Time to put JHo and BH in the octagon and see what happens. Yesterday was the day of the gold bugs. Today, we denationalize money. Wendy Milling, RCM:
The euro is under attack by political forces seeking self-preservation against the economic parasitism required to sustain it, and the dollar is failing through controlled but untenable devaluation. Whenever a human system fails, competing factions rush in to have their replacement solution implemented. Man abhors a political vacuum.
Two competing paradigms of the future of the monetary system are emerging from the right. The first is the gold standard. Advocates of the gold standard seek a return to a past system, or some variation on it, when the dollar was pegged to the metal through some formal government mechanism.
The other paradigm, developed by Hayek and emerging from Objectivist intellectual circles, is the denationalization of money. It is the idea that private entities should issue and regulate currencies. It is premised on the idea that government monopoly currency itself is the problem and that government barriers to private currency should be removed.
[…]
Hayek’s theoretical case for denationalization is straightforward: Market competition will discipline currency issuers, resulting in the most superior currencies possible. Currencies which offer constant purchasing power would remain in continuous demand. Market demand would provide the necessary incentive to issuers to keep their currencies stable. (Governments, having a legal monopoly on currency, have no incentive to avoid depreciation). Issuers would achieve this stability by regulating the quantity of issue. The private regulation of the quantity of issue would be the best of all possible methods for regulating money.
Hayek envisioned a system wherein banks would announce the new issuance of non-interest bearing certificates or notes through loans or sale against other currencies. They would prepare to open accounts in terms of the new currency, which would be a brand or trademark. Imagine a J.P. Morgan talent, a Goldman bar, or a BB&T rand in your wallet. They would announce a legally-binding floor for the currency in terms of the government currency as well as a target value in terms of a commodity basket. They would be prepared to redeem the notes in another currency out of reputational concerns but reserve the right to change the standard as experience and market demand require.
If the currency’s value remained stable, it would sell at an increasing premium to government monopoly currencies. The increasing premium would attract competitors. If the bank needed to buy back its currency to support its value, this would primarily be accomplished through liquidation of carefully chosen assets, particularly the loans extended by the bank.
Regardless of how private currency operations would work in practice, this is primarily a moral issue. Free marketeers need to realize that money under the gold standard is still fiat money. Fiat means by government diktat. Under a gold standard, the government at a minimum is dictating the currency standard. At its worst, it is issuing the money and decreeing it legal tender. […]
[…]
Unlike a transition to the gold standard, denationalization is evolutionary, would not involve mass pain, and is the next logical step in the march of history. It has the advantage that no extensive effort by the government or the public is needed to make it happen. A single piece of legislation with several provisions could accomplish it.
The first provision is to sunset legal tender law. In the U.S., this law is the U.S. Coinage Act of 1965, which makes Federal Reserve notes legal tender. This is absolutely necessary because of Gresham’s Law (“bad money drives out good”).
The second provision must specify that private currencies, and the assets and liabilities denominated in them, are exempt from Basel or any follow-on capital regime. The capital regime under denationalization is whatever ratio of liabilities and assets must exist to maintain the value of the currency at the specified target. Government-imposed capital regimes would be a contradiction to this basic purpose. (In fact, denationalization could not logically co-exist with Basel. As Hayek noted, liabilities including notes issued may well exceed assets on an ongoing basis, which would constitute insolvency under current notions).
Another provision must address, i.e., abrogate, the behemoth role that the FDIC plays in the banking system. Private currency schemes that exist online such as Bitcoin are not insured by the FDIC. To be fully accepted and function on an industrial level, currencies must be backed by private insurance. However, the government has monopolized deposit insurance. Barriers to private deposit insurance must be removed, and the sale of the FDIC to the private sector is preferable.
Another provision must exempt private currency issuers from accounting rules. Accounting rules undermine the value-control operations of currency issuers. Since these banks would not be backed by public insurance anymore, there should be no objections to this.
Another provision must specify that the Fed is prohibited from monetizing debt in private currency. That too would render banks unable to control the value of their currencies. The “central bank” for a private currency is the bank that issues it.
