Aces High Bulletin Board
General Forums => The O' Club => Topic started by: miko2d on June 16, 2003, 09:03:34 AM
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For those who manage to read the whole article, the bonus question is who wrote it?
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Gold and Economic Freedom
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire-that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.
The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.
What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible.
More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.
In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.
Whether the single medium is gold, silver, sea shells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has always been considered a luxury good. It is durable, portable, homogeneous, divisible, and, therefore, has significant advantages over all other media of exchange. Since the beginning of Would War I, it has been virtually the sole international standard of exchange.
If all goods and services were to be paid for in gold, large payments would be difficult to execute, and this would tend to limit the extent of a society's division of labor and specialization. Thus a logical extension of the creation of a medium of exchange, is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.
A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security for his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.
When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth.
When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one--so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.
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A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold, and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post- World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.
But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline- argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely--it was claimed--there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (paper reserves) could serve as legal tender to pay depositors.
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates.
The "Fed" succeeded: it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.
With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.)
But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.
Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited.
The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets.
The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the "hidden" confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.
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miko
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google (http://www.321gold.com/fed/greenspan/1966.html)
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Ayn Rand! :)
(I loved " Atlas shrugged")
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Originally posted by Ripsnort
Ayn Rand! :)
(I loved " Atlas shrugged")
I understand that they are making a movie of Atlas Shrugged? Can anyone confirm that?
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i don't trust gold , i like diamonds better, lighter and smaller.
i keep my millions in diamonds sewn into the lining of my coat, in case i have to leave the country in a hurry.
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Yes gold has much much relevance to the monetary suppy of high tech service based innnovation economy... :rolleyes:
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I think platinum is worth more than gold..both from a business and financial aspect.
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Originally posted by Ripsnort
I think platinum is worth more than gold..both from a business and financial aspect.
Which only goes to prove the point of the article even more. Platinum is too rare to be a modicum of exchange.
There, that's my 2 miligrams worth.
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GRUNHERZ: Yes gold has much much relevance to the monetary suppy of high tech service based innnovation economy... :rolleyes:
You've dispalyed your total ignorance on the subject more than once. Well, at least you are safe from having your opinion refuted by never issuing any substantiation for it.
What does "high tech service based innnovation economy" have to do with the kind of money being used?
This article, by the way is written in 1967 by Alan Greenspan. He probably knwe a few things about economy even at those prehistoric times.
Syzygyone: Which only goes to prove the point of the article even more. Platinum is too rare to be a modicum of exchange.
Withing a very wide range the actual amount of commodity has no bearing on its ability to act as money. Gold rather than platinum became money through evolutionary market process because it was more common and easier to identify and work with, but it would not be an issue now to melt platinum and tell it from silver, etc.
The law of supply and demand makes sure that the price of money in terms of other goods adjusts so that amount of money available serves all transtactions that need to be performed.
If a paper dollar or a coin you are carrying is backed by 1/350 ounce of gold or 1/35 or 1/35000 or 1/800 ounce of platinum or 1/7 ounce of silver, what difference would it make? None whatsoever.
miko
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Originally posted by miko2d
Gold rather than platinum became money through evolutionary market process because it was more common and easier to identify and . . . .
miko
I was speaking of olden times and your statement is exactly what I meant for olden times as discussed in the article! Gold was much more plentiful than platinum in long ago days, (still is). The "value" attributed to gold is totally aritificial but because it was available and platinum wasn't, gold evolved into the medium of exchange. Moreover, given gold's relative scarcity compared to silver, it was of even greater value and eventually pushed silver out of the game. That's how I interpret the article anyway.
:D
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Been told this was the beginning of the end of the American economy ...
seeing the dollar is backed by paper and the euro is backed by gold - sorta starting to think it was too....
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Originally posted by Eagler
Been told this was the beginning of the end of the American economy ...
seeing the dollar is backed by paper and the euro is backed by gold - sorta starting to think it was too....
US currency is also gold backed, is it not?
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Originally posted by Syzygyone
US currency is also gold backed, is it not?
Used to be enough in Fort Knox to back the dollar up...not anymore unless you count assets too. ;)
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Syzygyone: The "value" attributed to gold is totally aritificial
You've missed the point of Greenspan's argument then. In order for one of many commodities to gradualy became a common medium of exchange, it had to start as an independently-valuable commodity in the first place. Sure, when that commodity gets used for money in addition to ites regular use, its price rises in terms of other goods. But that follows from basic supply and demand principle. One you have additional demand for anything and not much supply, the price rises.
In 1960 monetarists and keynesians argued that dollar was supporting gold rather than the other way around and if dollar was separated from gold, the price of gold would drop to it's intrinisc price of $7/ounce from $35/ounce.
Only the (ridiculed) economists of austrian school argued otherwise - Mises, Hayek, etc.
