Posted on 02/06/2002 4:39:25 PM PST by agitator
This week on The Agitator Hour, heard Wednesdays at 9pm Eastern/6pm Pacific the guest is Mr. Bernard von NotHaus Chief Economist of the National Organization for the Repeal of the FEDeral Reserve Act and the Internal Revenue Code.
NORFED, the National Organization for the Repeal of the FEDeral Reserve Act and the Internal Revenue Code, is a supporter-based nonprofit organization dedicated to using all its revenue to restore a honest monetary system for all Americans, as required by our Constitution. It is governed by a Board of Directors and a Supporters Advisory Council. NORFED solicits your support to effect a change to our nation's monetary standards.
| Guest: | Mr. Mr. Bernard von NotHaus |
| Date: | Feb. 6, 2002 |
| Showtime: | 9pm EST / 6pm PST |
| Where: | The Agitator Hour - Click here to Listen Live at 9pm |
The toll-free call-in line is 1-800-478-7780
That is the value. But notice that in your paragraph above the value goes in a circle, from FRNs back to FRNs.
the value of the U. S. government's ability to print enough of them to pay for whatever needs to be paid.
I don't know what you mean by this, but it sounds like a recipe for pure inflation. A government that simply prints money to pay for what it wants generates pure inflation. This is one main reason the Fed is independent of direct government control, because the experience of nations with central banks controlled by politicians was one of rampant inflation.
I wrote that they can print enough to pay what NEEDS to be paid. You responded with a paragraph about printing enough for what they WANT.
By printing what they WANT, they create "controlled" inflation. Your scenario would create uncontrolled inflation, but that's not what I described. Our money has been inflated by 700 to 1000 percent over the past 30 or 40 years. That's pretty stiff in absolute terms, but the fact that it's been controlled so it's taken place over a relatively large number of years makes it more tolerable (or should I say less intolerable.)
In a post above I referred to the situation in France in 1790 to 1793. Comments?
The fight between hard money advocates and soft money advocates is one of the more fascinating themes in American history. My own independent studies these days is more on the history of depressions, but you can't study the history of depressions without studying the history of money. It's peculiar that every time we shift back to hard money there is a depression. We all know printing money causes inflations. Maybe hard money causes deflations.
The funny thing about tsunamis is that you can't see them coming. If you are a ship at sea, you won't even notice them passing under you. It's not until they hit land that they rise up and smash everything.
Last night I was reading a paper about the depression of 1920-1921, which pointed out that prices dropped by over 40%, while employment and output also dropped considerably, but it was short and brief, and we've forgotten it. Why? That's a very good question. The author suggests that wages were more flexible. Another suggestion I would make is that the world had not gone back onto the gold standard yet. But I don't really know the reason.
http://www.gmu.edu/departments/economics/bcaplan/econ.html
Just to show the support for the other side of the question, here's a link to a pro-paper money organization that seems interesting.
http://www.monetary.org/
But why did Hamilton go to the trouble to give a value to the Continentals? By the time that he did, nearly all of those merchants who had sold real goods to the Army had sold the Continentals they were holding to speculators for a fraction of the their face value. The effect of Hamilton's action was to enrich those speculators hansomely with taxpayers money. What was his motive?
One point being overlooked is that gold has utilitarian value as well as (for the sake of argument) specie value. If gold is $100,000 an ounce, then there are a lot of people running around with $10,000 or more worth of fillings in their mouths. We'd have people getting mugged with a pair of pliers.
I have to concede that is a problem I have not given much thought to. In the modern world, the guy with the $10,000 fillings is becoming less of an issue because there is a new high tech material now available that is better than gold but costs more with the metal at $300.
The point I have tried to make with this exercise is that a pure gold monetary system is perfectly feasible. There is in fact no substantive issue about gold quantities because the initial implementation will market value gold at exactly the correct price to use as current trading value--by definition there will be enough. I don't think the annual addition to the money supply is an issue either. Although there would be a deflationary shortfall of around 2% +/- on the current supply numbers, if gold is at $10,000 an ounce, a lot more reserves become recoverable; at $100,000, the supply would be even larger.
This is not a gold standard proposal in the sense of historical monetary systems--although depending on the exact structure of the system, a legal standard system might be an improvement over the fiat money we now have, I don't view that as a complete answer.
Neither do I think it likely that government will step up with such a system voluntarily. But we are moving toward a time when the existing system will be replaced and serious thought ought to be given to an ultimate long term replacement.
No, the circle starts with taxing authority and ends with public demand for the currency the government accepts as payment for the taxes it levies. In this case, FRNs. Before 1965, it was Silver Certificates, U.S. Notes, and FRNs. Before 1933 it was Gold Certificates, Silver Certificates, U.S. Notes, and FRNs. Before 1913, it was National Bank Notes and Gold Certificates. And so forth.
I wrote that they can print enough to pay what NEEDS to be paid.
