[2dogs]

http://www.sierratimes.com/03/01/31/dorothy.htm

The Truth We Can't Face
America As A Third Rate Nation
By Dorothy Anne Seese
Published 01. 30. 03 at 21:04 Sierra Time

It's taken for granted. We're America, the United States of America, the world's only superpower, and we are the leaders of the free world. We are US. Flags fly, cars sport decals and bumper stickers. People wear lapel pins with our flag and perhaps a slogan. At important events, even the President can speak about God and prayer with impunity. The world is supposed to fear us, obey us, and allow us to lead, our military might is second to none. Our citizens are the world's free people.
Now, can we get down to reality? The show is over, the stage is dark and the curtain is down. We have to go back outside and face the day, or the night.

No nation with a sinking economy and continuing depletion of resources is a free nation. It is a dependent nation.

No country where the unemployment is rising, costs and prices are rising, and businesses are moving to other countries can long call itself a free nation. It is an interdependent nation at best.

No people who look to the government to solve their problems from cradle to grave can look in the mirror and call themselves a free people. At best they are dependents, at worst they are serfs.

Any country that abandons its hard precious metal standards (gold and silver) as the United States did in 1934 and 1973, respectively, and operates on funny money cannot sustain either a free economy or a free country.

Uneducated people who cannot think, regardless of the number of diplomas or degrees they obtain, can never be free. They can't handle freedom.

A nation that must monitor every move of every citizen, using technology to keep people in captivity or fear of captivity, is not a nation of free people. Worse, when the people willingly surrender what basic freedoms they have in exchange for an IOU marked "security" they aren't even thinking like free people -- even if they are or were up to the signing of the exchange.

Representatives of the people who willingly obey a mandate to approve bills drafted by the executive branch of government, abdicating their responsibility to be the legislators, are not free, and they do not represent a free people. Free people do not retain such false representatives, and free people do not allow the leader of one branch of government to dominate all others. That is espousing, condoning and upholding tyranny.

A managed media does not represent a free people and free people do not tolerate a managed media. One of our basic First Amendment rights is to a free press.

Free people never let any government official rise to the level of total control, because free people insist that the government work for them, not enslave them.

And free people know the difference between the appearance of freedom, and true freedom.

Is America a nation of free people by these standards? No.

Is America a prosperous nation when it has corporations moving to every nation on earth to make goods at lower prices so that their American consumers don't have their former jobs to purchase the products? Yet Microsoft, the last "American Dream" company of a kid who worked on electronics becoming the richest man in America, is moving piece by piece to India, where labor is cheaper and in many cases the people have a better work ethic.

No matter what familiar name brand you choose to buy -- from General Electric to Fruit of the Loom -- the goods are not made in America any longer. A few items may be made here, but look at the labels on the boxes (the kind of boxes that had to be re-labeled for a presidential appearance) because they read "Made in China."

In the midst of the longest running recession in America's 227-year history, we're in an economic state that the government calls "slow recovery" and the Federal Reserve calls "soft spots." Those are nice words, but in reality, America is broke. Its people are feeling the pinch, living off the capital built up in days when things were brighter and better. Perhaps the last great rainbow to shine on America's economy was the dotcom explosion that left so many disenchanted investors and bankrupt capitalists and entrepreneurs in a heap of rubbish at the bottom of the rainbow. There was no gold there and in some cases there have been and will be prison bars.

Our march away from the Constitution, the Bill of Rights and the founders' dreams is strewn with promises by government for more of everything for everyone. It can't be done. Other nations have tried it and failed. Once great colonial powers are now insignificant countries like the Netherlands, Spain and Portugal. And yes, the sun does set on the British Empire.

China and India are claiming a large share of the technology business. Other countries are making textiles, shoes and appliances. We who live in the USA cannot afford to buy our own products. What does that tell you about the United States? We've outpriced our ability to afford ourselves. And we didn't see it coming.

Most of what we produce in the US is either housing, automobiles, a few durable goods such as washers and dryers, but the big businesses here are service organizations. And we have the smaller businesses such as air conditioning and automotive repair.

No nation can continue to exist when it does not produce for domestic consumption and exports. The US is still a major exporter of foodstuffs. For how long, who knows? We can now buy grapes in January because they come from Chile. And we buy them. Our trade deficit grows like those grapes.

For all who expect great tax cuts, cheaper prices at the marketplaces, assistance with medical costs, government protection from boogie-men and terrorists without losing our Fourth Amendment right to privacy, let me say you cannot handle the truth. The truth is that we're in bad times, surveillance is everywhere, the Bill of Rights is used by liberal judges to take freedom from some and give to others, and our elected Congressional delegations of Representatives and Senators are looking for votes, not for the best interests of either the nation or the people.

Congress is even willing to delegate its power ... its sole power ... to declare war, and give it to the office of the president.

The lawmakers on Capitol Hill are busy protecting you from using your land to the detriment of plants and animals, worms and fishes when people need jobs. So we import our lumber and other goods, increasing our trade deficit.

And if it is true that in 1967, then-president Lyndon B. Johnson emptied Fort Knox of our gold reserves, then all that needs to happen is for the European Union and its bankers to return to a gold standard and America will be left with a mint full of funny money equal to conch shells on the world trade market.

An old song said "everybody wants to rule the world." That isn't quite the whole truth. Some want to own it, and those who do are well on their way to achieving that end.

That's the truth we cannot face, particularly when we're sending our youths off to fight a war against "evil" when even The Shadow knew that evil lurks in the hearts of men.

When we as a public can face these truths and make our government own up to them, we just might find a way back out of the mire and the muck, the morass and the manure. Otherwise, we can still say we're free because we know how to change channels on the remote.

No person can be free when they cannot handle the truth, nor can lies ever be exposed and deficits corrected until we know the truth. If we cannot handle the truth, we cannot handle freedom.




© 2002 SierraTimes.com (unless otherwise noted)

[JOE]

WORTH THINKING ABOUT!!!!!

[Viking6]

Some telling points about erosion of freedom. But, if we're a third rate nation, who are the first and second rate ones?

[Don Gwinn]

We are not a third-rate nation. With all our problems, we are still a better place to live than just about anywhere else on the globe. If you doubt me, go try a few places out.

However, we could become a third-rate nation without much trouble. France once shook the world, too. Our military might and influence with the rest of the world will only carry us so far for so long.

[Chris Rhines]

There aren't any. All the big nation-states are third-rate, in their own way.

Some annoying right-wing socialism and pro-government, pro-empire cheerleading, but quite a few good points. Not a bad article for Sierra Times.

- Chris

[MrAcheson]

Yup the US is the worst nation in the world, except for all the other ones.

[M67]

Comment from a foreigner.

I am not the only European friend of your country who finds it incredible that your new terror-panic-legislation could happen in a country that once had citizens like Jefferson, Madison and Franklin. Whether it makes you a third rate nation is debatable, but I do think it's time to backtrack, unless you want to end on a very slippery slope.

I don't know if my own country qualifies as first rate either, but I do know that I can't be arrested without having my case heard in court or imprisoned indefinitely, based on nothing but the word of some faceless, unaccountable bureaucrat. The really scary part is that if it could happen to you...

Please take this as a comment from a (slightly disappointed) friend, it's not an attempt to start one of those US vs Europe things like we had back on TFL :)

[4v50 Gary]

We're a first rate nation with a third rate media and a fourth rate body of elected officials. Sadly, the spirit of patriotism that made us great in the '40s has given way to avarice and advancement of egos. Freedom of speech and tought has given way to to PC.

[JohnBT]

Yeah right. What an idiot.

I don't see a line of people waiting to leave this country.

I do see a line of people waiting to get in.

Who do I believe, people voting with their feet or a writer I don't know with some bone to pick?

John...we survived the War Between the States, the Great Depression, the Great War and the Great War Part II. Stick around and watch us grow and prosper.

[Oleg Volk]

Imperfect Beloved.

From USSR to America, a boy had gained Paradise
He looked around, breathless, and what he saw he liked
Clean air, safe streets, friendly people, opportunities abundant
And twenty four hours every day to enjoy the heaven he found

A year passed, and another, and not all he learned was well
He looked closer and saw problems marring the promised land
Laws which restricted freedoms, unreasonable and harsh
And alpahbet soup agencies, full of jackbooted thugs

The kid looked around with worry, tuned in disturbing news
Bought a rifle, a case of ammo, then went to shop for a clue
He looked through books and newspapers, read a little on-line
Asked bearded old-timers about the sources of trouble

Getting something for nothing, he found, was one such troubling thing
For the people who live off others ask the state to do their stealing
Others, righteous and moral, who knew what was good for others
Tried to enforce that goodness at the muzzles of government guns

Disturbed to no small measure, the kid looked back in time
And found that at no point, was America better than now
His research scared him further, except for another thought
Despite America's troubles, it improved on the rest of the world

Last ditch, last rallying point for those who wish to be free
To live by effort and labor, and not by robbing and stealing
Tenth-generation locals, and immigrants fresh off the planes
Hanging together with rifles in hand, just as advised by Jefferson

That kid grew up long ago, and hope is still in his heart
He learned that he had resources and many friends by his side
People who'd work for freedom, not minding the effort
And those who'd pull triggers, should peaceful attempts fail

His first task was to live and prosper, to marry and raise some kids
To make sure their future was free of oppressive regimes
That children live their lives free to pursue happiness
Instead of being pursued by controlling political rats

And at the end of a life, what advice would he share?
Guard jealously your America, the concept more than the place
Be kind to those around you, live and let live in peace
And as Atlants once carried the world, carry on our dreams.

[Oleg Volk]

Sadly, the spirit of patriotism that made us great in the '40s has given way to avarice and advancement of egos.

On the down side, some of the patriotism of the past was mis-applied. It provided carrier enhancement to politicians who used people's love of the USA for their own, not always honorable, goals. Greater scepticism of the government is a healthy development, and it doesn't mean that the love of this country is abating.

[lostdog]

Despite all our problems...this is still america and nothing more needs to be said

[Kaylee]

Feh... we're certainly feeling the pinch and standing on the precipice.... but we ain't a third rate nation yet.

The tide is turned not by crying doom from the walls, but by stepping up and taking action. Start a Company. Voluteer. Get a teaching license and start teaching the next generation real history...the how doesn't matter. The spirit does.

Be an example of a Real American, rather than going from a self-absorbed cycle of work to TV/Net to sleep to work again. Thus the Republic is reborn.

Pardon... I'm off to take my own advice. :)

-K


And as far as the Evil Grasping European Bankers going back to the gold standard without us..... *heh* Not bloody likely. The European nations couldn't handle solid money anymore... they'd implode in a month. :p

[longeyes]

Good reality-check. Maybe, if widely circulated enough, it might drag a few more people away from "The Bachelor" or "When Animals Attack." One thing is clear, at least to me, we all need to stop being complacent and passive and get politically engaged. Yes, we have a great country still, but we are also facing great challenges that put our future in doubt. I'm ready to drag my carcass to the streets to support the causes I believe in and I've never been a "joiner."

[PATH]

Even with all the problems this is the greatest nation on earth.

I wuld not live anywhere else rent free!

GOD BLESS AMERICA!!!

[Soap]

I'm going to have to call bull on some of her economic points:

No nation with a sinking economy and continuing depletion of resources is a free nation.

Sinking!? Is this lady on crack? Our economy is in a downturn based on a lack of trust and integrity. This type of downturn routinely happens about thrice per century. This trust issue combined with the threats of war are pushing our economy downward. Once the war issues are settled, expect our economy to recover and then some. Besides, our "sinking economy" is still good enough that nearly every country in the world would sell their first born just to equal ours.

No country where the unemployment is rising, costs and prices are rising, and businesses are moving to other countries can long call itself a free nation.

Unemployment is rising...whoop de doo. Compare our rate of unemployment now with the rate in the 70's.

No matter what familiar name brand you choose to buy -- from General Electric to Fruit of the Loom -- the goods are not made in America any longer. A few items may be made here, but look at the labels on the boxes (the kind of boxes that had to be re-labeled for a presidential appearance) because they read "Made in China."

So is this woman an isolationist or a free market capitalist? Interdependence leads to peace, simple. Besides, does any one here want to work putting boxes of lightbulbs on a shelf for $1/hour? I don't.

In the midst of the longest running recession in America's 227-year history, we're in an economic state that the government calls "slow recovery" and the Federal Reserve calls "soft spots." Those are nice words, but in reality, America is broke. Its people are feeling the pinch, living off the capital built up in days when things were brighter and better. Perhaps the last great rainbow to shine on America's economy was the dotcom explosion that left so many disenchanted investors and bankrupt capitalists and entrepreneurs in a heap of rubbish at the bottom of the rainbow. There was no gold there and in some cases there have been and will be prison bars.

This is so bad that I can smell it on my monitor. America is FAR from broke. We're in a "soft spot", the .gov actually got it right. The companies have cut costs drastically in the past few years. This means that once the trust issue and the war issue is resolved, the companies' financials will be so strong they will be willing to hire again.

China and India are claiming a large share of the technology business. Other countries are making textiles, shoes and appliances. We who live in the USA cannot afford to buy our own products. What does that tell you about the United States? We've outpriced our ability to afford ourselves. And we didn't see it coming.