Guess what happened when Nixon broke dollar-gold link in 1971?
Moreover, given gold's relative scarcity compared to silver, it was of even greater value and eventually pushed silver out of the game.
Not really. Silver was widely used as money in various parts of the world - sometimes even in the same country alonmgside with gold - including US. It's not any intrinsic properties of gold that pushed the silved out but the fact that some economically important countries have adopted it as money already. If Great Britain adopted silver in the early 1800s as money, then silver would have been used instead of gold.
The decision to go with gold ratehr than silver was quite arbitrary but once made, it made adoption of gold more likely.
The major advantage of commodity money system is that it prevents governments from arbitratily inflating money and thus taxing people by "creating" money out of thin air.
The fully-backed commodity money system does away with the boom-bust cycle which is incorrectly attributed to capitalism while it is really a consequence of governmental interference in monetary policy.
miko
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Originally posted by Syzygyone
US currency is also gold backed, is it not?
not since 1972 I think
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Eagler: ...seeing the dollar is backed by paper and the euro is backed by gold - sorta starting to think it was too....
Euro is not backed by gold - none of world currencies currently is.
Syzygyone: US currency is also gold backed, is it not?
No. Dollar stopped being backed by gold for everybody except foreign governments in 1933 and for foreign governments in 1971.
Ripsnort: Used to be enough in Fort Knox to back the dollar up...not anymore unless you count assets too.
It was never enough since from it's inception in 1913 the Federal Reserve was a fractional reserve system. There were always more paper dollars than gold supposed to back them up.
Now the Fort Knox holds 8,500 tons of gold, if my info is correct (it never held more than 22,000 tonns anyway) which makes it about 100 billion at today's prices.
Compare that to 35 trillion dollars and US government obligations currently outstanding.
miko
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Ferget it!
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Syzygyone: Ferget it!
"He who has ears to hear, let him hear!"
And St. Darwin will take care of the rest. My goal is never to change people's opinion - only to alert them to existence of some issue in the first place and be able to acquire knowlege by themselves if they care.
miko
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miko
isn't the euro backed by gold to a degree? 25% or something whereas the dollar is not?
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Too lazy to read all that. Should I head for the shelter now or wait till after dinner?
(Ayn Rand was a wacko!)
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Originally posted by miko2d
Syzygyone: Ferget it!
"He who has ears to hear, let him hear!"
And St. Darwin will take care of the rest. My goal is never to change people's opinion - only to alert them to existence of some issue in the first place and be able to acquire knowlege by themselves if they care.
miko
Hmmmmm. Interesting. Is Darwin a saint where you come from?
Meanwhile, I meant no disrespect to either you or your understanding of Greenspans article. If I'd have wished to show disrespect, I'd have said something like Miko, you ignroant slut! :p
However, the depth of the concepts you are attempting to discuss so far outstrip the potential for BBS discussion that it is a waste to even try, as evidenced by the fact that you and I do not disagree but you think we do.
:D
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Eagler: miko, isn't the euro backed by gold to a degree? 25% or something whereas the dollar is not?
There is no provision in the law or any record on Euro notes that Euro is redeamable in anything. It does not matter how much gold or other backing (mostly dollar) is there in the central bank's vaults. In fact there does not have to be any backing by gold or anything else for the current monetary system to operate.
The paper Euro is money, that's it. Government creates money and paper Euro is that money.
It used to be untill 1971 in US that dollar was money and that dollar was a certain weight in gold or rather a gold coin.
The bank or federal reserve note was not money but a "receipt" for money in the bank - bank or reserve note. It did not even say (untill very end) "this note entitles a bearer to receive so much gold (or silver)" but rather "this note entitles a bearer to receive a gold (or silver) dollar".
Gold dollar coin was money. Now paper dollar and paper Euro are money. There is no backing for them other than faith of the government and it's taxing power.
There is no reason to keep any gold in Ft. Knox as backing for the money and the fact that government does that is an indication that it belives that the whole paper money scheme may one day unravel.
midnight Target: Too lazy to read all that. Should I head for the shelter now or wait till after dinner?
If you mean it figuratively, like should you diversify a part of your savings in gold - then you may want do it before dinner.
By the way, why are people mentioning Ayn Rand here? The article in question is by Alan Greenspan and it does not mention Ayn Rand. It is based on the austrian and classical economics that predates Ayn Rand (who was never an economist anyway) by good cople hundred years.
miko
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Syzygyone: Hmmmmm. Interesting. Is Darwin a saint where you come from?
He kind of embodies the self-correcting forces of nature to me. :)
Meanwhile, I meant no disrespect to either you or your understanding of Greenspans article.
I did not perceive your "...Miko Ferget it!" as an insult or disrespect.
