I am starting to see lately in social network sites a few so called “libertarians” that argue against gold and in favor of paper money monopolly. It is usually justified because bankers controlled gold and fucked everybody and so paper its better (I know, but they really believe this). They are still a few but they are starting to pop up more.
Its curious because I am not in favor of a gold standard but I end up allways defending gold somehow. It is very obvious to me that a gold standard, even if not perfect, is a lot better than a paper standard.
They all sound very similar to the wacko ideas of Zarlenga, and I believe that this people are buying them from watching Money Masters and the new one. If the theories of this guy would be applied there wont be a big change from the present situation, and probably would led to even more bubbles. The only good thing that I can see is that if his ideas are applied the system would collapse quicker and a new libertarian society could emerge, but that would be long and painfull process.
So is there anything that can be done against this? I really believe that a Money Masters style movie but explaining real history and correcting the mistakes of that movie makes would be great. There is actually no movie to recomend to friends in that sense. It is not that hard to do because there does not have to be a lot of real locations shots. I have a friend who is skilled in video production (he has worked mainly in 3D video animation in big movies) who is willing to help. There is also another friend who is studying economics that wants to help with the script. But we dont have the experience to do a full blown movie, so I am posting here to see if anyone would be interested in collaborating and hopefully bring some experience to do something like this. I think it would help the movement in a big way. People are watching this type of movies a lot.
I have watched the first one and I am downloading the second one, but they are different style, they are “very nice”. I was thinking in a more historical movie with an interest on showing how the government and bankers always used the law to their advantage.
I dont know how to explain it, I became interested in monetary policy after watching Money Masters. At the beggining I believed everything the movie said, but after reading articles at mises.org and specially after reading some of Rothbard’s historic books I realized that the movie was wrong in various ways, and also that the “solution” it proposes its not really a change from the present system, and it would not solve anything. But the true is that it got me interested in monetary history, in fact, I liked the movie so much that I watched it three times in a month (and its not a short movie). I would have not been hooked and amaze by those movies. I am trying to give something enterteining and that appeals to the “common guy”.
Its curious because I am not in favor of a gold standard but I end up allways defending gold somehow. It is very obvious to me that a gold standard, even if not perfect, is a lot better than a paper standard.
Doesn’t Rothbard heavily criticize fractional reserve banking? Fractional reserve is a major problem with the gold standard. Gold standard money will be paper money if fractional reserve isn’t actively outlawed by a government, because entities that own gold will issue “paper certificates” en lieu of physical gold, and what’s more, they will be accepted as gold by customers - always have been. A gold standard doesn’t stop paper money, and it doesn’t prevent inflation - it just makes the inflationists whoever has gold hoards, or who convincingly pretends to.
All a “gold standard” does is give power to whichever entities happen to hold gold. Whichever group that is, it’s not the American people. In other words, advocating a gold standard is advocating taking the money-creation power away from one elite group (central banks) and giving it to another, overlapping elite group (central banks, private banks, individuals with gold hoards).
The American Revolution was fought because the British Empire attempted to put America on a gold standard. The British outlawed American paper money with the Currency Act (1765), resulting in a depression. The British then started passing taxes which required Americans to pay in either metal or Bank of England ‘sterling notes.’ The thing is, America didn’t HAVE any of those things - all the ‘hard money’ they took in was sent right back out to pay for imports, leaving hardly anything circulating internally. You can read about wealthy Virginia planters gambling at cock-fights with barter commodities, because no one had any currency to use internally except when the colonies issued paper money, by fiat, as legal tender. You can read Benjamin Franklin, among others, writing pamphlets about how this is a good thing, because inflation or no, it allowed internal commerce to increase and thereby increased goods and services.
This is why Americans were so upset about the small tax on tea - they didn’t have the gold and silver, so they’d have to borrow “metal-backed” currencies from foreign banks to pay taxes or engage in commerce - a triple enslavement, first by neutering their representative governments, second by requiring individual private debt to have medium of exchange, and third because taxes had to be paid in a borrowed currency.
Anyone who doesn’t have any metal is in the same position in a gold standard economy - you have to borrow from Aristocrats who create ‘gold certificates’ just to have a medium of exchange.
I could also point out that King George III was a Habsburg through the Albertinian line. Do you know who was fond of the Habsburgs?
Gold standard money will be paper money if fractional reserve isn’t actively outlawed by a government, because entities that own gold will issue “paper certificates” en lieu of physical gold, and what’s more, they will be accepted as gold by customers - always have been.