Overpriced ourselves? So she would rather have us buying American made electronics/textiles/etc. at well over the current market price? Yeah, that will REALLY help America...




I can completely get behind her about how important the return to respect for Constitutional ideals is. But most of her other stuff is insubstantial.

[Jmurman]

definately thought provoking.

[romulus]

"There is no greater treason than to be right, for the wrong reason"

Curious how judicial supremacy is never mentioned. America risks becoming a third-rate nation thanks to the growing power of a first-rate oligarchy, our judges, who have made themselves de facto legislators rather than adjudicators of cases brought before them.

[Sean Smith]

No nation with a sinking economy and continuing depletion of resources is a free nation. It is a dependent nation.

Except that our economy isn't shrinking at all. And everyone's natural resources are being depleted, because they are all finite.

No country where the unemployment is rising, costs and prices are rising, and businesses are moving to other countries can long call itself a free nation. It is an interdependent nation at best.

No offense to the unemployed (which I have been myself), but 6% unemployment is a joke. Most countries have double that in a good year. And "interdependence" will always exist wherever there is trade. Do we abolish global trade? Total self-sufficiency has only been the aim of the craziest, tyrannical nations of history: the Nazis, the Imperial Japanese, the Soviet Union, and so on.

Any country that abandons its hard precious metal standards (gold and silver) as the United States did in 1934 and 1973, respectively, and operates on funny money cannot sustain either a free economy or a free country.

Total B.S., folks. How is the gold standard less tyrannical than any other money standard based on arbitrarily fluctuating "values"? People who worship the gold standard are worshiping a ROCK.
A managed media does not represent a free people and free people do not tolerate a managed media. One of our basic First Amendment rights is to a free press.

Our media is anything but "managed." "Chaotic" or "stupid" are better adjectives.

Is America a prosperous nation when it has corporations moving to every nation on earth to make goods at lower prices so that their American consumers don't have their former jobs to purchase the products?

Pure nonsense. Compare our GDP to any other country's for details.

In the midst of the longest running recession in America's 227-year history...

Outright lie.

China and India are claiming a large share of the technology business. Other countries are making textiles, shoes and appliances. We who live in the USA cannot afford to buy our own products. What does that tell you about the United States? We've outpriced our ability to afford ourselves. And we didn't see it coming.

LOL! When the Chinese and Indians can afford lunch I'll fear their economic prowess. :rolleyes:

And if it is true that in 1967, then-president Lyndon B. Johnson emptied Fort Knox of our gold reserves, then all that needs to happen is for the European Union and its bankers to return to a gold standard and America will be left with a mint full of funny money equal to conch shells on the world trade market.

That's just pure comedy.

No person can be free when they cannot handle the truth, nor can lies ever be exposed and deficits corrected until we know the truth. If we cannot handle the truth, we cannot handle freedom.

By that standard, the author cannot "handle freedom," since this article is stuffed with lies, distortions and sheer idiocy. :rolleyes:

[Pendragon]

These "We are losing all the jobs to the foreigners!" types drive me absolutely crazy.

Yes, most of our goods are no longer made here - they are made over seas.

You know what? THATS A VERY GOOD THING!

Have you priced VCRs and TVs lately? Even people below the poverty line here generally have a nice color TV. The fact is - when we export the manufacture of a good to another country, it lowers the cost of producing that product and we are ENRICHED by the lowered price of that product.

A 27" Color TV was like $500-$700 when I was a kid - now they are under $200. If you bought a TV, you were essentially enriched by several hundred dollars due to cost reductions.

Look at the job market - I work in the tech field and what I see is pretty chilling - jobs we used to think were impossible to move out of the country are now moving because the cost is 40% of what it is here.

What these people (like the author of this article) do not seem to understand is that in economics, if a cost reduction is possible, it becomes necessary. You cannot just refuse to reduce your costs to keep people in jobs because you will go out of business. Cries of "BUY AMERICAN!" do not ring true. We should say "buy the best product or the one with the best value".

If Americans want to stay on top of the income curve, they are going to have to become smarter and more innovative. We cannot just expect everything to remain static - otherwise we will get left behind - as individuals and as a nation.

The good news is - as more jobs move to countries like India, their standard of living begins to escalate. This creates more markets for our products and when you can sell more widgets, you can reduce the cost per widget and perhaps, over time, moving operations off shore will become less profitable.

When an American is relieved of their job due to global job market conditions or modernization, that is exra human capital available to work at a higher level if the person is able. We should be working to push the envelope in service and innovation in this country and build our wealth on things that other nations are not as good at.

Thats my 1/50th of a dollar.

[wingman]

"Yes, most of our goods are no longer made here - they are made over seas.
You know what? THATS A VERY GOOD THING!"



Just wonderful.:fire:

[CZ-75]

"Yes, most of our goods are no longer made here - they are made over seas.


What about the Japanese and Korean and German companies setting up plants stateside?

I realize that little widgets and whatnot are being farmed out to places with cheap labor, but cars are complex and big ticket items.

It would be safer to say that the least skilled jobs are going overseas, which may be a good thing, unless you have no skills.

If you can acquire better skills, then I agree that you'll do fine, but there is a question about the unskilled actually acquiring better skills.

Seems that we are going to end up subsidizing these folks somehow, either through inflated prices on goods to pay their salaries, or, worse, govt. assistance.

Not sure that this outcome is a "good" thing.

[Master Blaster]

WE SHOULD STILL BE ON THE GOLD STANDARD??????

I think the writer needs a lesson in economics.


Maybe we should replace paper money with bartering as well.
Anybody got room intheir wallet for beaverpelts, glass beads, and chicken carcasses?????


:uhoh:

[Soap]

Just wonderful.:fire:

If you want to buy American only, go for it. I should warn you though: even if it is remotely possible, you will go completely broke.

As for myself, I think I'll keep my Mercedes-Benz, Taiwanese computer, and Japanese flatscreen.

[jmbg29]

Imperfect Beloved.Amen Oleg! http://www.sashas-world.com/design/images/usa/statue-of-liberty.jpg

[Bahadur]

WE SHOULD STILL BE ON THE GOLD STANDARD??????

I think the writer needs a lesson in economics.

Maybe we should replace paper money with bartering as well. :) Great reposte! Actually the Roman Empire tried (more like, was forced into) barter economics, and the consequence was dramatically... negative.
No nation with a sinking economy and continuing depletion of resources is a free nation. It is a dependent nation."Sinking economy"? Does the author realize that the US has the MOST diverse, complex and healthy economy in the world? If the US is "third-word," what's Mexico (fifth-world?)? What about places like Sri Lanka and Indonesia (umpteenth-world)?
No country where the unemployment is rising, costs and prices are rising, and businesses are moving to other countries can long call itself a free nation. It is an interdependent nation at best.Huh? Costs and prices are generally DECLINING, not rising. Businesses may be moving more "primitive" elements to other countries, but the higher-tech, more-value added elements are being concentrated in the US. Recall that the US RECEIVES a HUGE amount of investment from overseas, which is a ringing endorsement of our stability and soundness.
Any country that abandons its hard precious metal standards (gold and silver) as the United States did in 1934 and 1973, respectively, and operates on funny money cannot sustain either a free economy or a free country.See the great riposte from another poster above.

The document is a curious and inconsistent mixture of anti-statist, protectionist and a smattering of other ideas, presented in hysterics.

[Chris Rhines]

Hm. Someone having had a lesson in economics would understand the manifest advantages of a hard-currency financial system, as well as the disadvantages of the centralized, fiat-money, fractional-reserve system that we suffer under today.

The article contained many flaws, but it's advocacy of hard money was not one of them.

- Chris

[jrhines]

Why did I see that coming?.... ;-)

[Kaylee]

At the risk of thread veer, I'm gonna have to come down with Chris on this one. A commodity standard has its problems certainly, but I tend to think they're small compared to those inherent in a fiat currency, whatever the safeguards the current system has.

I mean really... in order to hold value over time, any medium of exchange must be based in scarcity. Who do you trust most to maintain that scarcity -- government agencies, private banks, or God? :p

That said, after the initial crash, we've held pretty stable. So far, so good. :)


-K

[Bahadur]

Except gold ain't so "scarce" any longer. Though its price has risen a bit in the short-term in the last couple of years, its "intrinsic" worth is declining quickly as metallurgical haibts change.

Many national and private banks world-wide are unloading gold, albeit at a controlled pace, so as not to cause a negative price shock.

If you are in doubt, look at what happened to silver, which used to be "precious" and fairly high-priced. No longer...

What do you suggest we base "hard currency" on, diamond?

[Chris Rhines]

Except gold ain't so "scarce" any longer. What, there's been a new source of gold discovered that nobody knew about before?

Though its price has risen a bit in the short-term in the last couple of years, its "intrinsic" worth is declining quickly as metallurgical haibts change. This is untrue, and reveals a problematic misunderstanding of market economics. Gold has no "intrinsic" value; neither does anything else. The value of any commidity is what the buyer and seller agree that it is worth. The nice thing about gold is that this value has tracked inflation and consumer goods prices literally since prehistory (a few dips and spikes aside.) Today, you could cash an ounce of gold for around $370USD, go to the store, and buy a nice suit and shoes. Back in ancient Rome, you could take an ounce of gold in coin to the Forum and buy a nice toga and sandals of similar quality level. At just about any point in history, X amount of gold would buy the same amount of consumer goods. Very few other commidities have that kind of price stability.

Though its price has risen a bit in the short-term in the last couple of years, its "intrinsic" worth is declining quickly as metallurgical haibts change. I suggest (like with everything else) that we let the market decide. Abolish the central bank and allow any private bank or other interested party to mint their own currency, backed by whatever commidity they desire. Market pressure will cause the weak curriencies to go under. Myself, I suspect that gold will end up on top, for a couple reasons.

- Gold is still a highly accepted medium of exchange. Familarity is important.

- The worldwide supply of gold is as close to fixed as it is possible to get. The amount of gold mined and refined annually is a very small fraction of the worldwide supply.

But I could be wrong. Maybe silver, or oil, or uranium, or something else entirely will become the accepted currency backing. Who's to say?

- Chris

[Sean Smith]

You've really done very little to prove that the gold standard would have any practical advantage over the current system. In the last, say, 20 years, the value of gold has fluctuated at least as much as our silly fiat money.

http://www.kitco.com/LFgif/au968-999.gif

If you use grand averages, or connect the two end points of, say, 1968 and 2000, sure, gold looks stable. Look month-over-month (let alone day-over-day) and you see that its alleged "stability" has proven a chimera.

The long view of stability is nice (Romans liked gold, too! Wow! :) ), but you have to buy lunch TODAY.

[Chris Rhines]

Sean, first of all you managed to pick the twenty-year period containing some of the largest fluctuations in the gold price in history. Second, the month-to-month view is not nearly as important as the long-term view, just like investing in the stock market. Third, your data is from a period well after the U.S. went off the gold standard. Check out the price of gold prior to 1933, when we were on the gold standard. Then tell me gold is not a stable commodity.

The primary advantage of a hard-money currency is that it prevents the central government or central bank from manipulating the money supply. This strips the government of a great deal of its social and economic engineering power. A worthy goal.

- Chris

[JohnBT]

I don't think a lot of the youngsters out there understand that there really hasn't been a "crash", just a return to the normal economic reality that existed prior to the mindless economic 'bubble' that was the 1990s. A similar thing happened prior to the Great Depression - folks bid stocks up to silly heights. Do a search on the Dutch tulip foolishness of whatever century it was for another example of economic stupidity.

Speaking of a bad economy, when I bought my home in 1980 I had a 30-year mortgage at 12.75%. I felt pretty good about it because the rates were headed to about 19%. A few years after that I refinanced at 9%, then again later at 7% and finally paid it off a few years ago when the balance got too low to provide a deduction. Cycles come and go.

With apologies to Jerry Jeff Walker...

I'd rather be a fencepost in America, than the King of anywhere else.

John

[Tamara]

Lemme guess; the similarity in the last names ain't just a coincidence? ;)

[Kaylee]

pardon John, when I said "crash" I was referring to the collapse of the dollar's value after it was unpegged from gold in the 70's, not this current market silliness.

And yes... the time period from 1972-present or so is hardly the time period to use to measure the stability of a just de-monetized commodity. IF gold continues to exist as a simple commodity, no more, and its use a store of value is utterly forgotten -- then you'll be able to draw meaningful conclusions from its market swings in the next fifty years or so.

Again.. I'm not saying it's perfect, I don't think the state-mandated "standard" was anything approaching perfect (I'd much sooner see values in ounces and grams, not dollars and pounds), and I'm certainly not one of the "it'll go through the roof any day now" ghost-dancing gold bugs... but as a long term, stable store of value... nothing beats a hard currency. And gold works as well as any there.

(And roman coins were typically the bronze as and the silver denarius (ten as) ... but they liked gold to. :) )

And finally....


The primary advantage of a hard-money currency is that it prevents the central government or central bank from manipulating the money supply. This strips the government of a great deal of its social and economic engineering power. A worthy goal.


Amen. I don't believe the Great Society plus VietNam would have even been possible without going off the gold standard (such as it was at the time)... the cost would have laid the treasury bare.... but we got out of that by letting the dollar's value collapse to the point those debts we incurred were relatively smaller.