I perceived it as "Miko, this topic is too deep for this audience" and apparently I was righ about that.
My Jesus quote in reply "He who has ears to hear, let him hear!" was not intended towards you but referred to the rest of the audience - meaning that some people may decide to take it seriously and the rest are not really my concern.
Now, let me try this:
We do not disagree and I do not think that we disagree but you mistakenly thought that I thought that we disagreed even though we did not disagree. Here is where we disagree... :D
P.S. This BBS has one great thing - variety. As one smart person said, it's not essential that most people held the correct idea. It's essential that every correct idea could be expressed and find an audience. Or something to that extent.
When I need knowlege, I can get it first hand from the foremost expert by buying his book. What conversations here made realise was that there exists some knowlege that may be worth investigating that I was not even aware about.
miko
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just finger for mike ;) (that short one, not the middle one :D )
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Originally posted by miko2d
We do not disagree and I do not think that we disagree but you mistakenly thought that I thought that we disagreed even though we did not disagree. Here is where we disagree... :D
miko
ROFL! I know you think you know you understood what you think I meant but I am not sure that what you think you understood is what I meant. Moreover, what you think I meant is not the same as what I said because I am not sure you understood that what I think I meant what I said.
:D
Pesonally, I am still going to play the lotto, even if it is just for paper money!
BTW, Ayn Rand was mentioned because of the google search bringing up a book she worte. Many people feel she is notoriously non-original in her overall economic philisophy but she was successful in popularizing the concepts espoused by the more esoteric economists. And besides, the idea of a machine that runs on static electricity, thereby eliminating the need for 99% of the fossile fuel useage in the world is intriguing, is it not?
;)
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Syzygyone: Pesonally, I am still going to play the lotto, even if it is just for paper money!
As long as you realise it's based on the same principle as playing "musical chairs".
GScholz: So if the Dollar goes the way of the Deutschmark (after WWI) and crashes the US economy, it will prolly take most of the world economy with it, right?
Not necessarily. Change in the quantity of money does not destroy physical and intellectual resources and the right economic policy can have economy back on track literally overnight, political considerations permitting. Witness Ludwig Erhard's "turning on" Germany's economy in 1947 by abolishing price and wage controls.
Considerng that US is currently an immediate drain on world's economic resources through trade disbalance and export of inflation (while being major creator of new technologies, which matters long-term), the world's economic health could actually benefit.
Also, "crashes" may be a too loaded word to use here. If the US economy - or rather unproductive sectors that were beneficiaries of misallocated capital are allowed to "crash" while wealth and labor resources are reallocated towards more productive used - that will be very beneficial for everyone involved who was engaged in real production rather than was a beneficiaty of redistribution.
On the other hand the crisis may be used by politicians to complete establishment of socialist totalitarian state here which would be bad.
If so, what should I buy first with my rapidly dwindling wealth, food or a gun?
It's not dwindling wealth that is most dangerous, it's seemingly raising wealth that proves to be a bubble that can cause most dire consequences.
Anyway, would you rather risk being hungry or not able to defend yourself and yours?
miko
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Well miko its nice to see how you understand the relationship between economic expansion, the resulting need for more currency and of course the problem all those present when you try to idiotically match currency to gold... :rolleyes:
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Syzygyone: Moreover, given gold's relative scarcity compared to silver, it was of even greater value and eventually pushed silver out of the game.
miko: It's not any intrinsic properties of gold that pushed the silved out but the fact that some economically important countries have adopted it as money already.
Small correction - US and Great Britain wer actively involved in enforcing the gold standard on many countries - Lating America and others under Charles Conant. In fact US itself was pushed into gold standard from the silver one by british inerests.
GRUNHERZ: miko its nice to see how you understand the relationship between economic expansion, the resulting need for more currency...
Grun,
What is "economic expansion"? If you mean economic growth, it is not the same and even not related to monetary expansion.
Also, what do you mean by "more currency". If you mean more tokens/notes/coins, those can be produced in any denominations at will.
If gold was used as money and purchasing power of a smallest coin got too great, that coin could have been easily melted into several smaller ones. If silver was used as money and the purchasing power of largest usable silver coin was too small, we would leave a bag of them it in the bank and carry a paper bank note backed by silver instead. Basically, the issues are purely technical, not economic.
...the resulting need for more currency...
If you mean more money, the economic growth does not require increase in quantity of money. The same fixed amount of gold or any other commodity used as money or even the same fixed amount of "paper" money would have served all the needs of growing economy perfectly. The purchasing power of money grows or declines according to supply/demand like any other economic good. With fixed amount of money we would have a small drop in prices (not to confuse with deflation) every year reflecting increased productivity.
Money is unique in that it is a good that is not consumed in the process of production and increase in it's supply does not confer any social benefit.
the problem all those present when you try to idiotically match currency to gold...