Finally, a safeguard should be put in place to ensure that private currency in and of itself is exempt from taxation. It is an open question at this time whether taxing private currency would amount to unconstitutional double taxation since money is not a good or service but merely a store of value, but it is best to provide as much up-front protection for currency issuers as possible.
The World Trade Organization should then be persuaded to seek via treaties the maximum freedom of movement of private currencies across borders.
Then governments and populations would merely have to allow currencies to appear and be accepted voluntarily on the market.
[…]
A […] realistic concern is that having multiple currencies about would act as an economic epoxy, while a single accepted currency greases economic activity. Experience in Europe before the euro shows that this is not the case. The existence of more than one currency in a geographical area offered business owners options, i.e., it allowed people to escape the bad currency and get the proper value in return for their goods and services. At any rate, Hayek hypothesized that most issuers would likely eventually converge on a single best commodity base standard (or at most, two or three in a given geographical area), as the market demanded more uniformity. Most issuers would denominate in this standard.
There is historical precedent for private currency. While the gold standard is often credited for being the monetary system that powered the Industrial Revolution, in reality, it was not the gold standard, but the private manufacture of currency, especially in England. The Parys Mine Company and the Soho mints in particular provided the scale of privately manufactured coins which was indispensable to the expansion of the British economy, the epicenter of the Industrial Revolution. In America, private bank note issue was also common until Andrew Jackson issued a major legal tender executive order, the Specie Circular of 1836, causing a major panic.
Historical monetary systems were much different than the one we have today, but the common principles concerning competition and the efficacy of free markets are timeless.
[…]
As the old saying goes, if a trend can’t continue, it won’t. Our monetary regimes are collapsing, and the only solution is to recognize that fiat currencies are inherently unstable and to enact denationalization legislation. Money is not a proper function of government, regardless of historical precedent. Government control of the currency is both immoral and impractical, and currency production, like any other industry, should be denationalized.
My main concern? Such a system would make my supercool slimline wallet obsolete.
Then again, I have a man-bag. So I’m already ahead of the game.
Discuss.
(h/t geoffb)
Once again we sniff out the foul odor of the petitio principii, smuggling in what remains to be shown.
Talk about living out a Neal Stephenson novel… If I see pairs of Chinese coolies carrying boxes of bank-notes down the street on bamboo poles, I’m outta here!
I do know that sophisticated insurers (like the one I happen to work for) would be more than happy to take a crack at providing the insurance discussed. So there is that.
Base it on energy. Kilowatts, maybe.
Lines like that don’t induce confidence either.
Set up another system or competing systems to be gamed.
All rules based systems will be gamed … theres another axiom that needs to be added to this argument.
You think certain banks are “too big too fail” now? Just you wait.
Anyone ever read Pratchett’s Making Money? People have a pretty good knack for identifying value.
It’s an intriguing idea, but I still say our economic system isn’t in trouble because of the method used to measure the value of a dollar. It’s the fucking politicians taxing and spending all the nations wealth on cheap grace.
Like I said, interesting diversion, but we really need to keep demanding a balanced budget amendment.
is the next logical step in the march of history
Welcome to Bartertown!
I’m not sure I see what all the negativity is about. I’ve already limited the amount of cash I hold, mostly because it’s a guaranteed value-loser. If I’m already buying equities, or commodities, or bonds, because I think they’ll hold more value than greenbacks, why would it be worse to pick and choose which banks have the most desirable currencies, and which insurers I trust to back up those banks?
I’m under no illusions that a competitive currency environment would be perfect, or the panacea to all our economic troubles, but by the same token, I don’t see how it could be anything but an improvement over the politically manipulated single currency we’re forced to use at present. I don’t need perfect, but better would be better.
I will trade 3 TSP certified cookie sperm for one (1) cow.
Cow up front please. (Last time the cow was backloaded and it took a reeeeaaalllly long time to get that cookie sperm.)
I’m not calling it fat, but the view could have been better.
What would the Bank of PW currency be called? The ‘dillo? The cockslap? The GAY PORN CURRENCY OF LIES?