As a side note, there has been precisely ONE leader of a western nation in the last couple hundred years I can find that actually kept his nation on a metallic standard during times of aggresive warmaking. Anyone care to take a guess who it was?

-K

[Sean Smith]

Sean, first of all you managed to pick the twenty-year period containing some of the largest fluctuations in the gold price in history.

Which demonstrates that premises that might have made sense 1,000 years ago might not make sense now.

Second, the month-to-month view is not nearly as important as the long-term view, just like investing in the stock market.

Tell that to somebody whose gold, or stocks, are worth 1/2 what they were the year before.

Your whole concept of the gold standard causing currency stability is counter-factual. From 1991-2001, the highest annual inflation rate was just over 4%.

Year Inflation Rate
1991 4.22
1992 3.01
1993 2.98
1994 2.60
1995 2.76
1996 2.96
1997 2.35
1998 1.51
1999 2.21
2000 3.38
2001 2.86

From 1920 to 1930, during those lovely gold standard years of currency stability, it was anywyere from almost +16% to almost NEGATIVE 11%!

Year Inflation Rate
1920 15.94
1921 -10.83
1922 -6.54
1923 2.00
1924 0.00
1925 2.94
1926 0.48
1927 -1.42
1928 -1.44
1929 0.00
1930 -2.44

I think you need a new definition of "stability." :neener:

[Chipper]

Chris Rhines and Kaylee are correct. The daily batting averages of gold ARE related to inflation amongst other things. We have inflation in the US simply because our "money" is 100% fiat. It has NO intrinsic value. It is printed at will. It's creation is literally an act of ledgerdemain.

Inflation under a fiat system is NOT a function of any real or perceived increase in value. Quite the opposite. Inflation is solely a function of running the printing press. As more "dollars" are printed, it lessens the value of those already in existence. With dollars being worth less than last year, last month or yesterday, it takes more of them to purchase the same amount of goods.

In truth, prices are very equivalent with what they were in 1910. In fact the actual price of many goods have fallen. This is not due to tinkering with money and taxation and regulations and all the other ways in which governments impose their will on economies. This has been a function of greater scales of production, new technologies which yield greater efficiencies and other things that have actually reduced the cost of producing certain goods.

Gold today is actually a reflection of the true value of a dollar. Gold is rising today because the value of the dollar is falling. In world markets, the Euro which was introduced at a value level equivalent to the dollar, dropped in value as it was circulated throughout Europe. As it replaced the many currencies it became stabilized and remained at a value just under the dollar. Today that situation has changed. The Euro is now more valuable than the dollar. This is just one more indicator that the value of the dollar has fallen.

All fiat money is a confidence game. There is NO intrinsic value in fiat money. It's value is based on what the central bank declares it to be. Markets respond with confidence at some level in that valuation of the central bank.

The upshot of all of this is that ultimately the system will fail. It simply a con game. There exists under a fiat system NO solid basis of valuation. As the veil is pulled back people eventually see that they have been deceived and made victims of theft. There is much truth to the claim that the rich keep getting richer and the poor keep getting poorer. The "middle class" is shrinking in size as well. This is due mostly to them falling in income and wealth levels. They keep working harder and longer and continue to fall behind. They may get more dollars in their paycheck or in interest and dividends but with the dollars being worth less today than they were yesterday they continue to fall behind and that, through no fault of their own.

A return to "hard money" may or may not be the best answer but it is definitely a step in the right direction.

As to fiat money being a tool and benefit to governments, the central banks and other people of means, that subject will require another thread or better yet an entire book, multi-volume of course.

Chipper

[Kaylee]

Chipper... thankfully, the current fiat system isn't as simple as ol' "roll the presses" Weimar Germany. The presses could be running full steam printing out Franklins by the truckload.... but it's not "real" money until it leaves the bank as "registered" cash. There's more steps in there than are really worth going over here, but suffice it to say -- there's a lot of human effort put into regulating the money supply on a lot of different levels to prevent runaway inflation again. (In fact, the ECB has it as a primary constitutional goal to regulate inflation, as does the Fed since Greenspan I believe).

BUT... it's all human regulated.

And that, Sean, is what we're complaining about. Human regulators are fallible. Human regulators can change with the regime. Human regulators can be pressured to do the bidding of the State, and States are very rarely blessed with more economic sense than your average two year old.

So far so good, yes.... we got less than 40 years of a total worldwide fiat system under our belt, compared with several thousand years of one form or another of metallic currency. The only major shakeups in the latter come from huge discoveries of metal deposits... heck, the only inflation in the metallic era that even comes CLOSE to Weimar was 16th century Spain, when they started shipping in half a continent's worth of pre-hoarded gold.

Yes, a backed currency is a messier month-to-month system. Granted. But as a general rule of life, in any issue you care to name:

Freedom is Messy.
It's also the Surest option long-term.

People will shoot each other... but it's still a safer society than one where the State has all the guns and can exterminate whole populations.

People will be swindled in the stock market.... but it beats the inefficiencies of State controlled industry by a mile.

And so, in this arena.... prices will flucutate short term as population and metal supplies are uncovered or hoarded. But for long term price stability.... it beats State controlled currency.

There simply is not the risk of over "printing" or lack of faith in the currency. It is politically independent money. Gold coins carry value no matter who's face is on 'em. Try buying a hamburger with USSR banknotes. Then try it with a Czarist gold piece. Tell me the difference.

:neener: back. :p


-K

[Vladimir Berkov]

Chris Rhines and Kaylee are correct. The daily batting averages of gold ARE related to inflation amongst other things. We have inflation in the US simply because our "money" is 100% fiat. It has NO intrinsic value. It is printed at will. It's creation is literally an act of ledgerdemain.

We have always had inflation in the US, long before we went off the gold standard. Also, you seem to forget that the gold standard too had no intrinsic value. The very concept of money is something which has little value outside its usefulness as a medium of exchange. What value does gold have beyond its industrial and commercial uses? Only its scarcity gives it the high value it has.


Inflation under a fiat system is NOT a function of any real or perceived increase in value. Quite the opposite. Inflation is solely a function of running the printing press. As more "dollars" are printed, it lessens the value of those already in existence. With dollars being worth less than last year, last month or yesterday, it takes more of them to purchase the same amount of goods.

Inflation is not really caused by the printing of money per ce. Inflation necessitates the printing of money, if no measures can be taken to curb it.

In truth, prices are very equivalent with what they were in 1910. In fact the actual price of many goods have fallen. This is not due to tinkering with money and taxation and regulations and all the other ways in which governments impose their will on economies. This has been a function of greater scales of production, new technologies which yield greater efficiencies and other things that have actually reduced the cost of producing certain goods.

What do you mean by "prices?"


All fiat money is a confidence game. There is NO intrinsic value in fiat money. It's value is based on what the central bank declares it to be. Markets respond with confidence at some level in that valuation of the central bank.

You are forgetting that the very concept of the gold standard was so the central banks of the major powers could set the price of gold in relation to currency. It was entirely an arbitrary system, and a "confidence game" as you put it. You had to count on all the major powers playing by the rules, which in the end they did not.


The upshot of all of this is that ultimately the system will fail. It simply a con game. There exists under a fiat system NO solid basis of valuation.

Are you forgetting that the gold standard failed?

A return to "hard money" may or may not be the best answer but it is definitely a step in the right direction.

How do you plan to impliment this? The classical gold standard was the result of agreement between the major powers regarding its operation. America simply cannot go back to the gold standard without all its major trading partners going back to it as well. And we have far more trading partners now than we did during the classical gold standard period, all of which have no intention whatsoever of going to a gold standard.


As to fiat money being a tool and benefit to governments, the central banks and other people of means, that subject will require another thread or better yet an entire book, multi-volume of course.

I guess you forget (or never knew) that the gold standard itself was created by the major governments and needed to be implimented through the central banks. In fact, a gold standard can't be used otherwise. The only difference between the gold standard and the current monetary system is that they are both set up by governments but with different purposes.

[Vladimir Berkov]

And so, in this arena.... prices will flucutate as population and metal supplies are uncovered or hoarded. But for long term price stability.... it beats state controlled currency.

As Keynes said, "In the long term we are all dead."

The gold standard worked very well at controlling inflation and providing long-term price stability. But, as with anything in economics, there are trade-offs.

You had far greater short-term variability, and not just at isolated times when the gold supply changed (although that also led to great variability.)

You also had higher employment during the classical gold standard period than currently.

Finally, there is an immense cost involved in maintaining a gold standard system. Milton Friedman estimated the cost in 1960 to be more than 2.5% of GNP.

In short, the gold standard is simply impossible to recreate. A great deal of the essential conditions for its use disappeared with the Great War, and many of the byproducts are going to be politically unpopular. For example, the populists will say the gold system would increase your real wages. But of course, many more people would be making no wages as they would be unemployed.

[Byron Quick]

Looking at the fluctuating price in gold in terms of dollars is very misleading. In fact, a strong claim could be made that such a comparison is completely useless. Instead, compare the purchasing power of an ounce of gold across time. In those terms, gold has been remarkably stable. There are fluctuations, of course, but they are nowhere near as volatile as the price of gold in dollars.

[Vladimir Berkov]

When the classical gold standard was in use, it wouldn't matter. The amount of currency was fixed to equal an amount of gold. There was indeed much short term fluctuation, both in dollars/pounds/francs and of course the gold that they and the international trade was based on.

There is no perfect monetary system. Each system has atvantages and disatvantages. The atvantage of the gold standard is low inflation in the long run. The disatvantages are short term variability, higher unemployment, less flexibility during sharp spikes in the business cycle, etc. Not to mention the fact that it requires international cooperation and "playing fair."

Pretending that going back to the gold standard will allow us to have low inflation, great economic growth, and low unemployment is absurd.

The gold system (even if we could restore it, which we really can't) isn't free of problems, it just has different problems. The big decision is which drawbacks are more serious.

[Kaylee]

What value does gold have beyond its industrial and commercial uses? Only its scarcity gives it the high value it has.

Well yeah Vlad, that's kinda the idea. :)

Inflation is not really caused by the printing of money per ce. Inflation necessitates the printing of money, if no measures can be taken to curb it.

The inflationary cycle is fueled by the printing of money "necessitated" by self same inflation. Self-feeding cycle. The trigger event is another issue entirely, though I'd argue again that it's a much more likely, and more severe, problem on a fiat system.



You are forgetting that the very concept of the gold standard was so the central banks of the major powers could set the price of gold in relation to currency. It was entirely an arbitrary system...
(and similar, to wit..)

I guess you forget (or never knew) that the gold standard itself was created by the major governments and needed to be implimented through the central banks. In fact, a gold standard can't be used otherwise.



Here we run into semantic difficulty because "gold standard" has been used to describe different systems, sharing only the common element of being to some degree or another metal backed. I take it you refer specifically to the gold standard as it existed in the late 19th/early 20 century... in which case your arguments are correct, if deceptively incomplete.

A commodity/precious metal based currency existed LONG before central banks -- or banks at all -- were even conceived of. Neither central banks not even governments at all are required for an effective metallic currency to exist.. all that is required is a generally trusted guarantor of the weight and purity (and reserve backing, if some semblance of modern finance is to be preserved).

It doesn't matter if a coin says "1/4 oz .999 fine, QEII" or "1/4 oz, .999 fine, L. Spooner Bank Ltd.". So long as everyone believes the issuer, it doesn't matter whether a head of state, a central bank, or private minting company issued the metal.

I'll be the first to admit that States have abused metallic "standards" by debasement for millenia, always with the same results. Our own going off the gold standard completely in the 70's I would describe as a difference in degree, not in kind, from Imperial Rome or Midieval France introducing base metal coins with the same face value as the older silver and gold coins.

In truth, the weakness is not in the precious metal based currency -- it lies in the ability of the State to define its proprietary currency in terms of the metal. Hence, FDR's ordering citizens to turn in their gold at $16/oz, then revaluing gold some years later at $35/oz -- a boon to the treasury, a scam to the people. If the State reserves this power, then I will agree with you that any metallic standard is a meaningless shadowplay of itself.

This problem is alleviated not by removing metal-base from the currency denominations, but by removing currency denominations from the metal base. An ounce will always be an ounce. A gram will always be a gram. THERE is the stability.

[Kaylee]

Oh yeah...

The gold system (even if we could restore it, which we really can't) isn't free of problems, it just has different problems. The big decision is which drawbacks are more serious.

There I'll agree with you completely. (Well, except for the impossibility of restoring a hard currency.. that I'd not be surprised to see in another generation or so).

But to the "which drawbacks are more serious" point -- granted, enthusiastically. Futher, I'll admit that my arguments for hard currency are as philisophically based as they are pragmatic. Simply, I don't trust people in funny hats to keep the best interests of the people in mind, period. Not when it comes to the use of deadly force, and not when it comes to the currency of a people.

Thus, "free money for a free people." :D



(and by the way... it was Napoleon. ;) )

[Vladimir Berkov]

The reason why we can't really go back to the classical gold standard is because we won't be able to get all our major foreign trading partners to go along with it.

The classical gold standard only worked because for a time, our major trading partners generally played by the rules. And even then, nations like France cheated often. The system completely broke down in WW1 because of European nations openly disregarding the rules.