Well, the bulk of transactions balances are held as "inside money", ledger balances, and the amount of currency and coin issued has almost no bearing on the economy. You have a fascination with currency that is not uncommon, but has little to do with banking and the value of money. Read a work like Selgin's The Theory of Free Banking and broaden your horizons.
Hamilton knew the theory of a funded public debt, probably due to some familiarity with the operations of the Bank of England. Hamilton knew how to convert the huge debt of the United States and the individual States into a capital asset. The method was to assume all of the outstanding debts of the States and Continental Congress, to pay specie on the interest of that outstanding debt, and to accept as payment for tariffs either specie or the currency issues of the Continental and State governments. The process worked, US Treasury debt was quickly bid up to par value, as were the currencies issued to finance the war.
You are quite correct that this resulted in a windfall for the speculators who had bought up the Continentals, the State currencies, and the debt obligations of the Continental Congress for cents on the dollar. It is certain that Hamilton's plan saved the United States from bankruptcy. Did Hamilton also want to enrich the speculators? Maybe. But maybe not.
Would an educated, informed public demand fiat currency over gold/silver based money? History would say the answer is no.
Well, the bulk of transactions balances are held as "inside money", ledger balances, and the amount of currency and coin issued has almost no bearing on the economy.
This is money created out of thin air, so to speak. The first part of your sentence above is certainly correct, and is the biggest reason banks love fiat money. The reason the second part of your sentence isn't correct is because the "economy" isn't really made-up ledger entries in computers. It is the sweat of labor, the work of true capital investment in plant and machine. It is people working and striving.
You have a fascination with currency that is not uncommon, but has little to do with banking and the value of money. Read a work like Selgin's The Theory of Free Banking and broaden your horizons.
Unfortunately, there is coming a day when you, along with millions of other people, will be hit smack in the face with strong evidence that what you call "the value of money" is an illusion.
But I don't expect to change your mind, and I'm not really trying. I'm mostly talking to myself. Mumble, mumble. ;-)
Actually history shows us a preference for currency over specie, and inside money over currency. It's far more convenient. The vast majority of currency and inside money has always been "unbacked", even pre 1933, under various gold systems- would you call that "fiat"?
This is money created out of thin air, so to speak.
No, it's simply "banking", as it has always been practiced. It's "credit money". Banks have always employed fractional reserves to increase credit. That's what they do. You can find this in Mises' Theory of Money and Credit, Selgin's Theory of Free Banking, and most any other book on the history of banking.
The reason the second part of your sentence isn't correct is because the "economy" isn't really made-up ledger entries in computers. It is the sweat of labor, the work of true capital investment in plant and machine. It is people working and striving.
Congratulations. You have just rediscovered "the labor theory of value", one of the perennial heresies of economics. It appealed to Marx, but Adam Smith had already put a stake through it. To find out why it's nonsense you could read Thomas Sowell's Say's Law. Production does indeed create demand, but there's no inherent value in labor per se. Ledger entries have been used to perform one of the functions of money for hundreds of years, maybe no one got the news to you yet. But if you're worried about ledger entries not being guaranteed by gold, then why not convert your savings to bullion or shares in mining stocks?
I'm mostly talking to myself.
You are certainly doing that. Mises has a section at the beginning of Human Action where he complains about "money cranks", you might experience a sense of recognition at his description.
Someone posted earlier (this weekend?) about paper money that people work for in his home town. It takes barter to a higher realm. With barter, there is always the problem that what you can do for a living is hard to trade for what you need (think of Placido Domingo having to sing for his supper). The beauty of money is that it makes highly specialized occupations possible. I don't really care what money it is I work for, as long as I can trade it for what I really want. I don't want gold. I want to pay my mortgage, I want groceries on the table, I want gas in my car, I want medical care and pharmaceuticals, I want education. Gold doesn't rate very high on my list of wants. I don't care what thing I trade for the things I want, I just want it to be acceptable to the person on the other side of the transaction.
I don't expect my money to be a store of value, I just want it to be a medium of exchange.
One of the problems with finding a suitable medium for money is that we expect it serve a number of functions. A medium of exchange, a store of value, a unit of account. Gold is useful for those most worried about money as a store of value, for its ability to hedge against inflation. But if you tie your currency to gold, your domestic economy is held hostage to the whims of international gold flows. And you might be compelled to tighten credit at the worst possible time, when the national economy is already contracting.
I remember a picture i saw of Indians-over in India Indians, after their last big quake. people hoard greenbacks there, as well as gold. People were standing in the street waving around totally useless franklins, trying for some clean water or edible food or anything useful One minute, money was valuable, the next, useless. it can go that quick. Gold has been an attempt to temper that phenomenon, but it falls way short, too. In "in between" times, not as drastic as an earthquake, but 'sorry " times, it's half way there.. During the big government gold grab when they made owning bullion illegal, many people held back, with good reason. Quite a few deals were made where on paper x amount of paper currency exchanged hands, but under the table, real jingle jangle shiny stuff accompanied the transactions.