Why will this occur only if there is fractional-reserve banking? The argument for paper notes is that it’s more comfortable to carry for the consumer, not that they can be leant out fractionally (although, there are several libertarians/Austrians who do think banks would practice in “limited” fractional reserve banking). Of course, what would happen in a free-market for money is almost completely speculative, but banks theoretically would not “require” fractional reserve banking to issue paper notes as money substitutes (and these notes could theoretically be maintained with 100-percent backing).
(and these notes could theoretically be maintained with 100-percent backing).
Well, yeah, notes certainly could be theoretically maintained at 100% backing. But imagine the temptation to issue more notes than gold… If you issue gold-notes at 100% backing, and have a good reputation for redeeming your notes in gold, you can issue extra notes and people will accept them at face value, as gold. People will even save them, as if they were gold, taking them out of circulation and taking pressure off you to be able to redeem them. You can put some ink on a piece of paper and people will treat it as if you gave them physical gold! It’s basicaly a “free lunch” for whoever is doing the issuing. Can we really imagine most humans resisting that kind of temptation?
If not, what’s the difference between ‘hard’ and modern ‘fiat’ currencies in this regard? In both cases, aren’t elite groups benefiting from money creation, with everyone else harmed by inflation?
Still, I might grant that gold puts some kind of a ‘check’ on the free lunch of the money issuers - instead of an all-you-can-eat buffet, all they get is a feast. So why the half-measures? Why not advocate either eliminating the free lunch of the money issuers, or socializing it?
“so called “libertarians” that argue against gold and in favor of paper money monopolly.”
Fine. But is it OK with them if I still use gold?
BTW, as paper-lovers, what is their opinion on the Constitution article 1 section 10: States shall accept only gold and silver as legal tender?
“It is usually justified because bankers controlled gold and fucked everybody and so paper its better”
LOL, yeah, bankers are like the Last Airbender, but their forte is controlling yellow rocks. That’s why my store of wealth is green pieces of toilet paper printed freshly every day, not precious atoms fused together in supernovas aeons ago.
“Fractional reserve is a major problem with the gold standard. Gold standard money will be paper money if fractional reserve isn’t actively outlawed by a government”
You’re suggesting the government should stop acts of fraud, rather than back them up with insurance?
There will always be humans that are tempted by crime and fraud. A well respected car-dealer, too, could suddenly start selling cars he doesn’t have (“on paper”), and run away with the cash before the buyers show up to claim them. A well respected parking garage could also suddenly start renting client’s cars out to others (when they don’t use them) while claiming they’re safely parked (“on paper”). A well respected real-estate developer could suddenly start selling houses he doesn’t have (“on paper”) and never intends to build. Paper can take “anything” as a claim.
Issuing claims to non-existent gold is no different. Each of these businessmen would be faced with the same cost/benefit equation whether the “benefit” of the crime/fraud would outweigh the “cost” of honest future profits lost. For most successful and well respected businessmen the equation usually favors avoiding crime/fraud at all cost.
No. A gold standard tends to be fiduciary, wich is different from fiat money. A fiduciary paper is a certificate of something, in a gold standard is a certificate of a certain amount of gold. This is different from a fiat system, where you can not exchange your paper for a fixed amount of something. Basically whoever can emit fiat money can create money without limit. When people talk about paper money it refers to fiat money. And even if you dont agree on the terms it does not matter, the point is that under a not redeemable system whoever controls the emission can emit without limit. This does not happen in a redeemable system, be it redeemable in gold or whatever.
No, this is not true. And I am not talking about the paper part, I am talking about inflation under a fractional reserves banking system. In a completely unregulated banking system, there are two basic “forces”:
Bankers want to emit as many certificates as possible, so they can lend more and earn more interests.
If people realize that the banker has emited too many certificates starts distrusting the bank and retire their gold, so the banker has to refrain from keep emiting, or in an extreme case there will be a bank run bankrupting the banker and putting him out of bussiness.
This two forces compensate each other and makes an unregulated fractional reserve banking system not or hardly inflationary. You can see this in history where there has been unregulated fractional reserve banking (if you want references ask). It can be discussed that fractional reserve banking might have some problems, f.e. social problems because people loose its money when a bank goes bankrupt.
The inflation part comes in when you add a central bank (or other type of regulation) and allow the bankers risk-free fractional reserve, because you are eliminating the reason that keeps fractional reserve banking in check. Fractional reserve alone is not inflationary, it can have its problems (this would be a long discussion and I dont want to go into it), but its not inflationary.
You need regulations (usually in form of a central bank) for inflation to start happening. In fact, politicians are always interested in having an inflationary system and always will try to create laws in that direction. It is totally naive to believe that government is going to stop it.