We could go back to a gold standard tomorrow, and it wouldn't do any good or even function properly unless we could get nations like China to also go on a gold standard. That just isn't going to happen.

[Kaylee]

Vlad --

Can I presume then that we've left the issue of whether the gold standard can be a workable, stable system as settled, and now we're only dealing with the issue of whether or not it can be implemented successfully again?


If so, the argument here is simple, again if one is willing to take a long term view. In fact, it's already happening, albeit WAY below the radar right now, and still in the realm of cranks, nutcases, and visionaries. (you can make up your own mind which of the three I am ;) :p)

http://www.e-gold.com/

They, or someone like them, will be responsible for the reintroduction of hard currency. I'm not saying it will be the universal "official" currency of nation-states... I AM saying it (or something like it) will be a tool of major transactions both domestic and international, a unit of account, and a store of reserves. I do believe it will be listed on the currency exhange boards right alongside the Dollar, the Euro, and the Tael in another 50-100 years... possibly much sooner. I would not be surprised at all to see it as the pre-emininent unit of global trade within the century, occupying the role the dollar holds now.

The why again is simple.

Really, I see it as a "build it and they will come" scenario. People put their reserves in whatever form they feel will best hold value while still providing adequate liquidity. Sometimes that's cash, sometimes land, sometimes metal, lately mostly (unfortunately to my mind) stocks. If the option is there, it WILL be used. Time and the marketplace will take it from there.

An electronically administered, privately run, 100% backed account gives you all of the advantages of a hard currency with few of the disadvantages (seignorage, governmental "revaluing," and the bulk and insecurity of storage and transport).

Yes, I'm aware of greater volatility and price swings with metals at present. I also believe that as more of the metal reenters the private sector from government storehouses, and political and trade winds shift from nation to nation over the next several decades, that volatility gap will narrow substansially.

Again.. it took the better part of a century for metallic standards to be corrupted to the point they were discontinued. They won't return overnight either. But they will, in some form, return.

Finally, I see one thing that more than anything else will serve as a turning point for some kind of hard currency. More than anything government can or will do...

when eBay starts accepting e-gold as a transaction currency, the ball will start rolling hard. It will be nigh on inevitable at that point... though again, the transition will be slow. With a possible spike in the 2016-2045 retirement crunch, depending on which way the winds blow when that happens.

Have a nice day. :)

-K

[Vladimir Berkov]

The gold standard can be a workable system, that is not in doubt. Whether that system can ever exist again is very much in doubt, if for the international reasons I stated if nothing else.

A gold system requires international cooperation and good faith. I don't see that happening.

Plus, it is probably not politically feasable because of the increase in unemployment.

Lastly, a gold system needs as much government regulation and intervention as a non-gold system. If you think gold is going to get rid of government involvement in financial matters, you are dead wrong.

[Kaylee]

The gold standard can be a workable system, that is not in doubt.
Thank you. :)

Whether that system can ever exist again is very much in doubt, if for the international reasons I stated if nothing else.
As it existed in the early 20th century, you're probably right... And our governments the world over have become addicted to making their own money. That doesn't mean hard currency will never or can never return -- I just gave the most likely route of its re-emergence.

Again -- hard currency does not necessarily mean nationally set gold standard.

Plus, it is probably not politically feasable because of the increase in unemployment.
You know, I've ignored this Keynsian buggaboo for a while, and I think it's time to address it.

The only way for a fiat system to increase employment is by creating resources that otherwise wouldn't exist... "printing" new money, basically.

Since no NEW resources are truly created here, the effect is merely to push the debt for cost of the employment down the line.

When done consciously through a business line of credit -- which makes unavailable for other uses the invested capital, therefore keeping the real money supply constant -- this is understandable and often desirable.

When done half-blind, via creating new "resources" out of thin air, it is a recipie for disaster, typically in the form of inflation.

As I recall, the Keynsian line said it was impossible for high inflation and high unemployment to exist at once.... until it happened in the 70's.

You've mentioned Keynes' line about "in the long run, we're all dead." Well that might be true... but eventually, the bill comes due. Again, as we saw in the 70's.

Either we pay it when we spend it, or we let our grandkids deal with the ensuing crash. I would hope the former would be seen as the only ethical option, but sadly the TANSTAAFL principle hasn't hit most folks yet.

Lastly, a gold system needs as much government regulation and intervention as a non-gold system. If you think gold is going to get rid of government involvement in financial matters, you are dead wrong.

Oh, governments will always try to involve themselves in financial matters, along with every other facet of private life.. that's part of their very nature.

BUT to say "a gold system needs as much government regulation and intervention as a non-gold system" is factually incorrect.

ALL that is required, as I have already stated, is a generally trusted guarantor of weight, purity, and reserves. IT DOESN'T MATTER if that guarantor is Emporer Napleon, the Federal Reserve, or My Dog Boo. All that matters is that it's generally trusted and verifiable.

As to whether money supply can never be wrested independent from a national bank... well, they said the same thing about nationalized industries. And in fact, our own National Bank was chartered and then pulled back down at least a couple times before the Fed came along. :p




A gold system requires international cooperation and good faith. I don't see that happening.

No, a gold system -- or ANY currency, backed or otherwise, requires only the mutual trust of its participants. If the owner of a Chinese restaurant wants to send 30 ounces back home to be used by members of the family, it only matters if they can find some means of spending that resource. Doesn't matter if China or the US "officially recognize" it or not... only that they not kill or jail folks for doing it.

And even then, making the use of a particular currency a punishable offense has hardly stopped it from being done... look at the use of US Dollars in the old USSR for instance.

fun debate!

-K

[Vladimir Berkov]

As it existed in the early 20th century, you're probably right... And our governments the world over have become addicted to making their own money. That doesn't mean hard currency will never or can never return -- I just gave the most likely route of its re-emergence.

I am talking about the period between the US Civil War and 1914. That is referred to as the "classical" gold period.


Again -- hard currency does not necessarily mean nationally set gold standard.

In practice, it does.


You know, I've ignored this Keynsian buggaboo for a while, and I think it's time to address it.

I am not talking about macroeconomic models, I am talking about hard facts. Unemployment was simply higher during the gold standard period, even when other economic factors are taken into account, than it is during the current post- 1946 period.

The only way for a fiat system to increase employment is by creating resources that otherwise wouldn't exist... "printing" new money, basically.

You are ignoring the other many tools which the government can use, focusing in on purely monetary policy is misleading.


As I recall, the Keynsian line said it was impossible for high inflation and high unemployment to exist at once.... until it happened in the 70's.

The Keynesian optimists were indeed proved wrong, in other ways prior to the 70's. However to dismiss Keynes out of hand is to dismiss most of modern macroeconomic theory, much of which has proven quite useful.


Oh, governments will always try to involve themselves in financial matters, along with every other facet of private life.. that's part of their very nature.

BUT to say "a gold system needs as much government regulation and intervention as a non-gold system" is factually incorrect.

No, it is factually correct. A gold standard requires government intervention, both in terms of the selling of government securities, adjustment in terms of foreign trade, and good faith of participating nations.

ALL that is required, as I have already stated, is a generally trusted guarantor of weight, purity, and reserves. IT DOESN'T MATTER if that guarantor is Emporer Napleon, the Federal Reserve, or My Dog Boo. All that matters is that it's generally trusted and verifiable.

And in the United States, the only entity which could fulfill such a requirement is....The United States Government.

As to whether money supply can never be wrested independent from a national bank... well, they said the same thing about nationalized industries. And in fact, our own National Bank was chartered and then pulled back down at least a couple times before the Fed came along.

A gold standard requires a national bank, or at the very least, a very close group of central banks to operate properly.


No, a gold system -- or ANY currency, backed or otherwise, requires only the mutual trust of its participants. If the owner of a Chinese restaurant wants to send 30 ounces back home to be used by members of the family, it only matters if they can find some means of spending that resource. Doesn't matter if China or the US "officially recognize" it or not... only that they not kill or jail folks for doing it.

I am talking about trade, not simple sending of currency. Without other trading partners also being on a gold standard, international trade simply cannot occur properly.

[mcole]

let me throw this into the mix. in the early 1900's, right after the russian revolution when lenin took control of russia, he made this statement: germany will militarize inself to death; england will terrotorialize itself to death and the united states will spend itself to death.
this isn't an exact quote, but pretty close. two of the three have happened. mcole

[Bahadur]

Vladimir Berkov:

No need to add anything else to what you already wrote!

Okay, maybe, except this...
What value does gold have beyond its industrial and commercial uses? Only its scarcity gives it the high value it has.Except, as I stated before, it is not nearly as scarce as it once was. Because of changing consumer habits and the emergence other, more suitable alloys, the commercial and industrial uses of gold have declined tremendously in the last decades.

In fact, if it were completely up to the "invisible hand," the price of gold would be even lower than it is today (a number of national banks are disposing of their stocks of gold - selling them - *slowly* in order to maintain its price level).

There was a cute little article about it on The Economist a while back ("Fingered," Sept. 13, 2001).

[Pendragon]

God love you people but you have all managed to mortally wound my interest in economics.

[jmbg29]

in the early 1900's, right after the russian revolution when lenin took control of russiaDid comrade Lenin mention whether or not all three predictions would come true before or after his commie revolution ended up in the turd-bowl of history? Just curious. :rolleyes: :rolleyes: :rolleyes:

[mcole]

not as far as i'm aware; nevertheless, even a blind squirrel finds a nut once in a while. i would interpret the "squirrelism" to mean that even that stupid bastard lenin could have a precient insight.
it still took the u.s. 50 some years to SPEND the ussr to death. mcole

[Byron Quick]

International trade would be impossible, huh? If a firm paid for everything it ordered in grams of .999 fine gold...just how many companies would say,"Sorry, we can't sell to you."

The firm could certainly open an account with me

[Vladimir Berkov]

Buying is not the problem, so long as they accept the gold.

But let's say I want to sell something made in America overseas, I would be getting payment in a non-gold currency, such as Euros, Yen, or whatever.

The way the gold standard worked was that all the major industrial and trading nations (GB, US, France, etc) were on the gold standard and agreed to play by its rules. They were able to regulate the flow of gold between countries, and even out deficits and surpluses through domestic policies and the trading of government securities.

[Delmar]

Wow-all these brain cells just a-burnin to get on a hard currency standard because they don't trust the government on a Fiat (or Yugo, or Vega) standard-we are all getting ripped off. Well, who do you think is going to set up and manage a hard currency? THE SAME THIEVES, duh?
All this whining and crying is pretty much for nothing-we may not make Legos and Lincoln Logs in our own country anymore, but the fact remains that anyone who wants to sell their product in a market society targets the USA. Even with our broken worthless dollar at that. Poor fools, these foreigners are....

[Chipper]

Kaylee,

Thank you. You've done an excellent job. You remind of another poster who is also well versed in metallic money systems and the power of a free market.

As to the added steps between printing press output and the bank then on into circulation, this is not so much to control inflation as it is to exploit the time lag and therefore the added value that comes from "fresh" money. Those who can utilize today's fresh dollar will gain more because that same dollar tomorrow will have a lower value. A very slow motion Weimar scenario. Instead of ten years, we do it over 150 years so the people will acclimate.

Vladimir, you are obviously very learned in Keynesian economics and some of that predominant Chicago school thinking.

It would seem that the divide here is akin to all other political divides; severely limited or no central government with a free market v. a highly intrusive government with highly regulated money/banking and a controlled market.

As a suggestion, how about getting the government out the money/banking business entirely or at least put the government issuance of money on the same footing as any other free market purveyor of money. If ABC Mining and Coin produces and sells gold coins into the market there is no reason the government could not do the same. It's just that government would no be authorized to regulate or control quality or value by legislation. A third party or independent assay company could provide verification of both weight and purity of all coins from all sources. For added security, independent assayers could monitor the monitors for those who need the extra assurance. As an added incentive to honesty any tampering in quality and content could be dealt with most severely. Of course this is just a suggestion and details would need to be filled in, however, I think it would be a step in the right direction for everyone as we would avoid the runaway inflation that plagued us in the 70's and the continuous deflation that Japan is experiencing. It would broadly limit government and untangle a large portion of it from our daily lives and commerce and prices (the amount a customer pays for a good or service) would stabilize and become more reflective of actual value. For these and so many more reasons, hard money and getting government out of the money controlling business would do more to improve our economy and that of the rest of the world than anything government has done, is doing now or will do in the future.

Chipper

[JohnBT]

"God love you people but you have all managed to mortally wound my interest in economics."

Pendragon, this is for you. If you laid all of the economists in the world end to end, they still wouldn't reach a conclusion.

Let me hear you say Amen!

John

[wingman]

"God love you people but you have all managed to mortally wound my interest in economics.""


10-4 on that and everyone is an "expert":rolleyes:

[Kaylee]

Okay.... time for snips and giggles I guess....

I am talking about the period between the US Civil War and 1914. That is referred to as the "classical" gold period.

I know what period you are referring to. In fact, I have REPEATEDLY granted you that your arguments hold true for that period. I've also stipulated that they do NOT necessarily hold true for hard currency as a general rule, and given other models where your concerns are non-issues. As I read your posts, you've ignored that point repreatedly in order to argue a point I've already granted.

Whatever else we do, can we please get off this particular "classical period" merry go round? It's giving me a headache.

