Fiat money: Gold, silver, Gresham and Taxation.

Economics Economics Questions
, , , ,
1

Hi all,

I am a longtime reader of this website. I became interested in Austrian economics while studying for an economics degree at university. As you all well know, the standard college econ curriculum is all but useless in terms of its ability to actually inform ones opinions on the topic. Luckily, I made a few friends in the econ club who introduced me to the Mises institute. I tell every prospective college student I know that regardless of what they major in, their time at university should be spent examining and investigating all of their REAL academic interests; class should be secondary to this pursuit. But I digress.

I, like many other libertarians, am keenly aware of our corrupt, debt-money, fiat paper system. The lowly bailout-receiving-thugs on Wall st., the seedy agents of international finance-capital, and the corrupt and largely clueless “representatives” in Washington are nothing short of criminal hucksters feeding like vampires on the lifeblood of a once-great nation. It was with this cheerful thought in mind that I sat down and watched a documentary film titled “The Secrets of Oz.” The maker and lead voice of the film is Bill Still, of “The Money Masters” fame. His thesis argues in favor of the quantity-theory of money. He argued strongly against a return to a gold-standard currency system. He argued that the gold standard, which existed between 1873 and 1913, was the primary reason that the Federal Reserve System was able to come into being. He argued that the system of credit was too tightly controlled and subject to manipulation, due to the fact that international financiers controlled a vast majority of the world’s gold supply. Since the public was prohibited by law from using anything else as legal tender, the so-called money masters were able to dramatically expand and then contract the supply of credit, leading to many panics, a sustained depression in the 1890s, and a general sense of disorientation and fatigue in the economy. Since they could also time these events, they had a great advantage in other asset markets; they could always get out just in time, and then swoop in to buy it up for pennies on the dollar. Mr. Still’s solution to this problem, was a return to a debt-free, fiat money system, such as the infamous Continental of revolutionary war fame or the greenback. He did shrewdly point out that it doesn’t matter that they would print a lot money, because they do that now anyways, only there would be no attendant national debt; the money would be spent into circulation (as a side-note I am well-aware of how this would benefit the political class and their affiliates by being the first-spenders of new money, but again, that happens these days anyways.) This is obviously not an ideal solution. Business would continue as usual, and savings would be eroded. Hangers on and members of political retinues would be the beneficiaries of such a system, but could it not be a stepping stone on the way back to a free-money system?

My question is: We are entering a time now when people are waking up to the corrupt and odious nature of the federal reserve system. Would a return to a gold currency not simply set us back to where we were 100 years ago? Gresham’s Law warns of the dangers of bi-metallism, but I think that it could be a dangerous proposition to advocate returning to a gold-only system. Is there even any gold in fort knox? How many independent gold miners are there in the world these days? Ideally, it would be good to be able to work our way back to an open banking system, where fractional-reserve lenders are treated as counterfeiters and dealt with accordingly. Do you think that a return to a gold-only system is the right path? Silver? Tally sticks?

On another note, I love gold. It’s a great metal. It has many industrial applications, it is non-corrosive, its purity is easily tested - especially given modern technology. It is an excellent candidate for a store of value, but in the end, if government decrees that only gold can be used as money, does it not then also become another fiat currency?

In the end, of course, it all comes down to taxation. What will the government accept in taxes?

I look forward to anyones thoughts on my ramble.

Cheers

2

“Mr. Still’s solution to this problem, was a return to a debt-free, fiat money system,” …

…“This is obviously not an ideal solution.”

This is no solution at all.

Your first task should be to study capital theory in depth so you can recognize the economic fallacies behind all such proposals.

Mr. Still’s and all of the makers of the various “Money Masters”, “Web of debt”, etc… books, videos and whatever are nothing but inflationist money cranks. They lack not only capital theory, but economic theory in general as well. They are socialists who are brilliantly disguising themselves as something else.

3

What you always have to bear in mind is that money is a free-market phenomenon. As long as government is determining what is or is not legal tender, there will always be an element of coercion there, and historically you will struggle to find an example of government not abusing its monetary control. Those ‘debt is money’ vids are largely correct in their exposition but then come to a totally bizarre and wrong conclusion. A real shame.

4

The watch-words you are looking for are “free banking” and “currency competition.” Without government intervention into the banking industry, fractional-reserve banking would be impossible (yes, impossible). Without government intervention into the currency production market, people would use a variety of commodities as money (yes, only commodities could be money) and one or two commodities - probably gold or silver - would stand above all others as “the” money. Read Gary North’s pamphlet, Mises on Money, to get all that YouTube gobbledy-gook out of your head.