I am not sure what you are talking about here. If gold (or another commodity) is money, what would be the meaning of phrase "match currency to gold"? Gold coins or bars or gold receipts would be currrency, counted in ounces or grams (dollars was originally a term for a specific quantity of gold).
The economic activity is an exchange of goods and labor for other goods. Money just acts as intermediary in that exchange and in some respects is acts as claim against goods. When you create money you do not create any goods but just claims against existing goods. The marginal purchasing power of money inevitably falls proportionately to the amount issued.
This way the holders of existing money are robbed of part of their value, since they now receive less goods for their money than they sold in order to get that money. Creation of money is pure and arbitrary redistribution. So commodity money - not necessarily gold but anything that the government cannot prioduce "out of the thin air" would prevent governments from expropriating value this way.
miko
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Miko the simple fact in US history is that backing currencty to gold is unworkable. Over time it became meaningless as more and more reductions in % backed were implemented. Or like during wartime when more currency was needed to pay all the new workers and soldiers the gold backing was suspened because it was impossible to acquire enough gold to back the currency.
But have your gold fantasy if you like it...
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Grun,
Don't bother. miko isn't going to listen to anyone that doesn't share his paranoid fantasy. He still cannot understand that ALL financial dealings backed or unbacked by anything are ALL synthetic manipulations. Any object is only worth whatever you are willing to pay or sacrifice to obtain it. If you feel it is worthless, then it is. Same for the reverse as well. Best example, how much is gold worth to a drowning man? A life vest, however, would be worth his life.
:p
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It all started by a shepherd trading a fisherman wool and mutton for cod, and then the fisherman trading the wool to the spinner twice as much wool as he needed for a sweater.
Then one day, someone showed a totally worthless piece of gold to the shepherd (it was just a shiny hunk of stuff... only later, too late for the shepherd, was it found useful in dentistry and electronics)
When shown the hunk of stuff, the shepard decided it was worth half his flock. This set the original price.
The value of gold, like any other commodity, is set by those who desire it. If many choose to desire 1 oz Au more than $400, the price goes up past $400. If they choose to value it less, the price goes down.
If all the refined gold in the world were put in one place, it would form a cube on the order of 100'. Far tool little on which to base the value of the world economy.
I believe it was Marx who said the total value of anything is the labor that goes into it.
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GRUNHERZ: Miko the simple fact in US history is that backing currency to gold is unworkable.
Sure - backing a fiat money by any commodity and then expanding it's supply is unworkable. The new recepients of money get claim for existing resources, the holders debt and money get the corresponding value stolen from them and the purchasing power of money falls.
As Alan Greenspan explained, robbing people through inflating the money and backing it up with anything is unworkable.
What he and I are talking about is using commodity (gold) as money again, not backing up a fiat currency. We are certainly not talking about coming back to 1971 or 1913 versions of "backed" money or even 1865 fractional reserve money but 1800 100% commodity money. Huge difference.
If you think we are talking about "matching currency" to a commodity or do not understand a distinction between commodity backed money and commodity money, you will keep talking about a different thing from what I am talking about.
Maverick: He still cannot understand that ALL financial dealings backed or unbacked by anything are ALL synthetic manipulations.
What a meaningless set of words. Commerce is an exchange of products using money as a medium of exchange - a facilitator. It has nothing to do with value.
Holden McGroin: If all the refined gold in the world were put in one place, it would form a cube on the order of 100'. Far tool little on which to base the value of the world economy.
The amount of monetary commodity does not matter at all. In old times there was some pgysical constraint on the smallest and largest size of useable coins. With paper notes and electronic clearing, a few grams of gold or other commodity could work exactly as well as your 100' cube.
Why do you care if your 1 dollar bank note says "100 ounces of gold" or "1000 atoms of gold" - as long as the amount of gold in the world is relatively constant and nobody counterfeits the notes?
I believe it was Marx who said the total value of anything is the labor that goes into it.
Yes, Labor theory of value - and its idiocy is obvious to any literate person.
Even Maveric subscribes to the Austrican School "Subjective theory of value", first elaborated by Carl Menger and developed by Bohm-Baverk and Mises!
How much value is there in a product that used a lot of labor but nobody wants?
Even taking Mav's example with a life vest - it certainly worth more than the world's supplies of gold to the person while little to a pedestrian. Imagine now that the drowning person has just got the life vest.
How much value is the second life vest to him? Obviously not much. He would probably opt for some gold instead - not too much though, he still has to float. :) Did it took less labor to produce the second life vest?
Anyway, value of goods is measured against other goods and money just facilitates the exchange of them, so the origin of value has nothing to do with the nature of money.
miko
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GScholz: Labor is a commodity too, but no more, or less, valuable than what the marked decides...