#13 – Squid, perhaps 100 cockslaps to the ‘dillo? Or we could go all Old School England and have PW versions of farthings, forints, shillings, etc.
One major problem with having a bunch of currencies out there would be liquidity at retail points. One would have to know the exchange rate at all times. Another problem would be counterfeiting. With a small variety of currencies, it’s much easier to train people to look for the clues that the bills are real or fake.
I think this would force most transactions to be on a credit card. The problem with that is there is a record of all transactions that way, and I like the option of being able to purchase something without someone else looking over my shoulder.
This thread will be unsatisfying if JHoward and Ric Locke don’t chime in.
but we really need to keep demanding a balanced budget amendment.
Which will be enforced how? What happens to legislators who ignore it?
Given how well they conform to the other provisions in the Constitution, that is. The only way to keep those bastards from wasting our money is to prevent them from getting their hands on it in the first place.
Repeal the 16th Amendment.
have PW versions of farthings, forints, shillings, etc.
Quatloos. You forgot quatloos.
And the first moron who suggests the name “credits” gets taken out and horsewhipped.
Then again, I have a man-bag. So I’m already ahead of the game.
If your man-bag is like Jack Bauer’s, i.e., it contains a sledgehammer, lock-picking tools, and a bit of C-4, you ARE the game.
“Which will be enforced how? What happens to legislators who ignore it?”
With that attitude, I may as well give up. I can’t force congress to do anything.
With that attitude, I may as well give up. I can’t force congress to do anything.
Now you’re getting the picture.
I like to keep weapons close. I have a neck knife karambit, a rubber-handled boot knife, and a belt-buckle knife. I also have a belt buckle that pops out as a throwing star.
I’m looking into getting an NFA sign-off from a sheriff for a short-barrel shotgun (technically, an AOW). I’m also looking into getting a concealed carry permit. If the sheriff refuses to sign off on the NFA weapon, I’m going to start a corporation so that I can get one. My wife and I have decided to join a gun club and get NRA accredited to get our concealed permits. Pump shutguns, rifles, pistols, knives.
Maybe I’ll keep a lock pick set and some brass knuckles in my bag…
Maybe I’ll keep a lock pick set and some brass knuckles in my bag…
I’ll be moving in next door…
If you want an easy-handling shotgun you want a kel-tec ksg. It’s a bullpup style which moves the receiver back much closer to your shoulder. It still has a legal-length barrel, but it’s nice and short overall.
I bought a pair of non-metallic brass knuckles, made from the stuff they use on, say, motorcycle helmets. Isn’t picked up by metal detectors. I’m adding concealed pockets to all my jackets, but for the time being I’m going to keep them in my bag.
Shekel.
That Kel-Tec KSG looks very cool, cranky-d.
“Now you’re getting the picture.”
Fuck it then, I better move here.
Take a look at the Metal Storm Maul.
I know what you mean. For some reason history always seems to march in goose-step.
Obviously, from the turn this thread has taken, the unit currency issued by the Bank of Protein Wisdom would be the Weapon, with subsidiary units being the Round.
And a “leveraged takeover” is when you offer to make an expenditure, and your trading partner insists that that’s really not necessary.
BTW – has Al “Mushmouth” Sharpie been sued yet by that Brit vandal/artiste for use of the copyrighted name “Banksy” yet?…
More of a Remington 870 or a Winchester M12 kind of guy myself.
The gold standard set have the best of this argument since, well, going off the gold standard has made comparisons both easy and favorable. Everything referenicng economies prior to 1900 is likely to be a very tough sell. People hate banks with the fire of a thousand burning suns and likley will not assign them the trust to get this program off the ground.
the gold standard is better, but again, politics comes to the fore. Selling people on the idea that many fewer dollars in circulation will mean more value to the ones you do have is likely a bitch given economic illiteracy and innumeracy.
It’s sad that excellent and painless policy prescriptions that would help poor people most can’t work because too many people think these things are gibberish AND Sanskrit.
There is not enough gold in the world to represent the amount of wealth of this country’s citizens. What do you do about that? You would artificially drive up the value of gold simply because it was being used to back our currency.