I am not talking about macroeconomic models, I am talking about hard facts. Unemployment was simply higher during the gold standard period, even when other economic factors are taken into account, than it is during the current post- 1946 period.


Unemployment global, or unemployment domestic? There's are a heck of a lot "other economic factors" to control for seeing how much the world changed in other ways from 1880 to 1980. Would you mind sharing your source for the data?

You are ignoring the other many tools which the government can use, focusing in on purely monetary policy is misleading.


Government can do a lot of things. It can't create resources, only move them around. All else stems from that point.

However to dismiss Keynes out of hand is to dismiss most of modern macroeconomic theory, much of which has proven quite useful.


I'll grant I'm not fond of what's been made of Keynes, but thowing out the babe with the water is a good point. I'll get back to you on that when I'm done with General Theory. It might be a while. :)

No, it is factually correct. A gold standard requires government intervention

and
And in the United States, the only entity which could fulfill such a requirement is....The United States Government.

and
A gold standard requires a national bank, or at the very least, a very close group of central banks to operate properly.


I'm not getting into this again with you. See above comment re. classical period and merry go round. If you want to discuss specific flaws with a privately administered monetary system, I'll be happy to lock horns again. :)


Except, as I stated before, it is not nearly as scarce as it once was.


There's no more gold on the earth now than there was a thousand years ago. More of it is above ground, and more of it isn't being used for other purposes, yes... but it's still a finite resource.

Moreover, a gold-based (as opposed to backed, see above) currency slowly coming into general usage would drive the "scarcity" you refer to right back up. Thankfully, it would likely be a slower process with less shocks than going off a backed currency was.

God love you people but you have all managed to mortally wound my interest in economics.


Sorry... it's just such a fascinating subject though. Like a college bull session but with stakes to the game. :)


Well, who do you think is going to set up and manage a hard currency? THE SAME THIEVES, duh?

No, not necessarily. Different thieves, more likely. :)
The point is that it's a less-tamperable system. There will always be thieves, both in and out of government. The trick is to make it harder to be a thief... hence the hard currency.

but the fact remains that anyone who wants to sell their product in a market society targets the USA. Even with our broken worthless dollar at that. Poor fools, these foreigners are....


Hey, even when the best game in town is busted, it's still the best game in town.


It would seem that the divide here is akin to all other political divides; severely limited or no central government with a free market v. a highly intrusive government with highly regulated money/banking and a controlled market.

And THAT my dears is prolly the most ringingly true statement on this thread yet.

Economics is politics with a bowtie.


10-4 on that and everyone is an "expert"


Feel free to jump in anytime. :)
I don't see many SOCOM folks on the rifle board, but we do okay there to.


-K

[Delmar]

You're probably right, Kaylee-thieves are thick when it comes to money or power. I really do not see a huge advantage by going to a precious metals standard, but as we are the largest consumer in the world, it would probably be easier to convert to whatever standard we desired because it would force the other countries to follow suit if they wished to continue business with us.

[Pendragon]

ok, I'll bite:

Money is a tool for tracking value. Value comes from goods created and services performed.

The problem is, there is absolutely nothing that we can point to that can serve as an anchor to our money/value system.

I understand that in the hard money system, gold is supposed to be the standard, but you have to admit, it is an arbitrary standard. Ask yourself - if you were Gilligan and the castaways, how excited would you be to discover a chest of gold? Gold is worthless unless someone else wants it and they in turn have something you want.

This notion of fiat currency being so horrible strikes me as so altruistic as to be silly. The fact is, the value of everything changes over time. Take this from a guy who used to make more money than he ever thought possible and now counts every dollar, every gallon of gas and loaf of bread to get by.

Guess what? Teachers, mechanics, bus drivers, engineers and doctors all earn a certain amount of money that buys a certain amount of lifestyle. If you pay the bus driver $100/hour, thats fine, but houses will soon cost a million dollars or more.

This notion that there are unseen forces who have multi generational plots to topple civilizations (through fiat money, the illuminati or liberal education) is just crazy crazy crazy.

For almost all people, their "worth" is going to be determined by their education and what field they go into and how much they prioritize advancement. Some will learn to live under their means and invest. Some will become movie stars or pro athletes. Some will be entrepreneurs and become very wealthy or destitute (or both, often more than once).

So talk about how it takes 150 years for this problem to manifest is just crazy talk. Look at what has happened in the last 75 years. Look at what is looming for just the next 10 years - good and bad.

If the people behind this fiat money conspiracy are trying to rip us all off and enslave us, they are pretty patient and pretty stupid. Who wants to wait 150 years to take over the world? Most people cannot plan 5 years into the future.

The things the common man should be worrying about are taxes - especially death taxes which keep the middle class in the middle class.

Whatever your ideas on monetary policy, as long as there are people, there will be an economy and some will have more and some will have less. Those who are smarter and better will always live better than the stupid and lazy - this will never change.

We are still at the begining of a massive, unimaginable technological revolution. We cannot even concieve what we will be doing with computers in 10 years. Modern medicine, gene therapy, nano technology - these things will create massive shifts in wealth and lifestyle. Throw in some terrorism and maybe a few WMD events and the financial landscape will be so different that speculation seems comical.

Yet some will do well, some will not - the only constant will be change.

[Chris Rhines]

Of course gold is an arbitrary standard, just like any other commodity. This is why I keep refering to a 'hard money system' rather than a gold standard. If private banks are allowed to issue currency, the market will determine which backing commodities work out and which do not. My own personal opinion is that gold will be popular, for reasons that I expounded upon above. It won't be the only option.

Macroeconomics is junk science, and Keynes was a junk scientist. Economics, being the sum total of all human action, is far to complex to be reduced to simple, generally applicable equations. We are talking about a system with six billion elements making thousands of discrete economic choices every day. There is no way Keynasian central planning can work in such an environment.

- Chris

[Vladimir Berkov]

I know what period you are referring to. In fact, I have REPEATEDLY granted you that your arguments hold true for that period. I've also stipulated that they do NOT necessarily hold true for hard currency as a general rule, and given other models where your concerns are non-issues. As I read your posts, you've ignored that point repreatedly in order to argue a point I've already granted.

Whatever else we do, can we please get off this particular "classical period" merry go round? It's giving me a headache.

I guess I don't understand your argument then. Are you arguing that we could impliment a gold standard which was different than the classical period one, in which the problems of that period would be eliminated? The reason why I ask is because it is generally conceded that the classical period is when the gold standard "worked" in practice. The fact that the system failed means that any new system you advocate should be able to deal with the reasons why the old system failed. Specifically the foreign reasons.


Unemployment global, or unemployment domestic? There's are a heck of a lot "other economic factors" to control for seeing how much the world changed in other ways from 1880 to 1980. Would you mind sharing your source for the data?

Domestic unemployment during the classical period was generally about 1% higher than in the current period, and the overall economic situation was similar, with high GDP growth, etc.


Government can do a lot of things. It can't create resources, only move them around. All else stems from that point.

I guess I don't understand how you are defining "resources." Do you mean factors of production? Physical resources only, producer/consumer surplus, what?


I'm not getting into this again with you. See above comment re. classical period and merry go round. If you want to discuss specific flaws with a privately administered monetary system, I'll be happy to lock horns again.

Privately administered system? How on earth is that going to work without the US government formally adopting such a system? Off the top of my head, I can't think of a private currency system which either exists currently or in the past. Certainly there have been sub-national currencies, many of them in fact. However, I can't think of a national, private currency.

The main flaws I see in such a system are public confidence, and proper regulation. A gold standard is not self-regulating in terms of international trade, or in terms of maintaining reserves.

I should state here that I am probably the biggest believer in free market capitalism that I know, which is one of the reasons why I am studying economics. I will readily concede that a gold standard has atvantages, yet I simply don't see the conditions existing which could lead to its return.

[Vladimir Berkov]

Macroeconomics is junk science, and Keynes was a junk scientist. Economics, being the sum total of all human action, is far to complex to be reduced to simple, generally applicable equations. We are talking about a system with six billion elements making thousands of discrete economic choices every day. There is no way Keynasian central planning can work in such an environment.

Obviously there is no "grand unified theory of economics," which can explain everything according to a specific model. However, the fact that the system is quite complex is not a hinderance to its study. Think of it as analogous to hydrodynamics. In studying the movement of water, you are looking at trillions of individual elements operating individually. Obviously, there is no way to get an answer by looking at each element, yet through the construction of models which can simplify the actual structure to the extent we can derive formulas, we CAN study it.

The fact that we can see our results match the reality, means that even without studying all parts of the system, one can analyze it to a certain extent.

[Bahadur]

--------------------------------------------------------------------------------
Except, as I stated before, it is not nearly as scarce as it once was.
--------------------------------------------------------------------------------




There's no more gold on the earth now than there was a thousand years ago. More of it is above ground, and more of it isn't being used for other purposes, yes... but it's still a finite resource. Oh, really? "Theoretically" you are correct, but not so in practice. Explain to me why we haven't run out of coal like our more alarmist forebearers predicted (and as our more alarmist brethren predict today with petroleum)? Why is that the price of coal is - even at real terms (okay, PPP in any case) - a fraction of what it was in the 19th Century?

Following your logic, just about every raw material ("a finite resource") should be increasing in price as its quantity declines. Yet, most such materials are declining in price (in long-term, of course, independent of short-term spikes). Care to explain why?
Money is a tool for tracking value. Value comes from goods created and services performed.

The problem is, there is absolutely nothing that we can point to that can serve as an anchor to our money/value system.

I understand that in the hard money system, gold is supposed to be the standard, but you have to admit, it is an arbitrary standard. Ask yourself - if you were Gilligan and the castaways, how excited would you be to discover a chest of gold? Gold is worthless unless someone else wants it and they in turn have something you want.Exactly! Money, whether gold or paper, is a means of representing value. That value has to be agreed upon by the members of a given society and enforced by the government. The difference between the so-called "fiat" currency and "hard" currency is minor (interestingly enough, the notion of "hard" is relative, i.e. the US dollar is a "hard" currency in international exchange, and it speaks much about the value others see in the stability of the US).

[Calmwater]

In the last century, world gold production ranged from about 1.75% to 3.25% of total stock.

http://minerals.usgs.gov/minerals/pubs/of01-006/gold.html

Humans would still be hard pressed to find a more stable commodity to use as a polaris.

I tend to pitch my philosophical tent near Kaylee's optimistic camp.
The days of the Nation State and its clumsy monetary wise men may be numbered anyway.

The future holds a new kind of "sovereign".

[labgrade]

Regardless of what this thread even started about, gold has held its value over 5-6K years of human history.

What an ounce bought way back will still buy now, & will in the future. Mr. Peabody, anyone?

& we are on the barter system whether you like it or not.

Granted, we're not trading 5 chickens for a pig, but we're still on the same system - just leveraged, more compact & more convenient.

Don't kid yourself.

You barter your societally perceived value in any society for what worth you might have. You get a corresponding "value chit" (re)assigned for that amount of perceived value & cash it in for what you want to buy.

FWIW, gold's about ready to break $380 - that "1 oz gold will buy a really great toga" may surpass much of our modern econ-speak.

Of course, trends of the past 30 years [I]must[?i} make it so.
:rolleyes:

We tanked in the late 20s due to a non-confidence issue, not that "bartering never worked."

But this from a grasshopper.

[Kaylee]

I understand that in the hard money system, gold is supposed to be the standard, but you have to admit, it is an arbitrary standard.

well.. Chris already answered that. Thanks Chris!

As to the Gilligan thing... more excited that I would be to find a chest filled with the equivalent value in 1960's dollar bills, I'll tell you that. ;)


This notion that there are unseen forces who have multi generational plots to topple civilizations (through fiat money, the illuminati or liberal education) is just crazy crazy crazy.


When were we saying there were?
I'll agree with you on that. Never assign to conspiracy that which is just as easily explained by incompetence.

And on to my friend Vlad... :)

I guess I don't understand your argument then. Are you arguing that we could impliment a gold standard which was different than the classical period one, in which the problems of that period would be eliminated? The reason why I ask is because it is generally conceded that the classical period is when the gold standard "worked" in practice. The fact that the system failed means that any new system you advocate should be able to deal with the reasons why the old system failed. Specifically the foreign reasons.


My argument is as follows --
1 -- The Gold standard was quite stable while it lasted, but collapsed due to too much State meddling. It's Achilles Heel was that the rate of exchange was gov't mandated, with each nation defining their currency in terms of gold. When the State can revalue their currency, as FDR did in the 30's, the idea of gold as a "standard" becomes meaningless. It's a fiat system with gilded window dressing.

2 -- The major foreign stresses -- I presume you're referring to France calling in her debts in gold, thus creating a drain out of the US. Again we get to the issue of State mandates. As I recall it, the problem stemmed from overissuing currency as compared to the reserves. If for every dollar issued you have only 50 cents wirth of gold in your reserves, you are leaving the principle of the Gold Standard.. effectively negating the central advantage of the metallic backing.

SO...
The solution I see here is not to take the gold backing out from a gov't currency, but rather to remove the gov't currency from the gold. Thus, an ounce is always an ounce... everywhere. A gram is always a gram... everywhere. This prevents the revaluing problem.

