jon_perez explain yourself

[Bradley in DC]

I have to step in to stand up for this guy. He raises a valid question that I've wondered about myself.

It's important to remember in this debate that money has no inherent value.

Welcome to the forum. Interesting first post.

In this case, starting from the wrong premise inevitably leads to your other problems. It's better to understand how we got money and what we choose as money are goods with a higher "use value."

For a good, readable introduction, start with Menger's Principles of Economics:
http://www.mises.org/etexts/menger/eight.asp

And Mises himself here in Monetary Services and the Value of Money (note the difference between money having an "intrinsic value" and an "intrinsic exchange value"):
http://www.mises.org/mmmp/mmmp4.asp
It is clear that the naive conception of the layman that things have value in themselves, i.e., intrinsic value, necessarily leads to a position which draws the dividing line between money and money substitutes differently from the position according to which the value of a thing is derived from its usefulness. Those who conceive of value as the result of properties inherent in things must necessarily make a distinction between physically valuable money and means of exchange which provide monetary services but are without material value. This approach inescapably leads to a contrasting of normal money with bad and abnormal money, which, in reality, is not money at all.

Today there is no need to deal with this theory. For the modern subjective theory of value, the question has long been decided. No one would still openly defend a concept according to which the whole or a portion of value and price theory was based upon intrinsic exchange value, i.e., independent of the valuations of acting men. Once this is admitted, one has already adopted the fundamental principle of subjective value theory, i.e., the theory of marginal utility.

 

[Meatwasp]

Thank you Fsk. I know all the big mines around here were shut down and falling to rust.

 

[AoiMasamune]

Careful about disagreeing with him... you might have Karl err... Bradley calling you a traitor to the Ron Paul cause for doing so...

Anyway, after reading through the rest of your post, I feel justified in reiterating my point of view that while the Fed may have its flaws, it was not an institution borne out of "evil, diabolic" intentions. These are tough, complex problems related to the money system and the idea of central banking has been offered as a solution to such.

If the Fed were as corrupt and damaging as the propaganda du jour makes it out to be, the US would not have become a superpower for the hundred years or so since it was created. Some people seem to forget this little fact.

The first and foremost problem really is overspending by Congress. Immediately turning the Fed into scapegoat makes us overlook where the most pressing problem lies.

I agree that congressional overspending is a significant part of the problem, and not one to be overlooked, however I will insist that the whole of the economic system is at fault, and the federal reserve rests at the heart of the system.

The major problem I see with the federal reserve if all other factors were not broken is this: it's not federal. The fact that it is privately owned and operated without true government oversight or transparency of any kind makes it possible for them to do things like trigger recessions and depressions for profit. Even if it has never been exercised, that power must be removed from private hands.


And about a 'gold backed, paper dollar'. This is going to lead to problems. A gold or silver coin dollar is fine, but gold backed paper, is a disaster waiting to happen. Paper gets lost, stolen, washed in the laundry, and otherwise destroyed with no evidence of it's existence. If the two (paper and gold) are supposed to exist on a 1 for 1 basis... It seems to me that an imbalance is inevitable. Either there will be gold in storage that no one can claim, and no way to know how much no one can claim, or someone will over react and print too much of it's paper cousin, leading to runs on banks and economic failure.

 

[fsk]

I know all the big mines around here were shut down and falling to rust.

Without the ability to sell gold at a fair free-market price, whoever owned the gold mines was acting in their rational self-interest. It made perfect economic sense to stop mining gold until gold was allowed to be sold at the fair free-market price.

 

[Bradley in DC]

If the Fed were as corrupt and damaging as the propaganda du jour makes it out to be, the US would not have become a superpower for the hundred years or so since it was created. Some people seem to forget this little fact.

We have been prosperous DESPITE the advent of central banking here. Had you read my posts and links and explanations, you'd understand this.

Again: http://economics.about.com/cs/moffattentries/a/scot_banking.htm
Between 1716 and 1845 the country of Scotland experienced a period of banking that was unlike any other ever seen. Banks were virtually unregulated, constrained only by the rule of law at the time. Each bank, and the system as a whole, created solutions to the general banking hazards that we still attempt to resolve through regulation today.

Banks also engaged in practices that were complementary with stability and efficiency in the market. Furthermore, banks were profitable, not shown to categorically take on excess risk and loss to the public during failures was greatly minimized. During its time of free banking Scotland's economy grew much quicker than England's, which had a more regulated and failure-prone system. Even though England was in the midst of its first industrial revolution during this period, Scotland's approximate per capita income went from half of England's in 1750 to being virtually equal to it in 1845. Supported by a banking system marked by innovation, reliability, and stability, Scotland transformed from a poor agricultural and household economy to an advanced industrial economy specializing in iron production, shipbuilding, and engineering. (Cameron, 1967).

The first and foremost problem really is overspending by Congress. Immediately turning the Fed into scapegoat makes us overlook where the most pressing problem lies.

It is the monetizing of the debt by the Fed that is the cause of inflation and our main problem with the institution. If you agreed with that, you'd understand that it is the Fed that enables what you see is the foremost problem.