As long as youa re interested, I'll have correct you. Labor is an "economic good" but it does not necessarily fall under a strict difinition of a "commodity". Commodity is a uniform product that you can get from various sources in similar quality. Grain is a commodity, water is a commodity, orange juice and steel are commodity - except for exotic and specialised kinds. Unqualified labor is a commodity.
Most of the skilled labor is not a commodity. You cannot substitute one person for another in many places and expect similar results.
Hmmm, now money itself is a commodity too.
The other way around. Money originated as a commodity - it had to have intrinsic value (separate from it's role as medium pf exchange) and be uniform in quality from multiple sources, easily divisible, etc.
Gold/silver were the most common examples. You could deal in weight without regard which shape they came from. Foreign gold coin was as good as domestic one, etc.
Now money is not a commodity - it has no intrinsic value - there is no use for it other then as money. It cannot be easily exchanged or substituted with the money of another country, etc.
Also, there is a scarcity of any commodity while modern money can be created at will - and usually is.
The downfall of most of empires and major states can be traced to their debasement of their money - Rome the most obvious one. The only notable exception is Bisantium - they never screwed up with their money and that allowed them to survive for over 1100 years.
miko
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This is very interesting stuff. Think I'll just lurk for a bit.
Oddly enough I don't see Miko's views as paranoid or fanatic. There's a logic to it and it can (and probably has in various papers) be backed up by empirical evidence.
And this stuff is a good weapon to have when I face the socialists around me who see the 1930s as an example of capitalisms evil, rather than the evil of government intervention.
Thanks Miko, you just repaired a dent in my armour :)
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last i checked the great depression happened because of 0 government intervention..
using gold as currency is sooooo 1700's. economys are a tad more diverse today for that kind of crap miko.
plus what happens to a country when they find a huge gold reserve. the rest of the worlds currency is devalued and theirs goes up. im sure that wouldnt start any wars.
oh and did they put any thought into what happens when some dorks in texas fooling around with a supercollider start makeing gold?
Relying on a natural resourse to use as your monetary source is quite reckless and not very foward looking.
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But frogman miko is beyond help on this issue, the gold thing is pet fantasy and the pet fantasy of a number of wacko libertarians. He's trying to justify it by posting an article by Alan Greenspan written in 1966. I dont pretend toknow what Greenspans motives were for writing that but the 1960s were the era when the gold backed fixed exchange system was destroying itself and making it neccesary for govts to rething the monetary system.Abd indeed by the late 1960s and early 1970s nixon adminstration had abolished gold supported US currency...
But hell this is the BBS and miko can say whatwever he wants - lets just all remember this is a man who thinks, theoretically or otherwise, it would be more economically efficent if there was no official police forces and they were replaced by everyone of us citizens choosaing to pay for or not to pay for our own private security forces... :rolleyes:
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Frogm4n: last i checked the great depression happened because of 0 government intervention..
Simply not true. The fact that government was controlling and creating oversupply of money since 1913 is not government intervention? The fradulent and economic-cycle-inducing fractional reserve system promoted by the government ldecades before that is not government intervention? The Smoot-Hawley tariff act that threw a huge monkey-wrench into the world economic order is not government intervention? The combination of steeply-progressive tax system with built-in inflation that pushed economy up the Laffer curve is not government intervention? The wage and price controls that stopped economy by preventing its natural adjustment to reduced money supply is not government intervention? Confiscation of all gold in private posession at below-market rates is not government intervention?
Stop arguing out of ignorance.
using gold as currency is sooooo 1700's. economys are a tad more diverse today for that kind of crap miko.
Simply not true. The issue of money has nothing to do with deviersity or technology. But I would love to hear your arguments how diversity and technology necessitated government control of the money anyway.
This is an issue of political power - who controls/owns money - government or free market. Do you also think freedom and democracy were only viable in pre-industrial society and are obsolete in this age of technology and diversity? It's exactly the same issue.
"Paper" fiat money was not a novelty but well known evil in the Founding Fathers time. Even the writers of The Federalist Papers mentioned many times that paper money is evil and destructive and must never be allowed. The constitution specifically says that Congress has the right to "coin" money - not issue or print or create but just convert money - raw gold - into standard coin for private individuals - and regulate denominations (weights) of standard coins. Those guys were well more educated in economic matters than most of you, guys.
plus what happens to a country when they find a huge gold reserve.
That will cause some financial upheaval. How many times did that happen over the last 500 years compared to the number of financial disasters wreaked by the governmental control of the money? Have you ever checked by how much US money supply grows?
the rest of the worlds currency is devalued and theirs goes up.
This statement tells me you have no idea what you are talking about. You are talking about gold-backed currency while I am talking about commodity (gold) money. Those two have very little in common.
oh and did they put any thought into what happens when some dorks in texas fooling around with a supercollider start makeing gold?