This doesn't mean that a gold-based (not backed) money supply would need to be strictly cash-and-carry, any more than it is now. There are ALREADY institutions that allow electronic transfer of metals in grams, ounces, whatever from one person to another, much as paypal does now. Further, they 100% back their stores with warehoused metal, and release it as bullion for a marginal seignorage fee. Since there is no partial reserve like the classical state-based Gold Standard, this prevents the "France calling in her debts" problem.

And again.. there's no reason this need be done by a State treasury. Anyone with the metal who wanted to play bank could do it, provided they play by the rules.

The potential problem is an old one, and here you can bring in your troopers if you want. :) Maintaining the 100% reserve requirement. I tend to think an "AMA" type of arrangement, a professional board of standards which required regular audits of storage vs. accounts would be ideal, though a gov't review board might do the same job.

Either way, issuing more credit over the reserves held would be essentially counterfitting, and punishable as such. As I ceded Delmar, there will always be theives. The trick is to make it hard to be a theif.


So there.. that's an alternate system for you. Yes, it's still "barter" of a fashion I suppose. But remember -- money is a tool. A human invention for facilitating trade. And such a private system, providing that reserves are transparently monitored and verified, is at least as stable a system as fiat currency.

Unemployment... yeesh. I've been typing WAY to long. How about I cede on that for now, and we get back to it later? Time to get back to work. :)

[Vladimir Berkov]

Interesting system, but there is no way in hell it is going to be implimented, regardless of any benefits.

[Soap]

God I love econ! I've kept silent for quite an amount of time here so I have to chime in. These comments are not directed towards anyone but rather they are random thoughts.

Money is nothing but an I.O.U. issued on a grand scale. Thus, the one true quality that people seek in a currency is trust. Trust is only obtained when the individual has faith that the backer of the currency is actually going to back it up. In the long term, greater trust leads to greater stability of the currency.

So one should ask themselves: do you believe that the issuer of the USD is trust-worthy? It is apparent that the vast majority of the world's population has confidence in the backer of the USD. Just to illustrate the amount of trust that people have in the USD: Has someone, in your experience, ever turned down a USD in a transaction? Personally, I have never had a loss of transaction because I wanted to pay with USDs, on this continent or abroad. The conclusion here is that the USD is at the top of anyone's "trust-worthy currency list". So would a gold standard help raise this trust-worthiness even more? Probably not.

Furthermore, if the backer quits backing a currency, both a gold standard system and a fiat system will have currency with absolutely no value. Therefore what we are ultimately seeking is a currency that will basically back itself.

But is there such a currency that will back itself? As Kaylee suggests, a gold system based on weights of real tangible gold could be one solution. This would most likely work in the long run. The problem that would be encountered is if society deems that gold is more or less scarce than it used to be, which is just as subjective as any other economic valuation. The valuation shift could be caused by an injection of gold into a market or by the absence of gold in a particular market. The entities that could change the valuation in the short term are very limited: government, exceptionally wealthy individuals/corporations, or very large banks.

Interestingly enough, the entities which greatly influence the valuation of our current USD are: government, exceptionally wealthy individuals/corporations, or very large banks. Think about that.

[JohnBT]

Okay great. Let's go to a gold standard.

Now, what would I rather receive in payment when I make a sale, a gold U.S. coin or a gold North Korean coin? How about a handful of coins from country I never heard of? Great, now I get to bite each one and guess if they're really gold. Yum.

Let's just stick with the greenbacks - they weigh less.

John

P.S. - the first thing I learned abroad was carry lots of U.S. currency, especially one dollar bills. Don't leave home without it.

[Chipper]

A gentleman with whom I am acquainted wrote the following and it has been immensely helpful to me in my continuing effort to understand money, how it works and how to follow it around:
(as used here, FRT=Federal Reserve Token. It is not a note as it is not redeemable to the issuer for anything of inherent value)

We use the term every day. But what is Money? What does it do? I decided to combine everything I have ever heard about the subject into one complete and concise outline.

Money has 4 distinct functions:

1. A medium of indirect exchange for transactions
2. Determines value via prices
3. Preserves wealth through space and time
4. Performs credit transactions

Money must fulfill the following 9 criteria:

1. High instrinsic value
2. Scarcity - ensures a limited and relatively stable supply, and thus, stable prices
3. Homogeneity - facilitates divisibility
4. Divisibility - provides granularity necessary for small transactions
5. Portability - necessary to easily and discreetly move large amount of wealth
6. Recognition - facilitates universal desirability
7. Universal desirability
8. Durability - ensures a non-perishable product for storage or transactions
9. Difficult to counterfeit - ensures that money is not destroyed

These are the traditional qualities of money. To take it one step further, the ideal money will have one more criterion:

10. Denominated in a unit of weight immune from politics and debasement.

Now let's take a look at how well the Federal Reserve Token (formerly Federal Reserve Note, when redemption was still possible) fulfills these criteria:

1. High instrinsic value - FAIL The FRT is intrinsically worthless.
2. Scarcity - FAIL - the FRT can be produced infinitely as long as the printing press is running.
3. Homogeneity - facilitates divisibility FAIL The FRT has no substance and therefore no homogeneity.
4. Divisibility - FAIL The FRT has no substance and therefore no divisibility.
5. Portability - YES
6. Recognition - YES
7. Universal desirability MAYBE The FRT is universally desirable but when inflated or hyperinflated, it loses that desirability. Money, on the other hand, is always universally desirable.
8. Durability - FAIL A bill lasts only several years, it can be burned, cut and
destroyed in other ways while a coin lasts decades if not centuries.
9. Difficult to counterfeit - ensures that money is not destroyed FAIL The FRT
is very easy to counterfeit by the agency that issues them, in a sense every FRT created is
counterfeit because none are redeemable.
10. Denominated in units of weight - FAIL It is not denominated in anything, it is an abstraction, a zero on the computer screen.


Chipper

[Vladimir Berkov]

1. High instrinsic value - FAIL The FRT is intrinsically worthless.

Not anymore than notes backed by gold. With gold-backed notes, the worth is based on the trust that the notes can be redeemed. With FRNs, the worth is based on the trust that the US Government will continue to exist, and the Federal Reserve will continue to operate in its present manner.

2. Scarcity - FAIL - the FRT can be produced infinitely as long as the printing press is running.

But this simply doesn't happen. With a gold standard, the same problem could occur, although instead of printing more money per ce the government can simply revalue the dollar in comparison to gold. Today the gold is worth $10 per unit, tomorrow it could be worth $20 per unit. The only thing preventing this is the government not doing so. The only way to have true scarcity is to have all specie made out of the precious metal itself, or some other type of scarce commodity. This is unfeasible for multiple, readily apparent reasons.

3. Homogeneity - facilitates divisibility FAIL The FRT has no substance and therefore no homogeneity.
Of course the FRN is homogenous. Whatever problems you might have with it, it certainly is homogenous. At least last time i checked, pretty much all the bills and coins are the same, and the value is the same per coin or bill.

4. Divisibility - FAIL The FRT has no substance and therefore no divisibility.

See above. I can get divide my money or change smaller amounts into larger bills or coins. It is divisible for sure.

7. Universal desirability MAYBE The FRT is universally desirable but when inflated or hyperinflated, it loses that desirability. Money, on the other hand, is always universally desirable.

The US dollar is pretty much the world standard for currency. In fact, certain small nations are starting to use the US dollar as their national currency! You seem to assume that because US dollars might at some point become worthless, they currently have no value. This is illogical.

8. Durability - FAIL A bill lasts only several years, it can be burned, cut and
destroyed in other ways while a coin lasts decades if not centuries.

It is durable enough, and the cost of taking used bills out of circulation and making new replacements is negligable. Even on a gold standard, one needs paper or electronic currency. It is just a practical necessity.

9. Difficult to counterfeit - ensures that money is not destroyed FAIL The FRT
is very easy to counterfeit by the agency that issues them, in a sense every FRT created is
counterfeit because none are redeemable.

You are perverting the definition. It is probably no harder to counterfeit a gold coin than it is a bill. And in general practice, bills are easier to detect as counterfeits especially now with modern optical scanners and the new type of larger denominational bills. How is your average joe on the street going to tell a fake gold coin from a real gold coin?

[Soap]

Chipper- I would say that your friend's description of money is somewhat inaccurate in the first place.

What is money? Money is simply a measure of debt: an I.O.U. if you will. This measure of debt is backed by the issuer or by some third party.

1. High instrinsic value - FAIL The FRT is intrinsically worthless.

Gold-backed currency is intrinsically worthless if: 1- The backer no longer exists, 2- The backer lied, 3- Gold is somehow less scarce...and the list could go on.

2. Scarcity - FAIL - the FRT can be produced infinitely as long as the printing press is running.

Any backer can issue an infinite amount of currency...but they won't stay in business very long. Any government, bank, etc. will be thrown out of the market if they try to do something like that.

3. Homogeneity - facilitates divisibility FAIL The FRT has no substance and therefore no homogeneity

You can get USDs in a number of useful sizes for exchange...I fail to see your point here.

5. Portability - YES

Nearly all money is portable...woo hoo! ;)

6. Recognition - YES

I agree.

7. Universal desirability MAYBE The FRT is universally desirable but when inflated or hyperinflated, it loses that desirability. Money, on the other hand, is always universally desirable.

Nothing is universally desireable. Incans didn't value gold nearly as high as Spaniards did.

8. Durability - FAIL A bill lasts only several years, it can be burned, cut and
destroyed in other ways while a coin lasts decades if not centuries.

You can get USDs in coin form.

9. Difficult to counterfeit - ensures that money is not destroyed FAIL The FRT
is very easy to counterfeit by the agency that issues them, in a sense every FRT created is
counterfeit because none are redeemable.

By your assessment, all currency is easy to counterfeit. All currency is issued by a backer. The backer can issue at their discretion.

10. Denominated in units of weight - FAIL It is not denominated in anything, it is an abstraction, a zero on the computer screen.

This is not necessarily an essential characteristic of money since money is a measure of debt.



Imagine a group of 3 close friends who have reasonably high trust in each other. Now lets say their names are A,B, and C. A helps B install a 2 mile line of fence. B writes an I.O.U. on a piece of paper that he will mow his lawn thrice per week for 8 weeks in return. Now A possesses the note, but A decides that he needs a truck part that C possesses. Provided that B is indiffernent, A can give the note to C to pay for the part. This is an extremely simple example of a single unit of currency, in this case an I.O.U. issued by B. This I.O.U. is currency that did not exhibit the "nine characteristics". To be universally accepted the currency should have a few of those characteristics but all nine don't really define money.

[Chipper]

1. High instrinsic value - FAIL The FRT is intrinsically worthless.

Not anymore than notes backed by gold. With gold-backed notes, the worth is based on the trust that the notes can be redeemed. With FRNs, the worth is based on the trust that the US Government will continue to exist, and the Federal Reserve will continue to operate in its present manner.

Hmm...How did we jump to the value of notes? Regardless of that, an element of trust must exist in any economic system. I personally do not trust the government to handle money. Not to coin it, not to print it, not to tax it, not to collect it, not to spend it. I am a spendthrift. Yet in my life I have never acheived the levels of stupidity attained by the federal or any other level of government who are, ostensibly, the object of the public's trust. I do not trust that the US government or the Federal Reserve System will continue to exist. In no way have they proven themselves to be a stable entity nor will they continue to operate in their present manner. I would be willing to trust an independent bank and their issue of notes for my deposit of gold much more than I do or would the government. My costs for such a service might be higher than what we now have but at least I could shop for the best value in security, trust and acceptance by other similar enterprises. The FRT is fiat. It has NO intrinsic value other than, perhaps, the value of the paper or the metals in which FRTs are coined. Gold or other precious metals by there very definition have an intrinsic value as they are precious metals. Therefore, it stands. The FRT fails this test

2. Scarcity - FAIL - the FRT can be produced infinitely as long as the printing press is running.

But this simply doesn't happen. With a gold standard, the same problem could occur, although instead of printing more money per ce the government can simply revalue the dollar in comparison to gold. Today the gold is worth $10 per unit, tomorrow it could be worth $20 per unit. The only thing preventing this is the government not doing so. The only way to have true scarcity is to have all specie made out of the precious metal itself, or some other type of scarce commodity. This is unfeasible for multiple, readily apparent reasons.

Yes. Only when you have a government monopoly on the issue and valuing of money. Even then, there is a limit to the quantity of gold on earth or in the earth. No such limit exists on the quantity of printing press money. So it stands, the FRT fails this test.

3. Homogeneity - facilitates divisibility FAIL The FRT has no substance and therefore no homogeneity.

Of course the FRN is homogenous. Whatever problems you might have with it, it certainly is homogenous. At least last time i checked, pretty much all the bills and coins are the same, and the value is the same per coin or bill.

Yes. Mathematically you are correct. 0 divided by 0 = 0. A 1/2" x 1/2" corner of a dollar bill will yield no value. A 1/16" x 1/16" "nibble" out of a Susan B. Anthony coin will yield no value. The same size nibble out of a gold or silver coin will yield value. Why? Because of the intrinsic value of the substance (see #2 above). When in school, I was taught fundamental mathematics by the rote method. Today, 2 divided by 2 still = 1. I wrote stuff all during class on paper. Other than the personal value to me of learning, those scraps of paper represent no value. I could use any object to demonstrate that the equation would always work. Simply applying an equation to an object does not impart any value to the object. If there is any value in the object, it existed before any equation was applied.



