"ZUT ALORS! Ah would lak to 'ave a BAHOG!"
Posted on 08/16/2007 8:44:52 AM PDT by .cnI redruM
Republican Presidential Candidate Ron Paul has made politics a lot more interesting this year. He believes a lot of things the GOP establishment doesn’t, and his entry into the race has made people discuss ideas that wouldn’t otherwise get put into the public forum. I salute him for contributing, but would rather take a pass on one his least useful contributions. Ron Paul has suggested taking the United States Dollar back on the Gold Standard and doing away with The Federal Reserve.
For some reason, this whole debate over Ron Paul's platform and on full-bodied and specie-backed currencies, reminded me of a course I took in Medieval History. One text, Mohammad and Charlemagne, by Henri Pirenne, had significant input on the impact of Islam's capture of North Africa and Spain on the currency of France.
Like America's economy today, the French economy, even under the Merovingian Dynasty, had a constant requirement for an expanding money supply. This was to do what any money is supposed to do; provide a medium of exchange, establish a baseline standard of value and store wealth.
Had the Merovingian French been content with the M1 the Romans left behind, as they fled before Theodoric, Gaiseric and Attilla with the same doomed finality with which the last US helicopter lifted off the embassy roof in Saigon, Henri Pirenne's historical masterwork would not inform a modern audience of the economic consequences implicit with Gresham's Law. Instead, the French expanded their economy and their currency in circulation, without appreciably expanding their supply of precious metals to support the circulation of these funds.
Prior to 476 AD, Rome had mined significant portions of its gold and silver in Hispania. They used these metals to back the Imperial Aureus. As long as the Romans kept digging gold as fast as they opened new markets, the Imperial Aureus was to ancient world currencies what Caesar's 10th Legion was to brutal, close infantry combat. When the currency fell behind the rate of expansion, the part of the world formerly in the Western Roman Empire met its economic Adrianople, as would be predicted by Gresham’s Law.
Gresham’s Law states that good money drives bad money out of circulation. A more accurate formulation thereof might read that money overvalued in proportion to its specie content is a great medium of exchange for the buyer, but a poor store of value for its recipient. I’ll hand you coins made out of rock all day, if you’re dense enough to give me a tall mug of ale in return. By the time Charlemagne took over as Holy Roman Emperor, buyers in France were literally attempting to find people gullible enough to take their coins chiseled out of rock.
The converse of Gresham’s Law states that coins with more specie than required to support their accepted value tend to leave circulation rather swiftly. These coins are storing more value than they will bring in exchange. Some merchants in modern America would really rather not bother with the pennies put in circulation in 2007. These same people would take a mint condition 1941 Wheat Penny off your hands in a heartbeat.
A hyper-accelerated version of this process occurred in Merovingian France. Once the Islamic conquests separated France from a steady flow of precious metals, the French currency went the way of Jacques Chirac’s moral integrity. The powerful nobles and the growing church took gold and silver coins out of circulation through taxes, tithes and blatantly unfair confiscation. The peasants and serfs got left to go chisel coins out of whatever specie they could find.
The end result of this downward spiral was a decadent Merovingian monarchy ruling over a desolate, impoverished peasantry that couldn’t read, couldn’t write and didn’t understand a word of the mass they attended on Sunday. Economic policy like this kept the Dark Ages of Europe ineluctable for several centuries. When a specie-backed currency doesn’t have enough specie, this is where people can end up.
Modern America would never be leveled the way the Merovingian France was by the rise of the Muslim Caliphate without a nuclear conflagration. We are blessed with land, resources and population that Medieval France could never even dream of. However, before considering a specie-backed currency, we should take a good, hard look at where the world gets its specie.
Modern America currently circulates $7,243,000,000,000 in currency. The current spot rate for an ounce of gold is $654.90 per ounce. That makes gold sell for $10,478.90 per pound. This means the US would require 345,600 tons of gold on reserve to back our current currency float; assuming we take no reserve risk.
The United States currently holds 8,133.5 tons of Gold. The current worldwide governmental holdings of gold for the 40 largest governmental reserves total 29,846.70 tons. The United States could only back less than 3% of it’s current M2 without acquiring more gold. This would leave us vulnerable to currency devaluation as predicted by Gresham's Law.
Simply put, Congressman Ron Paul longs for a simpler time when the US Government did not deeply involve itself in every aspect of our daily lives. On a philosophical level, I strongly sympathize with his concerns. On a more practical level, I’d like to hear his plan on for acquiring the 28,000 tons of gold the United States would require going back on the gold standard and only taking a 90% currency risk. That would probably be sufficient to insure that modern America and Merovingian France continue to have very little common economic history.
Ain’t never gonna happen—but we can dream and believe =-(
That's incorrect. In fact, that's exactly the opposite of Gresham's Law.
..and there is one of the rubs.. along with that we must hold that gold, and the world market for the value of gold isn't inflated or deflated. Value (in relation to price), unlike quantity, is an abstract.
He simply ignores all practical reality to cling to how he feels things should work. That is a dangerously naive and ignorant world view. Like his followers, Paul simply ignore the facts to cling to his dogmas.
This sort of inability to deal with the world as it is, rather then how he wishes it, makes him unfit for the office he NOW holds in Congress, much less any higher office.
interesting the role lack of specie played in colonial America as well.
I am sure Ron Paul’s pal Alex Jones knows how to get it.
If each of these were valued at current market rates for the sell of those assets, then that amount of money converted back to gold ounces as a pure book keeping exercise, you would then have a value of the US assets in the equivalent of gold ounces. That would allow for a realistic holding and benchmarking of an asset based currency without the strict need to hold gold in reserve.
An interesting idea. It sort splits the difference between a fiat and a specie-backed money. I would worry about the externalities of currency fluctuations on the markets of some these commodities. Particularly, if they had strategic or economic impact.
"ZUT ALORS! Ah would lak to 'ave a BAHOG!"
Now, I don't hold any imaginings that there is any chance that we'll ever see a specie backed currency again, but... To use the current price of gold in current dollars to "prove" that we can't possibly hoard enough gold to back our currency is a fruitless calculation and proves nothing whatsoever. It's simply an irrelevant calculation and a waste of your time typing in the numbers... the current value of the dollar has no relation whatever to the value of a species backed currency which might replace it.
This entire posting is a waste of time and doesn't even string rational thoughts end to end.
(non coupable)
I was thinking of a bit later, like when George Washington shifted out of tobacco production at Mount Vernon to general crops; also, obviously, the slave trade
This is gonna be fun...the goldbugs are a’comin!
Somewhat off-topic, but Ron Paul ran for President on the ticket of the Libertarian Party back in 1988. Does anyone know in which state Dr. Paul earned the highest percentage of the vote, coming to within 57% of winning the state’s electoral votes?
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