If I’m wrong, please explain how. I know little about this stuff.
Most money is just bits in a computer.
Yeah. Be afraid.
Sorry, can’t spar with anyone yet. Recalls are today.
Be back sometime around 9 or 10 probably.
I forgot about the recallings
My question is, if we only have so many dollars tied to only so much gold, how is new wealth created? Doesn’t the economy become a zero sum game?
If you have a gold standard, you cannot have the bits in the computer not directly represent dollars held somewhere. If you do that, you have a fractional reserve system, not a gold standard.
Lee, wealth can always be created, but the money will not accurately represent that wealth if you have a monetary system tied to a fixed commodity.
At least, that’s how I see it.
Velocity. Wealth isn’t money as much as it’s new stuff brought into existence by the investment of labor, production, resource, etc., for which money forms a more convenient method of trade. When that investment in effort falls in a monetary system of hard money, money simply adjusts. Bingo: free, just markets of the kind that promote and safeguard the principles of classical liberalism.
When the investment cools in a lovely progressive money scheme run by Smart People™, a shitstorm results. You see all this bizarre jazz that we take for granted: Stimulus. Fed policy. Obsessing with stock markets. A sea of government intervention. The central bank acting — wait for it — off the public books in a tacitly treasonous manner in its overseas dealings.
To say little about boom/bust manipulations, casino banking, algo trading, and good old fashioned corruption, all of which are what’s wrong with our system more so than the abstract of fiat money being inherently flawed. Fiat money itself produces inflation and unpayable interest and the like, which happen to be great tools to invert dashing new economic realities (see the previous paragraph) and so feed the maw of those Smart People™ pulling all the handles and I do mean all the handles.
It’s what fiat money allows, aids, and abets that kills. That the legacy of George, Thomas, James, and Benjamin would tolerate it at all is a mystery.
Good choice! Stocks, bonds, CD’s, etc. have been good to me, but nothing has appreciated in value nearly as fast as my gun collection. And ammo? Holy cow that stuff is expensive now. Glad I’ve stocked up.
With shotguns, bear in mind that you’ve got to aim them no matter how short the barrel. With my cylinder bore riot guns I find that the shot pattern expands about 1″ for every yard of distance, so you’ve only got a 2-4″ pattern “across the room”. Pistol grips and short barrels only make putting lead on target more difficult and make the gun harder to control in recoil for repeat shots.
For my money you can’t beat an 870 with a rifle-sighted slug barrel. Then invest another $100 and put tritium sights on it so you can still aim in low light, and an extended magazine to match the barrel length so you can carry 6-8 rounds ready to rumba — if you can’t handle the problem with 8 rounds of double-ought buck your average SWAT team couldn’t handle it either. Controllable, devastating, cheap enough to keep one in every room in the house, and, perhaps best of all, you don’t have to beg the sheriff’s permission to buy one, nor get put on a list of people to keep an eye on. There’s a good argument to be made for keeping a low profile doncha know.
Prices adjust to fit supply and demand, and gold (and silver) are entirely manipulated markets right now that were they to be freed, would also seek — love this part — their true value (as would oats or pencils or lead balls, for that matter) and thereby precisely calibrate themselves to still represent whatever it was that needed to be traded.
I should add that if it’s hard to hit anything across the room with a pistol-gripped shotgun, it’s near impossible to aim one to hit anything at longer ranges. And in the event of TEOTWAWKI, if you absolutely must have a short-barreled and/or pistol-gripped shotgun, that’s what they make hacksaws for. At that point I trust the sheriff will be off-duty.
All that said, I still favor the Beer Standard!
“Wealth isn’t money as much as it’s new stuff brought into existence by the investment of labor, production, resource, etc., for which money forms a more convenient method of trade. “
Thanks JHoward, but I guess I’m dumb because I thought the above argument was the one I was making. If new money is brought into existence with my labor, then how can you tie the value of that money to a finite commodity without it being inflationary to all?
Oops, sub wealth for money in my question.
You only need enough currency to facilitate transactions. Wealth can be stored in many non-currency forms.