My question, jon_perez, stands, why do you think using gold as money is inherently "more dastardly" than unbacked paper?

 

[WilliamC]

Greetings All,

Here's a subtle technicality. This is a prohibition on the behavior of *STATES*. There is no prohibition on the Federal Government declaring on unbacked paper as money.

You might say "It's obvious that is intended to also apply to the Federal Government", but what you think is irrelevant.

Very true. Then let's have the several States issue gold and silver backed money as legal tender to circulate along with the Federal Reserve Notes. That way we can use commodity backed money to purchase goods and services and Federal Reserve Notes to pay Federal taxes.

William C Colley

 

[Bradley in DC]

Bradley can you help me on this . Why did Roosevelt confiscate all private gold in 1933? The the miners around here told me it was for the war effort. He was planning on printing money
Only jewelrers were allowed ownership of gold.

Hi,

The best short, readable examination I found on that is here:
http://www.mackinac.org/article.aspx?ID=4013

In short, yes, definitely that is a great part of the answer. Monetary gold was confiscated and redeemed at 1/3 less value for FRNs in part to help pay for war and the New Deal. That confiscation contributed to a contraction of the economy. That experience is similar to other countries that have acted similarly. I first got interested in monetary policy because of my experience in Peru on Garcia (the first time).

 

[fsk]

Very true. Then let's have the several States issue gold and silver backed money as legal tender to circulate along with the Federal Reserve Notes. That way we can use commodity backed money to purchase goods and services and Federal Reserve Notes to pay Federal taxes.

I believe some state attempted doing this, and the Supreme Court ruled they weren't allowed to. I forget the ruling.

 

[Bradley in DC]

It is quite dificult to monopolize all gold without government help.

And virtually impossible with silver or copper (because of how much exists in the world)

Thanks, Mordechai. That is my point and that of all other posters save jon_perez, and the point of this thread is to have him explain why he disagrees with you and considers that idea "dastardly."

Jon_perez, what is "cowardly and malicious" about the idea of using gold as money?

 

[fsk]

I first got interested in monetary policy because of my experience in Peru on Garcia (the first time).

What's the story of Peru on Garcia? Do you have a link?

 

[Bradley in DC]

Here's a subtle technicality. This is a prohibition on the behavior of *STATES*. There is no prohibition on the Federal Government declaring on unbacked paper as money.

You might say "It's obvious that is intended to also apply to the Federal Government", but what you think is irrelevant.

Yes, good point. And given the enumerated powers clause, the Federal Government was only granted the power to "coin" money which was akin to establishing proper weights and measures. However, it has been "broadly construed" beyond all recognition.

 

[AoiMasamune]

I think there is a great deal of over reaction going on here...

<quote>
If an economy were operating on the gold standard and banks loaned out the gold at an interest rate higher than the rate increase of the total gold supply, what's to prevent the bankers from eventually owning all the gold?

This actually sounds more dastardly than a debt-based, fiat-money supply.
</quote>

I think all he is trying to say is that the same loophole will still exist which allows bankers to amass great wealth and drain out the economy. In a fiat money system, the money supply is continuously replenished (causing inflation, but thats another topic), whereas in a gold-based economy, it would not be. In either case the root of the problem, banking, must be addressed.

He has reacted defensively, true, but in his defense he was attacked pretty harshly by some posters in both this thread, and the original as well. It could simply be he doesn't have the vocabulary to describe the problem sufficiently.

 

[Bradley in DC]

Still haven't learned to stop putting words in people's mouths, eh? Nice try at the strawman.

I bet you idolize Karl Rove.

Your thoughts on idolatry notwithstanding, do you think using gold as money is more "dastardly" than unbacked paper?

 

[fsk]

If an economy were operating on the gold standard and banks loaned out the gold at an interest rate higher than the rate increase of the total gold supply, what's to prevent the bankers from eventually owning all the gold?

It is very hard to monopolize all the gold if there is UNREGULATED banking. If you allow a multi-metallic standard, then it's hard to monopolize ALL the metals.

It is a REGULATED gold standard that allows banks to suck up all the world's wealth. An unregulated gold standard works fine. The only restrictions on banks' behavior should be that they don't defraud their customers.

 

[Bradley in DC]

I think all he is trying to say is that the same loophole will still exist which allows bankers to amass great wealth and drain out the economy.

With all due respect, you misread his quotation by leaving out the "more" dastardly. That is the point of THIS thread. We want to know why he finds gold inherently "more dastardly." For jon_perez's case, that means more "cowardly and malicious" since there's a consensus he's not got his vocabulary down.

 

[Bradley in DC]

What's the story of Peru on Garcia? Do you have a link?

Um, no. :o (Searching Google now...)

Long story short, Garcia printed money as if, well, as if it grew on trees to fund his social welfare programs, etc. Off the top of my head, there was a cumulative inflation rate of 1.2 billion percent over his five-year administration. Mario Vargas-Llosa gave an impassioned speech in Lima's town square, after Garcia announced his intention to nationalize the banks, which eventually turned the tide.