Clayton -

5

I agree with the other posters. He has his history all wrong, his theory all wrong, the problem all wrong, and the solution all wrong.

Bottom line: The problem is not “money is debt”. That’s like saying the problem with salmonella infected food is that it is in tin cans. Put the infected food on a paper plate and everything will be fine.

“So what is the problem?”

“The problem is the Law of Supply and Demand.”

"Huh?’

“The more money that is out there, the less it is worth. And the govt keeps printing more, so it keeps getting worth less.”

“But won’t we all be better off if the money was dropped from a helicopter, instead of tied in to debts?”

“No. The Law of Supply and Demand doesn’t care how the thing Supplied came into existence.”

“But isn’t getting rid of debt a good thing in itself?”

“My turn to say ‘Huh.’”

“I mean, this way, the only way a person can get some money is by borrowing it, and paying it back with interest.”

“And your point is?”

Gresham’s Law only says bimetalism is bad if there is an artificial rate of exchange between the two metals. In other words, if people are FORCED to accept, say, 10 ounces of silver for an ounce of gold. But if the exchange rate for the two metals [or metal coins] was left free to fluctuate as people pleased, there is no problem with bimetalism.

Austrians don’t insist on gold per se. They want people to be free to use whatever they want as money, and let the chips fall where they may.

How would the govt collect taxes? Well, just as they force the taxes, they can force payment in whatever they want. But even if we let the Mafia get its cut on its own terms, the economy would still benefit greatly if people were allowed to interact with each other using whatever they want as money. As opposed to now, where if you buy something and pay in gold, you are taxed for that itself.

Even if the govt decrees that only gold can be used as money, it would not be a fiat currency, in the sense “fiat” is used by Austrians. Fiat money means something that the govt forces one to accept as being WORTH MUCH MUCH MORE THAN IT WOULD BE IF IT WAS NOT MONEY. Paper, for example, is not worth a dollar or 100 dollars or whatever for six square inches.

The benefit to the govt in forcing this is that they can print as much money as they want for themselves [and spend it], and it costs them next to nothing. But if they were also forced to pay in goild, there would be a limit as to how much gold they could give themselves, obviously. Indeed, that is why all govts hate the gold standard.

6

I had visited several websites which promote Mr. Still’s Oz fiilm and wrote long commentary on why/how he got it wrong. What a pleasure it is to find others who understand this, (fellow Austrians of course !) - - - I don’t know Mr. Still, but will assume that his intentions are good. Unfortunately, he misunderstood the meaning behind the original Wizard of Oz book. That book (which had Dorthy in silver slippers, not ruby ones as in the film) was about the 19th Century reaction against the demonetization of silver. Both silver and gold are recognized as real money in the US Constitution. And, if one were to attempt to manipulate one of these out of line with natural supply/demand, people would sell the metal that was artificially high, take their profits and buy the metal that was relatively cheap. Such arbitrage would eliminate attempts at manipulation in a free market for money. Hence the battle between big eastern banking interests who had gold and Westerners who did not, but who had silver in the 1800s. Mr Still proposes some kind of ‘Peoples Money’ - - fiat money backed by their labor, and nothing more. He assures us that it will be controlled by Congress and an oversight board, rather than the private Federal Reserve. Well, I agree with the need to change the current system. But, does anyone one think that the free spending, continuously raising the debt ‘ceiling’ politicians in Congress won’t inflate the currency ? There was no Fed when Continentals were printed like crazy during the Revolutionary War or greenbacks printed like crazy during the civil war. Those same financial interests that pressure the government and make up the Fed, would likely continue to do so under Stills system. We need commodity based money that cannot be inflated at will. Mr. Stills proposals are actually detrimental since they confuse people and head them down the wrong road - - - one not paved in yellow bricks, but in more absolutely useless fiat paper nothings. - - -

7

great post!

8

A typical case of finding one of the right problems, but coming at a horribly misguided solution.

The obvious answer is, as other posters already said, to have no legal tender laws at all!

9

I certainly appreciate everyone’s response to the post. I intend to clarify a few things:

First of all, I am already keenly aware of the philosophical and moral deficiencies in Still’s thesis; I was not attempting to advocate in favor of it. That being said, he’s not stupid guy, and nor are the Larouche-ites that espouse similar “solutions.” They are however woefully naive when it comes to the praxeological reality that is mankind’s experience.

