the franchise, so don’t hold your breath.

Greg Feirman February 12, 2009 at 4:58 pm

This is the third excellent editorial piece in the WSJ by Shelton in the last few months. She’s been unrelenting on laying out the causes of the current meltdown: easy money from the US Federal Reserve. Also props to the WSJ for publishing this kind of thing.

Jon February 12, 2009 at 6:06 pm

31 USCA 5118(d)(2) (stating that gold clauses are satisfied by payment in legal tender, but excepting contracts made after 1977 from that rule).

Note: this is *not* a claim that gold isn’t disadvantaged v. legal tender.

This is only a product of very brief legal research, which research suggests that Shelton’s assertion regarding the enforceability of contractual clauses denominating payment in gold is wrong.

Submitted to the wise Mises readers: can gold contracts be enforced?

Yancey Ward February 12, 2009 at 9:41 pm

The main problem with using a different currency than the dollar is that you are liable for capital gains during the holding periods.

For example, if I buy gold now and trade it later, I am liable for gains tax on the dollar increase of its value (if any). This makes for a large transaction friction.

Gil February 13, 2009 at 12:06 am

So gold and silver coins are the real money as ‘defined by the U.S. Constitution then?

Article I, Section 10, Paragraph 1: No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility;

Strange how this read suspiciously similar to this part of the Australian Constituion:

Chapter V, 115: A State shall not coin money, nor make anything but gold and silver coin a legal tender in payment of debts.

In other words and in both cases, the states are forbidden to use anything but gold and silver coins as payment of debts. “No State shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debts” The States! Do tell where the Federal governments are required to make money out of gold and silver?

scott t February 13, 2009 at 1:30 am

“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; “COIN MONEY”….”

just who is supposed to ‘coin the money’?

if the states cant yet are required by the const to make gold and silver coin a tender in payment of debt who does?
the federal mint? private citizens?

i am not sure…but if unpaid wages are a debt — http://www.merriam-webster.com/dictionary/debt (2 : something owed :) ….and the wages are paid in gold and silver coin, what would you pay (income or otherwise) taxes to the fedgov with?

is there some special distinction between requiring gold/silver coin (which i thought was also called money) as a debt-payment instrument and the fedgovs special non-gold/silver money-making function?

scott t February 13, 2009 at 1:37 am

http://www.merriam-webster.com/dictionary/coin

archaic a: corner , cornerstone , quoin b: wedge
2 a: a usually flat piece of metal issued by governmental authority as money b: metal money c: something resembling a coin especially in shape
3: something used as if it were money (as in verbal or intellectual exchange)
4: something having two different and usually opposing sides —usually used in the phrase the other side of the coin
5: money

scott t February 13, 2009 at 1:38 am

http://www.merriam-webster.com/dictionary/coin

archaic a: corner , cornerstone , quoin b: wedge
2 a: a usually flat piece of metal issued by governmental authority “as money” b: metal money c: something resembling a coin especially in shape
3: something used as if it were money (as in verbal or intellectual exchange)
4: something having two different and usually opposing sides —usually used in the phrase the other side of the coin
5: money

P.M.Lawrence February 13, 2009 at 2:11 am

Judy Shelton’s claim that ‘the Constitution specifies that only commodity standards are lawful — “No state shall coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts” (Art. I, Sec. 10)’ is wrong, as Gil noted. That part only binds the states, and the US constitution says nothing explicit about what the USA may do federally in the area. You would have to read it in as not being an implied federal power – and the ones charged with making the readings haven’t done so. However, I imagine it would be permissible for a state to set up its own bullion coinage and ban the use of any other currency within its boundaries; that would have the required effect.

“Private gold currencies have served as the medium of exchange throughout history — long before kings and governments took over the franchise. The initial justification for government involvement in money was to certify the weight and fineness of private gold coins.”

That’s bad history. In fact, the earliest bullion coins were made by kings and governments (in Lydia). Archaeology confirms this. Rather, the initial justification for coins themselves was as a certified form of bullion; before that, coins and currency itself weren’t used, just barter (including gold and silver as bartered commodities). That is, trade was directly for valuable things, not for things that could buy other things, so there wasn’t a circulating money continuing round and round.

ktibuk February 13, 2009 at 4:16 am

Lawrence,

“That part only binds the states, and the US constitution says nothing explicit about what the USA may do federally in the area.”