4. Divisibility - FAIL The FRT has no substance and therefore no divisibility.

See above. I can get divide my money or change smaller amounts into larger bills or coins. It is divisible for sure.

Hmm...See my response to #3 above.

7. Universal desirability MAYBE The FRT is universally desirable but when inflated or hyperinflated, it loses that desirability. Money, on the other hand, is always universally desirable.

The US dollar is pretty much the world standard for currency. In fact, certain small nations are starting to use the US dollar as their national currency! You seem to assume that because US dollars might at some point become worthless, they currently have no value. This is illogical.

FRTs currently have value, only it is measured in trust. The FRT is still without intrinsic value. When it is seen that the emperor truly has no clothes, well...the outcome is predictable. Speaking of smaller nations, how's Argentina these days? Seems to me they adopted the dollar.

8. Durability - FAIL A bill lasts only several years, it can be burned, cut and destroyed in other ways while a coin lasts decades if not centuries.

It is durable enough, and the cost of taking used bills out of circulation and making new replacements is negligable. Even on a gold standard, one needs paper or electronic currency. It is just a practical necessity.

Yes, but why add a needless expenditure? Also, if FRTs had any intrinsic value there would exist no need to destroy and replace.

9. Difficult to counterfeit - ensures that money is not destroyed FAIL The FRT is very easy to counterfeit by the agency that issues them, in a sense every FRT created is
counterfeit because none are redeemable.

You are perverting the definition. It is probably no harder to counterfeit a gold coin than it is a bill. And in general practice, bills are easier to detect as counterfeits especially now with modern optical scanners and the new type of larger denominational bills. How is your average joe on the street going to tell a fake gold coin from a real gold coin?

How is the average Joe on the street going to spot a counterfeited FRT? Modern copiers make wonderful copies. Besides, purchasing the necessary metals to effectively counterfeit gold coins represents a far larger investment than paper and ink which would effectively and deeply cut the counterfeiter's profit margin thus making it less likely that gold coin would be counterfeited. It's also much easier to conceal a printing press or copier operation than it is to conceal a metal stamping operation. also, the market would provide a method to inexpensively detect counterfeit coins. We can scan retinas now.

These are good objections Vladimir. The points on which differ are essentially:
Government control of money and it's value-
Intrinsic value of money-

These constitute major differences. I suspect that your thoughts are representative of what many do think of money and it's functions within a nation. If current trends are indicative of future circumstances, hard money will win out simply based on the fact that it has intrinsic value. The pace of inflation will soon enough render the dollar truly worthless. The vast difference in prices for the same item that has occured over the past 40 years is being recognized as the tragedy and deception of fiat currency. The same piese of arable land that sold for $250 dollars/acre in 1963 now sells for $2200.00. The land remains the same. It is the dollar that has lost it's value. Kaylee brought to mind the extremes of inflation that killed the Weimar republic. I assert that the same is occuring now only in a controlled slow-motion. We are reaching a similar economic end with the dollar. As we continue to reach for this end people will once again demand an intrinsic value in what they use for money. Gold is still able to purchase more bread than trust.

Chipper

[Chipper]

Dan Flory,

First off, let me say Howd to a fellow Hoosier! My wife is a graduate of Purdue. I'm an IU guy.

Chipper- I would say that your friend's description of money is somewhat inaccurate in the first place.

What is money? Money is simply a measure of debt: an I.O.U. if you will. This measure of debt is backed by the issuer or by some third party.

I beg to differ Dan. Under our current system I would agree that the FRT represents a measure of debt. The debt it represents cannot be collected on. I cannot go to my next door neighbors and say "I've got 5,000 FRTs and since it is a debt you need to pay up." I cannot go to a bank and say, "I've got 175,000 FRTs in my account which you owe me. You need to pay up in (precious metal of my choice)." I cannot go to the US Treasury and say," My total net worth is X FRTs. Since these are a debt, you owe me. Pay up in (precious metal of my choice)." So this debt is worthless to me. This makes FRTs worthless to me because they are tokens. There is nothing against which I may redeem them.


quote:
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1. High instrinsic value - FAIL The FRT is intrinsically worthless.
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Gold-backed currency is intrinsically worthless if: 1- The backer no longer exists, 2- The backer lied, 3- Gold is somehow less scarce...and the list could go on.

Yes. This is the risk. No matter how hard we may try, we simply cannot eliminate risk. Entire industries are built around the fact that we cannot eliminate risk. Besides, we are NOt talking about gold backed currency. We are talking about gold as currency. There is a world of difference.


quote:
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2. Scarcity - FAIL - the FRT can be produced infinitely as long as the printing press is running.
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Any backer can issue an infinite amount of currency...but they won't stay in business very long. Any government, bank, etc. will be thrown out of the market if they try to do something like that.

Our government and fed reserve system are doing just that and yes. You are correct. They will disappear from the market. Gold is a finite resource. We do not know how finite it is. We do know that it is finite. Printing press money is infinite.


quote:
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3. Homogeneity - facilitates divisibility FAIL The FRT has no substance and therefore no homogeneity
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You can get USDs in a number of useful sizes for exchange...I fail to see your point here.

You can get gold and silver coins in a number of useful sizes also.
Please see my response to Vladimir in the previous post.


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5. Portability - YES
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Nearly all money is portable...woo hoo!

then you would agree that portability is a necessary point in what defines money.


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6. Recognition - YES
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I agree.

Yes.


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7. Universal desirability MAYBE The FRT is universally desirable but when inflated or hyperinflated, it loses that desirability. Money, on the other hand, is always universally desirable.
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Nothing is universally desireable. Incans didn't value gold nearly as high as Spaniards did.

Nevertheless, the Incas still valued gold. Somehow, I don't think their artifacts would be as beautiful if FRTs were used. However, the invention of toilet paper may have been hurried if FRTs were available then.


quote:
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8. Durability - FAIL A bill lasts only several years, it can be burned, cut and destroyed in other ways while a coin lasts decades if not centuries.
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You can get USDs in coin form.

Yes. A no-value-added alternative to paper. Not suitable for use as a toiletry. Please see my response to Vladimir.


quote:
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9. Difficult to counterfeit - ensures that money is not destroyed FAIL The FRT is very easy to counterfeit by the agency that issues them, in a sense every FRT created is counterfeit because none are redeemable.
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By your assessment, all currency is easy to counterfeit. All currency is issued by a backer. The backer can issue at their discretion.

That's a pretty broad reading Dan. Coins are less profitable to counterfeit than paper. In today's systems currency is issued by governments. They do issue at their discretion. With coins of precious metals any fiat issuance will result in a devaluation of the issuers holdings. This is akin to giving away money or at the least striving to make oneslf poorer. This action would be illogical. Amazingly governments and central banks do just this sort of thing.


quote:
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10. Denominated in units of weight - FAIL It is not denominated in anything, it is an abstraction, a zero on the computer screen.
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This is not necessarily an essential characteristic of money since money is a measure of debt.

Precisely. This is because money is not a measure of debt. Money is property. It is a means of exchange. It is a store of wealth. It has intrinsic value. Other than a means of exchange, FRTs simply fail at these qualifications for money.

Imagine a group of 3 close friends who have reasonably high trust in each other. Now lets say their names are A,B, and C. A helps B install a 2 mile line of fence. B writes an I.O.U. on a piece of paper that he will mow his lawn thrice per week for 8 weeks in return. Now A possesses the note, but A decides that he needs a truck part that C possesses. Provided that B is indiffernent, A can give the note to C to pay for the part. This is an extremely simple example of a single unit of currency, in this case an I.O.U. issued by B. This I.O.U. is currency that did not exhibit the "nine characteristics". To be universally accepted the currency should have a few of those characteristics but all nine don't really define money.

In your example all that was exchanged was trust. There is NO intrinsic value in the note. Yours is a perfect of example of what is used today as as money. Let's say A took that note to Fred's Grocery and Lotto mart. Do you think that Fred would accept a valueless note? Fred is not a party to your trust scheme. Fred would invite you to shop elsewhere or you could come back, provided you brought something of real value. In your system, once trust breaks down, the whole system will collapse and everybody involved will be left with lots of pieces of useless debt. It's a scam. It's a confidence game. Why? because the entire system is predicated on trust. Trust breaks down when one party becomes openly self-centered and establishes a track record of unreliability. This is part of why so many marriages fail. This is part of why so many other relationships in life fail. This is why our current monetary system will fail. Rome is long gone but, some of it coins still have value. The Spanish Empire is long gone but dubloons still hold value. Why? Because of the intrinsic value of precious metals. The same cannot be said of the dollar.

Chipper

[JohnBT]

"Rome is long gone but, some of it coins still have value. The Spanish Empire is long gone but dubloons still hold value. Why?"

Why? That's easy. Because someone has verified, certified and attested to the fact that the coins are actually made gold or silver and are not plated counterfeits.

You might as well pay the experts to attest to the fact that a USD is a real USD and not have to lug the bags of coins to the store to do your shopping.

John

[Bahadur]

"Rome is long gone but, some of it coins still have value. The Spanish Empire is long gone but dubloons still hold value. Why?"That's funny, because when the central government in Rome became unstable, the provincials in many parts of the empire began to refuse to use and accept money (hard currency, too, containing "precious" metals) and began to rely on a barter system, contributing to the eventual development of feudalism.

You see, a silver coin does not have an inherent value if your only concerns are protection from the marauders and food for subsistence AT THE SAME TIME the central government is unstable and is unable to back the "value" of such a coin in terms of other goods (for example, food) and services (for example, protection).

[Chris Rhines]

The differences between a currency system and a private placement of debt between two individuals are much more than a matter of scale, but let's set that aside for a moment. In an IOU like Dan describes, you are accepting a debt because you trust your friend, with no verification of value (the purpose of a commidity backing) required. This can work between two individuals, because they have 1.) what amounts to a contract for repayment under mutually acceptable terms, and 2.) a level of trust that said contract will not be violated.

Now we look at a currency system between a single central government and an individual. Considering that the government determines the value of the debt you hold, and changes that value on a regular basis, it is impossible to consider the government a trustworthy party to the contract. Since the government holds a monopoly on the minting and valuation of currency, the government can manipulate the value of the currency at will, and there is no recourse or means of preventing it.

A central gold standard would be a little bit better, in that the central bank's refusal to remit X amount of gold/note is much more clearly a case of fraud. However, there is still the issue of monopoly. If the government suddenly decides to not honor its debts, there's not much Joe Public can do about it.

The ideal state, and the one that I have advocated from the beginning, is to entirely remove the government from the banking industry, and allow private banks to mint their own money, to succede or fail on the open market.

I would have no moral objection to a private mint issuing fiat money in such a system; I just don't see it as being very likely. Who in their right mind would prefer. "This note is legal tender in the amount of $20, because we say so," to "This note is redeemable in X amount of gold on demand?"

But who's to say?

- Chris

[Kaylee]

Wow! Who'lda thunk this thread would have such staying power to it? Kinda cool.... :)

1. Thanks Vlad! I do think it will be implemented after a fasion eventually. Unofficially at first, and eventually become widely adopted as nations gain and lose confidence around it. But then, I'm an optimist. :)

2. The entities that could change the valuation in the short term are very limited: government, exceptionally wealthy individuals/corporations, or very large banks.

Interestingly enough, the entities which greatly influence the valuation of our current USD are: government, exceptionally wealthy individuals/corporations, or very large banks. Think about that.

Very good point Daniel! :)
But remember that only one of the three has something to gain by debasing its own currency though... and that's the one with the army-enforced monopoly on making it now. ;)

3. Chipper -- I LOVE your friend's definition of money and its required characteristics. Makes about the most sense of any definition I've seen. I'd argue some of your details about how the FRT fails divisibility etc, as the fiat system is more than just any given token in it... but on the whole, I agree. Best not to get to distracted in the details just yet...

4. So... Daniel... I'm gonna have to also disagree with your interpretation of "money as debt." Paper money originated that way to be sure -- "X" owes "Y" a "Z" number of coins. Further, much of the modern money system is brought into being by the creation of debt, again re the fractional reserve and private creditors... so that would explain the popular current understanding of money as debt. But it's not an inherent quality of money.

Money is simply a tool like any other.. a "medium of exchange." How well different solutions to the problem that tool was designed to solve work is what it comes down to ... I think what we're arguing now as "the M16 sucks" in paper form. :D

5.

You might as well pay the experts to attest to the fact that a USD is a real USD and not have to lug the bags of coins to the store to do your shopping.


Two issues here.
First, a gold-based (not backed, again) system would by no means require carrying around coins or other inconveniences, any more than our present system requires carrying around a wad of paper for every transaction. Backed paper notes and electronic transactions are quite possible with a metallic system.. and as noted, the latter already exists.

Second, no, the difference is in the inherent value of the metal (a cultural matter granted -- albeit a very enduring one). Fiat currency holds its value only so long as the issuing nation exists. After that, it's a mere curiosity. I have a neat little 2 million mark note from 1923 Germany I got for just that reason. Reminds me to keep perspective on the little green pieces of paper in my pocket. A coin, historical and collector's value aside, will always have its metallic value as well.


also, the market would provide a method to inexpensively detect counterfeit coins
Just jumping in on this one 'cause it's cool. Specific weight prolly... always worked before. If you can verify the physical mass, and verify the weight, you've just verified the substance. Chemistry 101.