As I alredy explained, this can only happen with government regulations (usually in form of a central bank), not just by having gold.
A transition to a gold standard can happen by using competing currencies. So overtime everybody would be holding gold. But the point is that I said that a gold standard is better than a paper standard. Under a paper standard like we have now, government controls the emission of money through the central bank and can create money “without limit”, and also protect the banking system, wich can lend money without something to refrain them. All of this at the expense of the people. Under a gold standard non of them could overextend themselves.
My problem with the gold standard is that governments have always tried to control the money supply and a gold standard has always been the first step towards a paper standard. In fact, in the USA to go from a gold standard to a paper standard they started by corrupting the gold standard, converting it to a paper gold standard system (usually called gold exchange system) that allowed them to control the monetary system, and from there go to a pure paper standard that allows them full control over the money supply, and the capacity of creating one bubble after the other.
Constitution article 1 section 10: States shall accept only gold and silver as legal tender?
It doesn’t say states shall only accept gold and silver, it says they can’t ‘make’ anything other than gold or silver legal tender. States can accept acorns as payments of debts if they want to, they just can’t mandate that another party has to accept acorns in place of gold or silver as a legal tender replacement.
Article I, section 8 says the Federal government can ‘regulate the value’ of money, and ‘coin money,’ meaning issue it.
I thought the ones behind the Money Masters were monetarists. They believe that a fiat standard is better than a gold standard, but they also believe that the government should prevent inflation by using census statistics to determine how much money should circulate. In other words, they agree with the “original intent” of the Fed, but believe that the Fed has proven to be a poor steward of it. They want a debt-free paper standard where the supply of money grows slowly as a measure of available goods and services. They believe that inflation and deflation relative to the supply of goods and services cause instability.
I do not agree with monetarism, but I think there is a significant difference between Milton Freedman-style monetarism and inflationary socialistic monetarism.
No. When they talk about a paper standard is obviously a paper money monopoly, just like we have now, but with minor changes.
Somehow they believe a paper monopoly without fractional reserve banking would stop inflation (!!!). This all comes from the “theories” from that wacko, posing as an economist.
Someone is saying that wihtout fractional reserve there would be no inflation and therefore they would trust the paper money if government printed all it wanted. I know its stupid, but some believe this.
This and the money as debt thing have to be the biggest myths that people believe.
Yes, in fact Milton Friedman helped with the Money Masters. They accept that part from monetarism but also oppose fractional reserve banking. But its a naive idea. Can you tell me only one central bank in history wich has mantained price stability? No, and its because there is no need for price stability, prices should go down as productivity increases, and price stability is just a excuse to create a central bank and pursue inflationary policies.
Also, except from fractional reserve banking we alredy have a debt-free paper standard. When the central bank monetizes government debt is equivalent to the government printing money. Except from ending fractional reserve banking there would be no difference from the present system, and what they propose would led to a big inflation process.
Those who argue that a gold standard results in depressions or monetary instability are really arguing from the position that banks, by their very nature, must have the intrinsic right to the moral hazzard of lending money they do not have. They believe that factional reserve banking is inevitable; therefore, the monetary policy must be able to account for this. Hence, an inflationary, fiat standard is the only possible one that will work.
It is really putting the cart before the horse.
Sure, if a bank acts irresponsibly under a gold standard and tries to practice fractional reserves, it would eventually result in a bank run when people discover that their deposits may have been squandered. The bank will fail if it does not act responsibly. The solution is to require banks to act responsibly, not protect their irresponsibility at the expense of the depositors. I would imagine that if a bank squanders money from depositors, the bank should then be indebted and have to work to earn the money to pay them back.
..under a not redeemable system whoever controls the emission can emit without limit
I basically agree, althout the question of inflation is very confusing because of the contradictory ‘austrian’ vs. mainstream definitions of inflation.
In the austrain version (inflation is an increase in the supply of money), how is a redeemable currency not inflationary? If everyone beings by using only gold, then move to 100% paper notes, the supply of money has technially just doubled; there is the certificate circulating as money, and the hard money in the vault, whereas before there was only the hard money. If the banks issue 10 notes for every 1 unit of hard currency, the money supply has increased by x10. If banks start using other banks notes as reserves - if they start redeeming paper gold certificates in other banks paper certificates, then the whole system can be theoretically “gold backed,” but the inflationary potential is then unlimited - if you can use paper as reserves to make loans, the paper can be x100 or x1000 the amount of gold units.
My understanding is that a main austrain objection to inflation is that those closest the the emission of money benefit the most, while those farthest away have their currency the most devalued.