You do not need supercollider - you can mine gold at about $300/ounce.
Relying on a natural resourse to use as your monetary source is quite reckless and not very foward looking.
That's the whole point - who is the one doing the looking forward - the free market or a government.
Do you rely on government to select a wife for yourself and have children or do you pame your personal plans? How about your biology/genetics or language? Did government design those? Why do you think natural spontaneous free-market process would do any worse job than an arbitrary government decision-maker?
GRUNHERZ: but the 1960s were the era when the gold backed fixed exchange system was destroying itself and making it neccesary for govts to rething the monetary system...
But the "backed fixed exchange system" was not gold money and itw as bound to crumple - just like any other fiat monetary system is bound to crumble.
it would be more economically efficent if there was no official police forces and they were replaced by everyone of us citizens choosaing to pay for or not to pay for our own private security forces...
lets just all remember this is a man who thinks, theoretically or otherwise, it would be more economically efficent if there was no official police forces and they were replaced by everyone of us citizens choosaing to pay for or not to pay for our own private security forces...
You are lying, as you often do lately. I could not have said that - first, because police forces are under local jurisdiction and there is nothing in libertarian philosophy that conflicts with the right of people to have whatecer local arrangements they choose - including communes.
Second, my local NY City police is my private security force as far as you are concerned and I am paying for that. I do not care to pay for federally-conducted drug war that adds nothing to my safety and other programs. Dropping those would certainly be cost efficient but that's another topic.
StSanta: And this stuff is a good weapon to have when I face the socialists around me who see the 1930s as an example of capitalisms evil, rather than the evil of government intervention.
Thanks Miko, you just repaired a dent in my armour
You are welcome. I suggest you check works of Murray Rothbard, Jude Wannisky (though he concentrates more on taxes than monetary policies), Mises and Hayek for explaining ruinous effects of government intervention and socialist policies.
Mises Institute http://www.mises.org has full works available online, if you cannot afford a few hundred dollars to equip yourself with a decent library.
Austrian School theory of trade cycle is completely based on government or government-supported overexpansion of money supply causing unsupportable "boom" and misallocation of resources and them inevitably leading towards the corrective "bust".
miko
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P.S. The assertion of ignorant people of how "the new technology" makes old concept of money not applicable reminds me the common widespread american view that new technology will soon obsolete the physical law of conservation of energy - so much so that they are ready to start building hydrogen economy now.
@ We will get energy/hydrogen from water.
- But water does not have any more chemical energy thatc an be retrieved - it is just hydrogen that has burned already! You need to add more energy to the water in order to get hydrogen out of it than you get back from hydrogen!
@ That's OK - the new technology will improve efficiency (of what?!) and will allow us to do that any day now....
Oh, yeah - and if we all photocopy whatever money we have, we will all become richer, somehow....
miko
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Despite all the big words and apparent grasp of basic monetary policy, this is still missing the big picture. Money has a profound psychological aspect, and any treatise that completely explains the nature of money would win a Nobel prize.
Rational people and institutions are still willing put up money to earn 3% on U.S. Government 'paper' debt, backed only by the government's full faith and credit.
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the free market does not exsist because it failed get over it . are you familiar with keynes already and choose to ignore what he taught or have you never studied why we need a mixed economy.
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Originally posted by miko2d
so the origin of value has nothing to do with the nature of money.
miko
I think your statement just shot down your own argument.
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Yea miko you did say that. I dont remeber the exat wording so I'm having trouble findind the thread but what I summarized was the gist of it. You betrayed by mentiong commununes - IIRC one of the things you argued for, theoratrically or not, was isolated fenced off outposts with no law enforcement in between them or something like that. Anyway I clearly remember you saying just saomething like that - so dont try to weazel out of it now.
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Frogm4n: the free market does not exsist because it failed get over it . are you familiar with keynes already and choose to ignore what he taught or have you never studied why we need a mixed economy.
As long as we are just throwing a round unsubstatiated statements,
1. free market does exist in a lot of places if not everywhere and there ised to be more of it at some times.
2. not only did it not fail, all the progres and wealth we have is due to it.
I am quite familiar with Keynes, having studied his "General Theory" and other works. He is wrong, he was proven wrong by history and theory and even about the very inflationary policy that we consistently pursue claiming his advice, he was very explicit that it's a trick that can only work for a short time (which it does not really).
Did you know that simultaneously growing inflation and unemployment are absolutely impossible under Keynesian theory? Have you missd the 70s?
miko: so the origin of value has nothing to do with the nature of money.
Holden McGroin: I think your statement just shot down your own argument.
You mean the use you make out of your house or any other posession suddenly be directly affected because someone conducts a monetary reform elswhere?
How about a glass of water in the desert? How is its value related to any monetary considerations?