In Europe during the war, II, as paper currencies started to falter, in this country or that, this was observable, and many a farmer exchanged some sausage and bread for what was just previously maybe large sums of notes, or coin, or collectables. It's the social stability part, and the phenomenon of artificially maintained cities-and urban populations- based on trading wealth mostly, as opposed to creating wealth, in contrast to the rural (outside the city proper) areas and into the agricultural agrarian areas were stuff is grown into real wealth and manufactured goods get produced into real wealth. As the populations fled the cities, there was a direct drop in the worth and 'exchangeability" of anything that WASN'T the true end user "stuff".
Me, I like the end user stuff. I think hoarding any sort of money is silly, I think it should be converted to durable goods in some fashion-land, stock, etc, because that's the 'wealth" you really want anyway, might as well get it when ya can.
I mean, look at all these people who just can't get past the point of thinking they "lost" money in some stock bubble, when it never existed except as wild hysterical theory, because they never took advantage of converting it. Only a tiny percentage was an actual representation of 'wealth". They pick some high bid-up point in a speculated stock-a point that in no way in one hundred years would the company actually be "worth" and then proceed to use that figure as if it's really 'wealth" in hand to complain about how much they "lost".
It's a disconnect. The sum total of the market and paper currency supply can never be cashed out and exchanged for true wealth, not at the "claimed" ratio of the pseudo traded wealth as opposed to reality based wealth. The professional skimmers and traders maintain constantly that by following their magic beans and convulted recipes and theories that this is possible-but that's only because none of them actually produce any of it, so of course they will skate on promoting reality to the suckers and rubes. It's a fabulous congame for them, and they don't even have to wear silly looking carnival hucksters suits as they do it.
It's the same with all paper currency, and the digitized versions we use now. I love scary gary norths label - "electronic promises of money". It's hilariously true if you think about it.
For a blend of the two that might work - and be fair and a lot more stable and still help bring about "economic growth" - in the specie versus fiat credit notes debate-, my idea is to have a top 100 commodities (throw gold in there, what the heck) backed sort of money. A blend of commodites represented by greenbacks for convenience purposes. Sort of a stock certificate that can't be inflated or artificially bid up, except by actual production, actual produced wealth. The paper is always based on the nations store of the top one hundred traded commodities that got produced and traded that year-what people value as 'wealth" now anyway, that's why they are the top 100 traded. The list could change as society and technology changes, that part is really not important as long as it's timely, say the list gets updated once a year by a combination of accounting, and inventory. All that is done already, the figures are avaialble to use. It's portable -we can use the same greenspans, makes no difference- measurable, it's really "there", the paper is really, really "backed' by something-a lot of valuable somethings- and a more-true and honest indicator of the nations actual true and available and useful "money" /wealth supply. it's not backed by some pompous manipulators insider trading actions in the currency- poof created markets, it's not backed by a single weird and scarce element, it's not backed by someone else's future maybe yes maybe no actually working and producing, nope, it would be backed by what society has already decided is valuable that year, by automatic default of interest and production. It would be self regulating as well, because people will always want exactly what they want, so instead of trying to artificially raise or lower the supply, it would just naturally grow nice and steady, and would be eminently adaptable to a changing world.
You might be shocked to know that I do use FRNs, I don't have a vault for storing all that gold, and I know how the current system works and how to work it. I also know that the current system is based on an illusion --- or more accurately, a series of illusions.
But by all means, keep your nose up in the air. Next time it rains, you might drown. Buh bye.
I don't really disagree with what you say . . . except the part at the end, when you say, "I don't expect my money to be a store of value."
Although I don't expect the money we have today to be a store of value, because it isn't, that's what I really want my money to be. And that's what my part of this discussion has been about.
Over the past 30 to 40 years, combine the 700 to 1000 percent inflation with the dramatic increase in the percentage of our income that goes for taxes, and the value of our labor and investment is shrinking to serf-like levels.
Many men work two and three jobs. Their wives work, rather than staying home to raise their children. Kids are being raised by strangers. Values aren't being passed on to the next generation.
Certainly, fiat money isn't the sole cause, but it is a big contributor.
I don't know a lot about free banking, so I can't comment, but I will read up on it.
The suggestion to back money with a commodity other than gold was mooted during the depths of the Great Depression by two well respected economic thinkers, Irving Fisher, a professional economist, and Benjamin Graham, whom I know was an investor and believe studied economics. I haven't read all of Adam Smith's Wealth of Nations, but I have read a paper which discusses Real Bills theory, and the author argues that even though our money is not convertible, it is still backed.
http://www.csun.edu/~hceco008/rbd1197.doc
Your argument about the real value of stocks is very good - I agree completely. The price on any given day is only what the float is worth - if the people holding all the shares tried to dump them at the same time the price would go to zero or near it. So multiplying the total amount of shares outstanding times the sales price doesn't really tell you much. If your shares decline in value just sitting in your desk then you lost nothing real - it was imaginary wealth.
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