I had a very personal epiphany that governments didn't have a right to do "this" to their people (but didn't understand what the "this" was at that time) and found the gold dealers as the last and only functioning and honest financial system left. So, in short, yes, I take the gold is "more dastardly" comment very personally.

Peruvian economist Hernando de Soto has written about these issues tangentially in "The Other Path" and "The Mystery of Capital."

EDIT: "The five-year García administration was also marked by hyperinflation and sporadic shortages of basic food items. Peru fell behind on its external debt payments when García limited them to 10 percent of GDP, and international lenders cut the country off from further loans. In 1987, García made an effort to nationalize banks and the insurance industry." (I was there in 1987--Machu Picchu was great, the hepatitis was not).

"However by 1988 the economy had collapsed and high inflation had turned into hyperinflation. Generally wages and salaries did not keep up with the inflation of prices." Table here.

 

[AoiMasamune]

It is very hard to monopolize all the gold if there is UNREGULATED banking. If you allow a multi-metallic standard, then it's hard to monopolize ALL the metals.

It is a REGULATED gold standard that allows banks to suck up all the world's wealth. An unregulated gold standard works fine. The only restrictions on banks' behavior should be that they don't defraud their customers.

Well, I partially agree with this. While the banks would attempt to gain control of a currency, gold for instance, it's value would skyrocket as supply diminished. This would cause a shift from gold to say silver, so the banks sell a little over valued gold for normal valued silver, and begin the process over again until silver becomes over valued, moving on to copper, so on and so forth.

This situation actually FAVORS banks. Not only do they collect the origional interest owed on the debt, but as the value of the metal goes up, their stocks become more valuable. This gives banks an additional incentive to fight for ever growing control over metal markets.

Also, don't discount the effect of alliances between banks artificially fixing interest rates and wielding collective power to buy out non-member banks, a la 'secret societies'.

With all due respect, you misread his quotation by leaving out the "more" dastardly. That is the point of THIS thread. We want to know why he finds gold inherently "more dastardly." For jon_perez's case, that means more "cowardly and malicious" since there's a consensus he's not got his vocabulary down.

I concede the point, terrible wording on his part. Perhaps if he apologized?

 

[fsk]

Also, don't discount the effect of alliances between banks artificially fixing interest rates and wielding collective power to buy out non-member banks, a la 'secret societies'.

With UNREGULATED banking, this cannot happen. As fast as they can buy out non-member banks, new competitors would enter the banking industry.

The problem with hoarding physical metal is that you lose out on interest payments. If you do have a surplus of physical metal, you're better off investing it in income-producing assets instead of hoarding it. Interest payments are a disincentive to gold hoarding.

In the present, it pays for individuals to hoard gold and silver because there's no trusted bank to store it in.

 

[Bradley in DC]

I concede the point, terrible wording on his part. Perhaps if he apologized?

That is the question: was it terrible wording for which he should just apologize, or, given he started the thread as one of his first acts here is he just a troll? His name calling and obfuscation lead one to a likely answer.

 

[AoiMasamune]

With UNREGULATED banking, this cannot happen. As fast as they can buy out non-member banks, new competitors would enter the banking industry.

The problem with hoarding physical metal is that you lose out on interest payments. If you do have a surplus of physical metal, you're better off investing it in income-producing assets instead of hoarding it. Interest payments are a disincentive to gold hoarding.

In the present, it pays for individuals to hoard gold and silver because there's no trusted bank to store it in.

I don't understand how paying interest on savings to consumers discourages the hoarding of currency...
I think you are underestimating the ingenuity and ... dare I say, genius of the banks.

About the secret society thing...

A) Once this "society" manages to saturate the market with their banks, there wouldn't be enough un-entangled demand to justify competition springing up, it's even possible that they would spearhead the move to new metals voluntarily to consistently stay cheaper than any competition that could move in.
What I mean by un-entangled is this:
What if someone signs a legally binding 30 year loan, for $1000 gold dollars, and it (the contract) was worded exactly like that, you owe 1000 gold coins... The overpricing of gold occurs and one gold coin is suddenly worth 2000 silver coins. Gold is no longer circulated and silver is the new currency of choice for most businesses. You are entangled, and legally obligated to repay according to the terms of the contract.

B) Where would the new competition get the raw metal required to start a competing bank if not from the "society"? Your average Joe, under any circumstances, will not have the assets required. To get a loan, to open a competing store, you have to demonstrate to the existing banks that you are qualified to make a profit. The quickest way to ensure this is to be in their pocket.

C) The situation you are describing is the origin of the banking system, and where it flourished historically. Government regulation and control was meant to hold back it's power but failed.

D) You have any idea how much havok multiple floating currencies would cause in the retail business? How much is a shirt worth in gold... silver... copper... brass... iron... wood... paper... etc?


I am arguing against free market decided currency, thats true, I have yet to be convinced that it does anything to prevent the creation of, or rise to power of, ruling elites.