Let’s take the strict gold-standard system, where you can’t use gold-certificates as lendable reserves, only physical gold:
you say in a paper system, “whoever controls the emission can emit without limit”; doesn’t this imply that even in a gold system, whoever controls the emission can emit within limit? Doesn’t this just mean the problems pointed to above; that the people closest to the emission of money benefit unequally from money creation, will have limits placed upon it?
Why put problems within limits? Why not just solve the problem at its root?- that some people get a free lunch by creating the money supply.
Sure, if a bank acts irresponsibly under a gold standard and tries to practice fractional reserves, it would eventually result in a bank run when people discover that their deposits may have been squandered. The bank will fail if it does not act responsibly.
The bank that practices fractional reserve will often be able to afford to buy up the shares of the bank which doesn’t. I like your idea about ending limited liability for banks though. I don’t think there’s only one solution, but yeah, fractional reserve banking is inevitable (and will come to dominate) if not made illegal or reformed somehow.
Bank A operates on fractional reserve. Customers from Bank A buy things with checks, which eventually get deposited in Bank B. In order to reduce its liabilites, Bank B will call in the checks and exchange them for gold, which will cause Bank A to go bust because it is insolvent. In this way, fractional reserve banking is checked by competing banks as well as consumers.
The main austrtian objection to inflation is that it creates bubbles and in general distorting the productive industry, making everybody poorer. This is the main reason why jobs are going to China, because inflation plays a big part destroying the USA productive industry.
The effect you talk about is true, but I would say the creation of bubbles is a bigger issue. Both are good reasons to adopt a non inflationary system.
No. This effect only happens in an inflationary system. The gold standard you are proposing would not be inflationary.
You commented before that a solution would be to socialize money, but the money is alredy socialized now. We live under a paper money monopolly imposed by government to the benefit of bankers and politicians. The bankers enjoy now a “risk-free” fractional reserve system, and the politicians get to spend much more money than they could and they can buy votes and give favors to their cronies. Obviously the rest of the people gets screwed.
Btw, excuse my english, I am not english native speaking.
This is not true. You are blaming to fractional reserve banking the problems created by the central bank. In an unregulated fractional reserve banking the banks notes devaluate quickly if the bank overextends. You can check this in history. Again, history shows that an unregulated fractional reserve banking does not give monopolly power to one entity. Banks only got domination when government started to regulate the banking system.
You can see this in the USA history. Before the civil war, the banking system was completely unregulated and in the states that did not mess up with it, you can see this I am telling you. After the civil war, there was the regulations aproved by Linconl that partly centralized the banking system, and allowing some banks to impose themselves in a non-competitive way and dominate. This is the era where some people claim that bankers controlled gold and therefore controlled the monetary system, but its false. The reality is that banks controlled the monetary system not through the control of physical gold but through the control the government regulations gave them. It gave the big banks paper preference over the rest of the paper, even if it was all fiduciary. This is what its called the gold exchange standard or paper gold standard.
Eventually bankers and politicians extended this and finally go to create paper without gold baking, and here we are.
Well, yeah, notes certainly could be theoretically maintained at 100% backing. But imagine the temptation to issue more notes than gold… If you issue gold-notes at 100% backing, and have a good reputation for redeeming your notes in gold, you can issue extra notes and people will accept them at face value, as gold. People will even save them, as if they were gold, taking them out of circulation and taking pressure off you to be able to redeem them. You can put some ink on a piece of paper and people will treat it as if you gave them physical gold! It’s basicaly a “free lunch” for whoever is doing the issuing. Can we really imagine most humans resisting that kind of temptation?
It’s actually not a “free-lunch”, and yes there is the temptation to overextend fiduciary media. The argument that Mises presents (incompletely), and later White/Selgin, is that the free-market inherently limits the extension of fiduciary media through the demand for bank money and demand for base money (in our case, gold). Individual bank braches would thus keep an optimal reserve ratio based on these demands, changing it flexibly as demand for either changes. Mises also cites the pressure to redeem notes in base money as a natural limit to the extension of fiduciary media.
If not, what’s the difference between ‘hard’ and modern ‘fiat’ currencies in this regard? In both cases, aren’t elite groups benefiting from money creation, with everyone else harmed by inflation?
If there is an expectation for inflation, I would think that many people would choose to redeem their notes in base money, fearing that if they put it off then their notes would lose value.
It’s noteworthy that in periods of falling prices, in the United States, there was mild inflation (increase in the supply of money). It was just that productivity outstripped growth in the money supply.