Also, well.. carrying around gold coins prolly wouldn't be as common as we're thinking, just 'cause it's less convenient that an electronic account with a banking network. But the times that they are.. I'd suspect them to be coated in a thin plastic shell to prevent clipping and rubbing away of metal. No reason this shell couldn't contain an electronic marker with a verification code from the issuing bank.

The ideal state, and the one that I have advocated from the beginning, is to entirely remove the government from the banking industry, and allow private banks to mint their own money, to succede or fail on the open market.

Amen! :p

later y'all..

-K

[Kaylee]

Oh yeah.. two more things.

One -- any institution offering substitute notes or electronic accounts, be they governmental or private runs into some of the "10 qualities" problems already brought up, specifically intrinsic value. Personally, I think those problems are minimal, provided that the issuer maintains 100% reserves (and won't revalue them, as governments like to do). Which leads us to.....

Two -- Chipper and I have to acknowledge (sorry Chipper) that a fractional reserve system has some advantages as well. By allowing banks to issue more "money" than they hold as "backing" the money supply expands at a faster rate. This means more business loans, more startups, and eventually faster economic growth than under a 100% reserve system. The counterpoint, of course, is that it also can contract at a faster rate. eep.

-K

[Soap]

Goodness! I go off to my evil capitalist instruction classes and look what happens!

Chipper- We kicked yer butt in basketball therefore I don't need to reply to any thing your write from here on out... ;)

I beg to differ Dan. Under our current system I would agree that the FRT represents a measure of debt....is nothing against which I may redeem them.

Your first two examples are incorrect since your neighbor nor the bank issued the currency. As for the third, the fact that you cannot redeem anything from the U.S. Treasury simply states that you have fiat money and not hard money. The difference between the two is negligible yet vast all at the same time.

Yes. This is the risk. No matter how hard we may try, we simply cannot eliminate risk. Entire industries are built around the fact that we cannot eliminate risk. Besides, we are NOt talking about gold backed currency. We are talking about gold as currency. There is a world of difference.

Sorry, I thought you were talking about gold-backed currency. But gold is intrinsically worthless nonetheless since value is subjective.

Our government and fed reserve system are doing just that and yes. You are correct. They will disappear from the market. Gold is a finite resource. We do not know how finite it is. We do know that it is finite. Printing press money is infinite.

Every resource is finite. Even the printing press. But regardless, the amount of gold in an economy will still suffer fluctuations due to the new discovery of gold or the consumption of gold.

Nevertheless, the Incas still valued gold. Somehow, I don't think their artifacts would be as beautiful if FRTs were used. However, the invention of toilet paper may have been hurried if FRTs were available then.

My wife is an artist, should we use paint just because beautiful things were made of it? Incans valued gold as a medium for art and architecture, not as a measure of value.

Yes. A no-value-added alternative to paper. Not suitable for use as a toiletry. Please see my response to Vladimir.

Coining anything is an expenditure.

That's a pretty broad reading Dan. Coins...do just this sort of thing.

Think about banks which hold large sums of pure gold. They could influence the supply to a degree that would essentially act as inflation.

Precisely. This is because money is not a measure of debt. Money is property. It is a means of exchange. It is a store of wealth. It has intrinsic value. Other than a means of exchange, FRTs simply fail at these qualifications for money.

Money is a promise, there is no intrinsic value to this. It is not a store of wealth unless the issuer backs it or society (or whomever you're trading with) agrees that it has a certain value.

In your example all that was exchanged was trust...same cannot be said of the dollar.

NOTHING in this world has intrinsic value. Value is simply what a buyer and a seller agree upon. Once the trust breaks down an entire economy will die, regardless of the medium of exchange. Every single transaction involves trust between the buyer and seller. Nothing in the world can change that fact.

[Soap]

Kaylee- As you probably know, I normally argue hard money but this time I wanted to argue fiat just for the mental exercise.

Very good point Daniel!
But remember that only one of the three has something to gain by debasing its own currency though... and that's the one with the army-enforced monopoly on making it now.

Thanks! You illustrate a good point as well.

So... Daniel... I'm gonna have to also disagree with your interpretation of "money as debt." Paper money originated that way to be sure -- "X" owes "Y" a "Z" number of coins. Further, much of the modern money system is brought into being by the creation of debt, again re the fractional reserve and private creditors... so that would explain the popular current understanding of money as debt. But it's not an inherent quality of money.

If it is not a measure of debt...what is it?

[Vladimir Berkov]

Let me voice a pragmatic opinion.

Gold does make a reliable currency. Under certain, very specific conditions.

1.) The government cannot run deficits, nor can it finance expenditures through the sale of bonds in excess of its gold reserves. That means that under a gold standard, Bush's current budget is out. You can't run a deficit of $300 billion in a gold standard system. It also means that one cannot finance a war such as WW2, through the sale of securities and loans from financial institutions. One would have to go off the gold standard, under the premise that it would be reinstated at the end of the war. This may be possible, but history shows it is very difficult, Great Britain being the prime example.

2.) The guarantor would have to be the United States Government, Federal Reserve, or some other quasi-government institution. A private currency system simply wouldn't have the one essential element of money, trust. The people don't currently trust corporations with such mundane things as keeping honest books, much less operating a system on which the collective monetary fate of the country rests. A joint public-private system would work best, as it could maintain the trust inherent in the US government while addressing the concerns of private-interest banks, and financial institutions.

3.) A system based on weight of metals alone is unfeasible. Nobody wants to carry a bunch of gold coins in their pocket. Most people today don't even carry any great deal of cash. Personally, unless I know I will need it, I rarely carry more than $50-60 in cash at any one time. I can rely on my credit card for most purchases. A workable gold standard system would necessitate the minting of non-gold coins and paper bills. Such a system would have to be national in scope, as well as trusted. This is a further reason why a public/private institution such as the Federal Reserve would have to be involved.

4.) A suitable system for foreign trade and investment would have to be devised. There must be good safeguards to prevent gold from "fleeing" the country, thus rendering the currency bankrupt. Under the classical standard, all major trading nations collectively maintained a working balance of trade in gold and instituted domestic policies to maintain reserves. In the current world-wide financial climate, where no other nation will likely reciprocate a gold standard, other measures must be devised.

5.) Going back to the gold standard will take some time. A good solution Greenspan once posited was that interest on government securities be paid in gold. Such plans would have to be further investigated, as well as the ramifications of all US dollars held by foreign governments and investors.

[Pendragon]

Ok you wack-a-doos.

Which of you refuses to use US currency?

[Oleg Volk]

One would have to go off the gold standard, under the premise that it would be reinstated at the end of the war.

They could sell bonds, redeemable in gold.

If no one buys them, it means that the people don't want to pay for the war effort, either because they have no confidence in replayment, or because they have no money to spend on the war effort or becasue they do not wish to endure hardship in order to win (rightly or wrongly).

I suspect that war bonds would be pretty popular if the buyers knew they'd be paid in gold and not in debased paper currency...though the entire tax-paying population would end up providing the interest on that loan. No perfect solutions, I guess.

[Vladimir Berkov]

Oleg, that would only work if the costs of the war could be covered by the current free reserves.

The problem is that is almost impossible to wage a large-scale, long-lasting conflict that way. WW1 killed the gold standard in GB and the rest of Europe. It only lasted in the US because we got involved so late. WW2 killed off any hope of getting back the system.

[ahenry]

Obviously there is no "grand unified theory of economics," which can explain everything according to a specific model. However, the fact that the system is quite complex is not a hinderance to its study. Think of it as analogous to hydrodynamics. In studying the movement of water, you are looking at trillions of individual elements operating individually. Obviously, there is no way to get an answer by looking at each element, yet through the construction of models which can simplify the actual structure to the extent we can derive formulas, we CAN study it. There were once three men stranded on a deserted island. One was a chemist, one a physicist, the other an economist. Their only means of food was a collection of canned goods. They had no means of opening the cans so each set out to open them according to their abilities. The chemist attempted to formulate a chemical that would eat through the metal. The physicist tried to determine how much force would be needed to break through the top. The economist constructed a model saying, “lets suppose we have a can-opener”. :D


The above story was given to me courtesy of one of my old econ profs, and appears to only provide humor to those that make a practice of studying the “dismal science”.

[Vladimir Berkov]

lol

[Bahadur]

If the government suddenly decides to not honor its debts, there's not much Joe Public can do about it.True enough. However, governments that value stability won't do it because it will destroy its future credibility and wreak havoc in the economy.

The international monetary system essentially "prices" various currencies (as well as government bonds) partly based on the probabilities of default.

So, in a way, such a behavior is accordingly rewarded and punished, i.e. self-regulated.
There were once three men stranded on a deserted island. One was a chemist, one a physicist, the other an economist. Their only means of food was a collection of canned goods. They had no means of opening the cans so each set out to open them according to their abilities. The chemist attempted to formulate a chemical that would eat through the metal. The physicist tried to determine how much force would be needed to break through the top. The economist constructed a model saying, “lets suppose we have a can-opener”.In the version I read:

The physicist tries to calculate high much force he should generate by throwing a rock and hitting the can. Then the others object that the force may knock the can open and spill the precious food (only one can in this version).

The chemist wanted to boil the can open through the building of the internal pressure. The same objection (spilling the food when the can bursts open).

The the economist screams "I got it! We will just assume that there is a can opener!"

The moral of the joke: economics is a science of assumptions.

[Byron Quick]

If the government suddenly decides to not honor its debts, there's not much Joe Public can do about it.

Really? Joe Public can revolt and if successful can put all of the politicians in front of a brick wall and shoot each and every one of them...along with the bureaucrats who worked for them.


Such a fate, every generation or so, would probably result in much more circumspect behavious by both politicians and bureaucrats.

[Soap]

The international monetary system essentially "prices" various currencies (as well as government bonds) partly based on the probabilities of default.

So, in a way, such a behavior is accordingly rewarded and punished, i.e. self-regulated.

Excellent point!

[Chipper]

Daniel,

Perhaps you are already aware of this piece but, I thought I would post a portion of it as it exemplifies this dichotomy between money being property and the attributes attached to an object by making it legal tender. The first quote is from a supreme court decision. The second quote is from Eugene C. Holloway, J.D., L.L.M (Admin. Law Economic Regulation) . Part III of Holloway's essay can be found here:
http://www.gold-eagle.com/editorials_03/holloway013003.html

Links to Parts I & II are provided at the above site.

The power to 'coin money and regulate the value thereof, and of foreign coin,' is a prerogative of sovereignty and a power exclusively vested in the Congress of the United States. The power which the government of the Philippine Islands has in respect to a local coinage is derived from the express act of Congress. Along with the power to strike gold and silver pesos for local circulation in the islands was granted the power to provide such measures as that government should 'deem proper,' not inconsistent with the organic law of July 1, 1902, necessary to maintain the parity between the gold and silver pesos. Although the Philippine act cannot, therefore, be said to overstep the wide legislative discretion in respect of measures to preserve a parity between the gold and silver pesos, yet it is said that if the particular measure resorted to be one which operates to deprive the owner of silver pesos of the difference between their bullion and coin value, he has had his property taken from him without compensation, and, in its wider sense, without that due process of law guaranteed by the fundamental act of July, 1902

Conceding the title of the owner of such coins, yet there is attached to such ownership those limitations which public policy may require by reason of their quality as a legal tender and as a medium of exchange. These limitations are due to the fact that public law gives to such coinage a value which does not attach as a mere consequence of intrinsic value. Their quality as a legal tender is an attribute of law aside from their bullion value. They bear, therefore, the impress of sovereign power which fixes value and authorizes their use in exchange. As an incident, government may punish defacement and mutilation, and constitute any such act, when fraudulently done, a misdemeanor. . . .

However unwise a law may be, aimed at the exportation of such coins, in the face of the axioms against obstructing the free flow of commerce, there can be no serious doubt but that the power to coin money includes the power to prevent its outflow from the country of its origin. To justify the exercise of such a power it is only necessary that it shall appear that the means are reasonably adapted to conserve the general public interest, and are not an arbitrary interference with private rights of contract or property. The law here in question is plainly within the limits of the police power, and not an arbitrary or unreasonable interference with private rights.


The Court takes three important positions here. First, the power to coin money includes the power to prevent its outflow from the country. Second, even though the bullion is the property of the individual, by its conversion to legal tender, it has been impressed with the interest of the sovereign and thus becomes something over which the government has the right to exercise control as part of the prerogatives of sovereignty. Third, depriving the owner of the opportunity to realize the difference between the face value and the bullion value of coins is not an unconstitutional taking of property without due process.


Even the highly vaunted (though much over-rated) supreme court finds that money is property BUT becomes under the caprice of legislative fiat what is called legal tender. At no point is it considered to be debt. It probably wasn't until Nixon totally severed all connection between the dollar and gold that the notion of dollars representing pieces of debt began to take hold. You would be correct if you stated that today's dollar (and other totally fiat currencies) is debt. This does not extend to all forms of money. Money therefore, is not debt.

Chipper