GRUNHERZ: Yea miko you did say that. I dont remeber the exat wording so I'm having trouble findind the thread but what I summarized was the gist of it....
Not only you keep thinking in communist catergories, you cannot imagine others not thinking in them too.
Libertarian philosophy is freedom from coercion by the government. It is you and your ilk argue every idea with an underlying assumption that whatever the result, it must be enforced on everybody by the government - not libertarians.
As a libertarian, I never claim any right to dictate people how to live and arrange their affairs and security. I can give someone an advice - sure.
I certainly argued that I would be OK living with private security enforcement.
I never made a case that any other single person must be forced by the government to live according to my preferences.
So, I never said whay you must do - only what I wish to do and what others may wish to consider - voluntarily. Bid difference and it only sounds the same to me because of your authoritarian mindset.
I did not argue for forcing anyone into communes - just that idiots must be allowed to congregate into communes if they wanted to while I should be allowed to live in an radically individualistic (opposite to commune) arrangenment.
Why the heck it does it bother you so much if I and like-minded people choose to opt out of your police scheme and devise our own? Or out of your fradulent social security and finance my own retirement plan?
I would never argue against your right to keep any hare-brained arrangement you prefer. Or money for that matter. You can print your own paper and try to pass it on - it's your right in my view, just like it's anyone's right to refuse to accept it.
I only demand that communists like you who stumble on some bright idea did not enact laws that prevent other people from freely excercising their choices and do not confiscate our property at a drop of a hat. The money - gold - was confiscated by the government in 1933, the right to defend ourselfs is being actively denied us now, the ownership of businesses and propertires is being stolen by restrictions on their use - on somebody's idea that he has a better way and everybody must fall in line or be punished.
And federal ban on private issue of money enacted in 1913 and confiscation of gold in 1933 is just one instrument of oppression and arbitrary governmental control.
Some of my ideas might be wrong. Arguably, I may be worse off with a private security than you in your police state. That does not meant that I must be forced to live according to your rules. If I try something and fail while another tries a different way and succeeds, a lesson will be learned and that is the way of a free market.
Whether my argument is right or wrong, it would be my personal business and my presoncibility in a free state.
Whether your argument is right or wrong, you support government coercing people to abide by it.
miko
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Originally posted by miko2d
You mean the use you make out of your house or any other posession suddenly be directly affected because someone conducts a monetary reform elswhere?
How about a glass of water in the desert? How is its value related to any monetary considerations?
miko [/B]
My point is that value fluctuates with the emotional view of the buyer and seller. Whether we are talking about gold or water it does not matter.
There is an old (is it a sort of parable?) where someone is in a public restroom, and finds out he is out of paper. He asks the guy in the next stall if there is any over there, and the guy says no. Then the first guy asks, "Got change for a twenty?"
The relative value of money versus toilet paper just fluctuated wildly, and it had nothing whatsoever to do with the world spot market price of Gold.
If the dollar were backed up by 1/400th of an oz of gold, it would not make any difference.
In the old California and Alaska/Yukon gold rush days, with the dollar on the gold standard, and the local economies dealing with gold dust instead of paper money, price stability was unheard of. The price of a bath or a meal would swing wildly.
Gold is just another commodity.
edit> probably better or at least more stable than pork bellies, but then there are those who bought gold at $800/oz, who lost thier shirts too...
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Holden McGroin: My point is that value fluctuates with the emotional view of the buyer and seller. Whether we are talking about gold or water it does not matter.
True. But here you are talking about regular exchange of goods while our original point of discussion was the monetary issue. Those are quite distinct.
If a piece of toilet paper is worth two beef stakes, the fact that a dollar changed value would not directly affect that papet-beef relation.
If the dollar were backed up by 1/400th of an oz of gold, it would not make any difference.
Once again, I am not talking about currency backed with commodity money but about commodity money - but for the current purposes your example suffices.
Your are right that it does not matter if a dollar is backed by a fixed amount of a resource available in constant quantity or it is backed by nothing else - as long as the amount of dollars stays constant[/b]!
The whole point of my argument that amount of dollars does not stay constant - the new ones are produced every day by the governmentt, reducing the purchasing power of the existing ones in people's posession - for which they exchanged labor and resources already!
Such trick is impossible with commodity money - you cannot print gold or silver liek you print new paper currecny.
In the old California and Alaska/Yukon gold rush days, with the dollar on the gold standard, and the local economies dealing with gold dust instead of paper money, price stability was unheard of.
Price instability is a natural feture of a free market - a signal mechanism by which supply is made to adjust to demand, thus leading towards better satisfaction and more efficient use of resources.
Trying to ensure price stability by extra-ecomomic means is equivalent to cutting wires on your thermostat so that it's measurement does not change with time. You will get constant measurement, but the actual temperature in your house will swing much more wildly without feedback control.