I am not an American but I believe the constitution also says, powers that are not given to the federal government by the constitution are reserved for the states and the people.

If the constitution doesn’t explicitly give Federal government powers regarding issuance of money, this means only states can have these rights. And if in another article it says, states can only coin money from gold and silver, this means there can not be any money produced and issued within the USA other than gold or silver and this can be done only by the states.

If you follow the constitution that is, but we all that these documents are born dead.

roy February 13, 2009 at 4:54 am

P.M.Lawrence,

Actually, there are plenty of pre-lydian discs and medallions, even some coins… specially in base metals.

true, the most widely circulated (and therefore easier for archaeologists to find.) gold coins were royal…. but that’s because only kings and warlords had large quantities of gold.

Roy February 13, 2009 at 5:01 am

… in fact any merchant, miner, lord, who had large quantities of gold AND wanted to keep it… had to have an army…de facto becoming a warlord…king’s just a fancy name.

Gene Berman February 13, 2009 at 2:37 pm

If anyone’s interested in what I’ve had to say on the matter, it’s on the comments following Ms. Shelton’s
piece at the WSJ site.

Everyone commenting (here and elsewhere), as well as Ms. Shelton, is wrong for a reason I’ve stated repeatedly. Tiresome, actually. My own ideas may not be correct but they’re the only ones that are both different and not provably incorrect.

P.M.Lawrence February 13, 2009 at 6:51 pm

Roy, the point I was making was that the earlier stuff wasn’t coin. It didn’t circulate, regardless of the shape (the earliest coins were actually stamped beads of bullion, basically mini-ingots, and the shape evolved for convenience, reaching what we know by Alexander the Great’s time apart from not yet having a raised edge to allow stacking). It was just valuable stuff, like the silver cup that gets mentioned in the story of Joseph welcoming his brothers to Egypt in the Bible. Pieces of silver were literally pieces, not coins, and formed a reserve of wealth that were hung on to for special occasions, not part of regular trading in daily life as that hadn’t started yet. Think of the silver bracelets still found in West Africa.

Your follow up comment basically highlights that these things started within the controlling sectors (though there are subtle differences between kings and the others you list, having to do with acceptance and legitimacy, but yes, they often did blur). It explains why it happened that way, it doesn’t refute it. Actually, long distance trade is believed to have started to secure sources of raw materials for bronze weapons, since mines for some of the different ingredients that were close to the others were soon used up. Naturally, that supported strong men and vice versa. Things like cities first sprang up for protection, not trade, but then trade followed.

I didn’t spot any Gene Berman comment on the WSJ forum. Can you summarise it?

Gene Berman February 13, 2009 at 9:19 pm

P.M. Lawrence:

Originally, I’d gone there from the lewrockwell.com and so went back and did the same just now. Gone!

Can’t duplicate now but for the general tenor and gist of my (more or less) repetitious rant, go to Tim Worstall’s site (timworstall.com) and see comments following the piece with “Seumas” in the title.

I vascillate between believing we may be a species headed for an extinction associated with the drive toward economic improvement (high refinement of the division of labor) or else trapped in Malthusian equilibrium (long before its advent due to population) by sheer ignorance.

Gene Berman February 14, 2009 at 6:14 am

P.M. Lawrence:

I see where we have opposing views on the origins of both money and trade.

Yours is that money arose from constriction of wealth articles (particularly) peculiar to leaders or authorities to a preference for certain of them (which would explain the close connection between authority and the use of their preferred articles in
trade). Mine is slightly different: that the narrowing of barter transactions to (ultimately) “media of exchange” took place over some extended period of time among certain people not necessarily limited to those at the peaks of hierarchal heaps and became
more circumscribed to certain very specific types of articles as time passed and experience accumulated; leaders, being generally wealthier, would have been influential in such process and their practices subject to copying and dispersal, as is very frequent among men; I see no overridingly persuasive reason, however, to assume that their leadership positions early involved autocratic restriction of the articles to be used. I do not deny its possibility, only its likelihood in the presence of a more encompassing (different times, different places, similar result) explanation as fully consistent
with the ways men act. I make no claim that mine is more accurate in a historical sense, that it accords more fully with what we know of history, merely that it has greater plausability.