They sit on a different end of the philosophical spectrum. The end which says: "most (private) people are good, but some are bad. Government and business are two very distinct entities, ergo the democratic system is sufficient to deal with the debauchery of a few bad apples. It is exceedingly comical that one would indict business as a potential fount of evil, and government as the remedy - if executed correctly, of course!

The reality is that government and business are not distinct, and they never have been. government is the enforcement arm of the commercial system, and is of course in business itself. I am not an anarchist. Anarchism did after all give way to totalitarianism (many, many, many years ago.) The dawn of civilization was the boundary between pseudo-anarchic tribalism and despotism. Furthermore, humans are pack creatures. We are, in fact, the most successful pack creature the earth has seen to date (depending, of course, on how one measures success!) I sympathize with, and am academically interested in anarchist philosophy, but the fact remains that the vast majority of humanity, when faced with the option of anarchy or slavery, would gladly choose slavery. And I consider myself to hold humanity in rather high regard!

This brings me back to the main point I was getting at regarding Still. I am happy that many of you commented the way you did, because it exposes the deep chasm between the academically-inclined libertarian, and the average person on the street. This was not a troll post, but many missed the forest for the trees. The point of all this research, reading, writing, blogging, etc. is to awaken the public to a paradigm of freedom. A paradigm which most are, in truth, uncomfortable with - especially if it means they have to do something about it. If posters on this board are actually interested in living in the world we all wish for, than saying “You know, reading Rothbard’s ‘A history of Money and Banking in the United States’ will help answer those questions for you,” is not a realistic or helpful solution. I have given copies of “What has Government Done to Our Money” to friends and family; they were delighted to receive new article of dust-collecting bric-a-brac.

The point at issue is that Still’s arguments resonate with people. Right or wrong, his message hits home in a way that the average guy on the street can understand. Like I said before, we are entering a time in which people are going to be looking for answers, and out of those answers must come solutions. As fun as it is to be a “gotcha” purist, it is irrelevant if our country and planet continue sliding towards this increasingly probable future of global socialism. So tell me, let’s abolish the fed and go back to a free banking system. You have 50 words to do so… Maybe 100 would work.

10

The way I see it, there are three questions here.

  1. Is there some system that will maximize everyone’s standard of living, and if yes, which one is it? In other words, this first question is a factual one.

One might say that this site is devoted to proving and explaining that ideally, letting people use whatever they please as money, be it gold, silver, cigarettes, anything, is the best way.

  1. The next question seems to be “But some people are selling different ideas to the public, and doing a very good job. Should we not jump on the bandwagon of the most smooth talking quack, even if he’s dead wrong?”

I dunno, does this have to be addressed?

  1. Given that abolishing the Fed is the best method, how do we explain this in 50 words or less?

Who says it can be done?

Most people learn things the hard way. For Russia, the hard way meant 70 years of starvation and poverty and mass murder and slavery. Then they finally figured it out, a little.

They are the LUCKY ONES, because they have been there done that already. We, meaning the USA and Europe, have yet to live through what they have experienced. Good luck to us, comrade. We are getting there.

11

Well, I think that these subjects can be explained in a way that ‘everyday people’ can understand. (People have been dumbed down in the mandatory public schools for 100 years now - just investigate what was taught in one room school houses from the 1770s - through most of the 1800s. You’d likely find the level of instruction amazing, far superior to today’s level. John Taylor Gatto writes very well on the state of public education & how it got this way. - - Sorry for digressing on a pet peeve subject of mine !) - - - Anyway, just explain to people how our money is paper fiat based on nothing, and the damage that has caused. (At this point in the conversation I get into the subject of money and how it evolved , and its benefits over mere bartar. Murray Rothbards book on What Has the Govt Done to Our Money ? provides the arguments I use to inform others.) Then hold up Stills proposals and let them come to the logical conclusion that he is advocating more of the same fiat paper. Then point out how gold & silver have been used as money through the centuries and how they are set as the basis for money in the US Constitution. Commodity based money can not be printed out of thin air. One doesn’t have to get into all the minute details to get the point across to others. I’ve explained the situation to older kids and teenagers, (also adult laymen), and theyve had no problem understanding it.

G. Edward Griffin does an excellent job communicating on the subject of money and the monetary system so that non-specialists can readily understand it. Here’s what he wrote in response to a number of emails he received regarding Stills films and proposals:

http://www.freedomforceinternational.org/freedomcontent.cfm?fuseaction=meetstill&refpage=issues