The same way artificial price stabilisation and control only leads to shortages of some resources and overuse of others.
miko
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Who said anything about coercion? I never did... I merely pointed out the lunacy and irrationality of your ideas...
:rolleyes:
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GRUNHERZ: Who said anything about coercion? I never did... I merely pointed out the lunacy and irrationality of your ideas...
That's OK. You are entitled to your opinion. Even if you cannot defend it logically and have to resort to personal attacks and imaginary nonsense attributed to your opponent and denying obvious and common features of the world around us.
You treat my suggestion of private security as an anti-utopian nonsence that could never exist.
Do you have any idea the size of the private security industry in US? How many private guards are employed by companies and associations of companies? Ever visited a mall or a bank?
Do you know how many boduguards are employed out there? How many security agencies operate out there and how much money they make? What about the home alarms and monitoring compaies? What do you think those are if not private protection services? The armed people that transport money and valuables around in armored trucks? Even private investigative agencies are plentifull. Bounty-hunters, bail-jumper chasers, etc. What do you think former mayor Rudolph Juliani is doing now if not private security work? What about all those private guarded communities, patrolled communities and city blocks, etc...
And that all proliferation of private security is happening despite police state we live in.
You betray you idiocy in denying the existence and viability private security all around us as surely as if you denied the earth being round.
Also, you should work on your reading comprehension - you cannot judge my thoughts by separate words I am using without context around them.
I sited "communal" living as an example of a lifestyle I would not oppose exactly because communal living seems the most inane way of life to me. My use of this word - especially in a clearly negative sense - does not "betray"anything, at least to an intelligent person.
If my ideas on money and limited government are lunatical and irrational, at least I am in good company - that of Adam Smith, Francling Jefferson and even such socialist as Alehander Hamilton, to name just a few.
If everyone pushed only Marxist ideas like you do, it would be a dull world indeed.
miko
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So now I'm a marxist, thats funny as hell.... :)
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GRUNHERZ: So now I'm a marxist, thats funny as hell....
You wish...
I never said you were a Marxist - I have too much respect for them to label you such. They are smart and educated power-seeking scoundrels or misguided idealists.
You are too dumb and ignorant to be a Marxist with the capital 'M'.
You are just pushing marxist/collectivist views that you've got from hearsay or from your early education without subjecting them to critical consideration. And that is exactly what I said - about your views, not your party affiliation.
You can call yourself whatever you wish but your views and methods speak for themsleves. Having good education on the topic of Marxism I can recognise your use of those views and methods even if you do it unwittingly in your ignorance.
miko
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Wow miko, I guess grennspan is a marxist too - hes lowering interest rates yet again and making money chaeaper and therfore destroying the world....
But have your ways buddy I know youre in the period of being more catholic than the pope right now... :p
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i think miko learned about the way the world economys work at a freeper rally. okay miko name 1 totally free market economy. and explain to me why a stable economy is bad! ooo so evil!!! and then explain why an economy based totally on free market works so well(wait there are no modern countrys with such a thing.)
its great that you follow adam smith and the like, but i thought you were smart enough to realize that his theorys were revolutionary but that his theorys were not totally correct and to have a stable society one needs a stable economy. something that a total free market cannot provide.
i think you should read more about keynes as well.
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Originally posted by miko2d
The whole point of my argument that amount of dollars does not stay constant - the new ones are produced every day by the governmentt, reducing the purchasing power of the existing ones in people's posession - for which they exchanged labor and resources already!
The cash the bureau of engeraving and printing issues amounts to just a few percent of the M1. I can't remember the last time I was paid in cash. Probably when I mowed lawns in the neighborhood.
Credit cards, checks, billion dollar mergers are promises of cash at some nebulous future.
Once I take your promise of payment, I can exchange that for my promise of payment to someone else, and the economic life goes on. The amount of "cash" the Gov't prints is more of a convenience measure. Control the M1 is done by freeing or constraining credit.
And presently Alan Greenspan is more worried about Deflation, not Inflation, so that means that M1 is possibly being reduced.
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if deflation hits noone is quite sure what the hell will happen. only other time in modern history that this happened was in the 1930s. one of the reasons alan greenspans job exsists is to keep it from happening. his goal is to keep inflation at around 3 percent.
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Fr0gM4n wrote:
...and to have a stable society one needs a stable economy. something that a total free market cannot provide.
I'm quite ignorant in economic matters. A free market, according to libertarian theories, would be self regulating. There are many examples of government regulations resulting in economic disasters. Would ya care to educate me about why a free market cannot give us a stable economy?
The current system we're using sure as hell ain't giving us a stable economy. Two years ago while I was still studying comp. sci., they ripped people out from 4th semester to get people to work for them. Today, I've finished with top grades, 2nd in my year, and I still haven't got a job.
So much for stability.