Likewise, we differ on the presumptive origins of trade in general. You see trade with far-off places and sources as an expansion of local trade. Now, I do not deny or belittle the idea that some local trade
has always existed; after all, divisions of labor likely arose at the very lowest levels between individuals in families, clans, etc. But I am in full agreement with Mises in believing that such trade was of extremely limited scope and volume, essentially the same resources being available to all within a given locale or general region. The impetus to greater trade and intensification of the division of labor arose, in my view, as the result of contact with those of regions further removed and possessed of materials or even abilities (crafts, etc.) completely unknown or in such less abundant supply as to render the more local
less attractive. Such situation would lead to mutuality between the regions insofar as was concerned the exchange of each others’ more abundant material and articles for those of the other.
Such increase in “welfare” would have had two likely consequences: 1.) increase in population in both places; and, 2.) intensification of the division of labor involved in the production of those things in which each was most proficient, the goal at first being the production of “surplus” of those things required for the foreign trade on which their welfare was partly dependent and, with the increasing tendency toward specialized performances in production, a tendency for the same to be employed in the production of other, more locally-required materials and articles. Generalized trade, thus, in my (and Mises’) view, began with the stimulation offered by foreign trade and was not simply an extension or widening of a trade area begun locally.

Work to do. Later.

Gene Berman February 14, 2009 at 9:42 am

P.M. Lawrence:

I see where we have opposing views on the origins of both money and trade.

Yours is that money arose from constriction of wealth articles (particularly) peculiar to leaders or authorities to a preference for certain of them (which would explain the close connection between authority and the use of their preferred articles in
trade). Mine is slightly different: that the narrowing of barter transactions to (ultimately) “media of exchange” took place over some extended period of time among certain people not necessarily limited to those at the peaks of hierarchal heaps and became
more circumscribed to certain very specific types of articles as time passed and experience accumulated; leaders, being generally wealthier, would have been influential in such process and their practices subject to copying and dispersal, as is very frequent among men; I see no overridingly persuasive reason, however, to assume that their leadership positions early involved autocratic restriction of the articles to be used. I do not deny its possibility, only its likelihood in the presence of a more encompassing (different times, different places, similar result) explanation as fully consistent
with the ways men act. I make no claim that mine is more accurate in a historical sense, that it accords more fully with what we know of history, merely that it has greater plausability.

Likewise, we differ on the presumptive origins of trade in general. You see trade with far-off places and sources as an expansion of local trade. Now, I do not deny or belittle the idea that some local trade
has always existed; after all, divisions of labor likely arose at the very lowest levels between individuals in families, clans, etc. But I am in full agreement with Mises in believing that such trade was of extremely limited scope and volume, essentially the same resources being available to all within a given locale or general region. The impetus to greater trade and intensification of the division of labor arose, in my view, as the result of contact with those of regions further removed and possessed of materials or even abilities (crafts, etc.) completely unknown or in such less abundant supply as to render the more local
less attractive. Such situation would lead to mutuality between the regions insofar as was concerned the exchange of each others’ more abundant material and articles for those of the other.
Such increase in “welfare” would have had two likely consequences: 1.) increase in population in both places; and, 2.) intensification of the division of labor involved in the production of those things in which each was most proficient, the goal at first being the production of “surplus” of those things required for the foreign trade on which their welfare was partly dependent and, with the increasing tendency toward specialized performances in production, a tendency for the same to be employed in the production of other, more locally-required materials and articles. Generalized trade, thus, in my (and Mises’) view, began with the stimulation offered by foreign trade and was not simply an extension or widening of a trade area begun locally.

Work to do. Later.

Walt D. February 14, 2009 at 10:50 am

http://www.guardian.co.uk/world/video/2009/feb/11/zimbabwe-gold-panning-starvation-food
The last time Peter Schiff was asked where he thought the Dow Jones was going his answer was given in ounces of gold. The above video documents gold panning in Zimbabwe. The Zimbabwe government adopted similar policies to those currently being adopted in the USA. In the face of currency inflation, gold has become the only viable medium of exchange – 0.1 gm gold for a loaf of bread. Also, the Keynesian aggregate demand canard has been exploded. It appears all holes dug in the ground are not equal – those that contain gold are more valuable!
Is this where the US is headed?

P.M.Lawrence February 14, 2009 at 4:56 pm

Gene Berman wrote “I see where we have opposing views on the origins of both money and trade. Yours is that money arose from constriction of wealth articles (particularly) peculiar to leaders or authorities to a preference for certain of them (which would explain the close connection between authority and the use of their preferred articles in trade).”

Wrong.

My view is that the kings of Lydia, having control of bullion sources already, wished to obtain goods and services more cheaply by bartering bullion and therefore started stamping bullion beads to certify them. Demand for those then took off, as people realised that they could be traded onwards.

That’s almost the exact reverse of what you misread. It arose from the manner of ending of a previous constriction of wealth articles. And we have both historical and archaeological evidence towards this, as opposed to a mere hypothetical scenario offered as an alternative.

“You see trade with far-off places and sources as an expansion of local trade” is also a misrepresentation. I asserted no such thing. I merely pointed out that the earliest long distance trade appears to have been for strategic purposes, to obtain metals needed to make weapons. I made no comment whatsoever linking that with local trade.

“I am in full agreement with Mises in believing that such trade was of extremely limited scope and volume, essentially the same resources being available to all within a given locale or general region”.

This shows a considerable degree of unfamiliarity with patterns that could be observed even in advanced countries well within living memory, e.g. market towns flourishing at the joins of different parts of Wiltshire where arable and cattle farming (low, alluvial) met more extensive pastoral land use with sheep (downlands – which means uplands), hence “as different as chalk and cheese”. Different zones could and did change abruptly over very short distances, as altitude and watersheds etc. varied. One possibility is that chains of towns that originally relied on zone boundaries could develop long distance staged trade from each town to the next, but of course this is not the only possible scenario.

‘Such increase in “welfare” would have had two likely consequences: 1.) increase in population in both places; and, 2.) intensification of the division of labor involved in the production of those things in which each was most proficient, the goal at first being the production of “surplus” of those things required for the foreign trade on which their welfare was partly dependent and, with the increasing tendency toward specialized performances in production, a tendency for the same to be employed in the production of other, more locally-required materials and articles’.

The first is wrong, because the constraints for population increase were of food supply and sanitation, which was worse in towns (unless that merely meant populations were drawn to those centres). The second is wrong because the norm in most cultures is to take when that is easier than trade, the “raid or trade paradigm”. That sort of beneficial trade could only occur when it was impractical for people to control both ends.

Gold Bugggg February 16, 2009 at 3:14 pm

The US Mint has been trying to discourage gold investments for quite a while now. If the US Mint doesn’t want to produce gold bullion coins, than someone else will. It’s time for people all over the world to break free from fiat currencies and the criminal banking cabal.

Gold as well as most other commodities have been held down for quite a long time by the bankers. The world wide economic system is based on paper and the Central Bankers will lose power when commodities begin to rise. If the system is driven by paper and credit, it would not be in the interest of the bankers to have the public buying up tangible assets.

Gold and the rest of the precious metals have become the only real safe investment. I believe the current gold price is not anywhere near the price it should be at, based on inflation.

The following is an excellent article on how gold has decoupled from the US Dollar…. http://www.goldnewswire.net/gold-disconnects#gold-price

theBuckWheat February 16, 2009 at 4:45 pm

When traveling, I often carry a 1/4 ounce gold bullion coin and offer it first in payment for gas and snacks at convenience stores. I ask if the cashier will take gold, and only rarely has the answer been anything other than bad looks and a no.

One manager of an ice cream shop gave me the almost-perfect answer: “I would love to take gold, but I cannot make proper change.”

I would love it if cashiers would take gold, but I might as well try to ask if they will accept live chickens.

Now, if you want to try this yourself, you can start out by asking if the cashier will accept Federal Reserve Notes. In my many years of routinely asking this, only about 5% of cashiers will, that is until they are satisied that you really are paying in “cash”.

scott t February 18, 2009 at 12:43 pm

“No State shall… coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts…”

“To coin Money, regulate the Value thereof, and of foreign Coin,…”

is this a real coin? 1794 HALF CENT – http://www.coinfacts.com/half_cents/1794_half_cents/1794_half_cents.htm

“Metal content:
Copper – 100%”

can anyone explain why the fedgov would require the States to have only gold and silver coins (i assume this means foreign and privately minted coins) as a tender in the payment of debts while having the mint make 100 percent copper coins for many years??

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