You will artificially drive the price of the commodity backing up your currency higher, unless it’s possible to back the money with a commodity that increases with time. The demand for money will increase with the population. You don’t have just currency tied to a commodity; every dollar, even the electronic ones, needs to be tied to the same commodity and therefore tied to some dollar somewhere.
Otherwise, you are still committing the same sin, namely creating money out of nothing.
This is all academic, of course. The only way our fiat money goes away is in the event of a collapse.
Welcome to Bartertown. Transactions under such a system become difficult to manage, but there we’ll be anyway.
To the limits of my understanding of a lot of things, I’d answer: falling prices. Since wealth is stored in stuff, and since stuff is traded in more convenient stuff, our productivity (seen that lately in the King Kong of fake money problems, the rigged dollar/rigged renminbi Death Match?) simply lowers prices but leaves stuff intact.
But in this way, prices are no longer the thing. Stuff is.
Your house stands, but like your neighbor’s, falls in price. Which in this case, is a fine thing because those pertubations are not only minor, they are universal and inherently calibrated to the activity of production instead of the balooning of fake money: When there’s not enough houses (another rarity in these days of our unavoidable DC/Wall St pocket-reaching, royally-dick-up-your-holdings-for-you reality) some industrious folks build some more and things more or less immediately equalize.
Stuff must be king with money its tool of motion. In our world money is king and stuff takes it on the chin any time somebody who isn’t us decides it should.
Welcome to The One Ring to Rule Them All.
It’s all too complex for me!
OK, my last dumb question. Think they’ll let us audit the
Fedvault?Okay, back early. Only so many people to call after you’ve already done so twice already.
Towards this topic: think about writing a check. You’re writing a secondary note based on your holdings at a bank. The place you write this note to accepts it because they trust banks in general.
What do those banks have to earn this trust? Well, your funds first off. Do you have deposits greater than this check you’ve written. Yes? Proceed. Second, is this a real bank? Will it be around tomorrow? Is the address something like “Van parked in an alley”? No, well, proceed further. How do you know that they’ll have funds available? Well, nothing more than a slight reserve requirement and some sort of day to day algorithm determining required cash on hand.
Let’s say that check you wrote had all those same characteristics but the “real stuff” backing it in the bank wasn’t a dollar but gold, futures contracts, or simply their ability to make more in loans than they pay in interest.
That check would then be a competing currency. And it would be reliable for your day to day transactions.
Okay, another idea out there: is there enough gold to back currency?
Yes, because gold will increase in value as we purchase it. To do a static analysis of the gold required to back a currency right now doesn’t take into account the radical increase in value gold would attain if we suddenly started buying $100 billion chunks of it every week.
At the current price of gold, not enough gold. At the future price of gold, there would always be enough gold. We’d move towards an equilibrium of sorts. That moves us to the next issue.
A related question involves whether or not a true gold backing would be able to adequately increase units of trade as the actual productive value of the economy increased. This is harder. If we increased overall gold production at a similar rate to overall economic increases, we’d be fine. Often times, in the past, we did just that. Other times we didn’t and we experienced both inflationary and deflationary monetary problems. Slight inflation isn’t so problematic. Deflation on the other hand (zero sum game as you put it, Lee) can lead to real problems in an economy.
If bh is going to start a bank, I would like to purchase an equity position in same. Kthxbye
this is sublime entertainment from the very first frame but… wait for it
I agree that it’s possible to write a check like you describe against a bank that is not using “real” money, but that still creates a problem at the retail level in that the provider of the goods or service would have to have ready knowledge of the true solvency of many different banks. That would cost extra money.
You made the argument I like to think I would have made if I thought about it enough.
There is certainly more gold to be had. They mine tailings (leftovers from previous mining operations) these days because it’s worth it to do so. If someone could figure out how to extract the gold from seawater cheaply enough, there would be a lot more gold available. Then, I guess we’d have to start digging deeper into the ground to find more.
However, if we turned all our energies to getting gold, or at least a significant amount of energy, that would be a waste, IMAO.
Okay, related thought.
The reason our currency itself can’t be a reserve of value like a commodity is that it’s a medium of exchange.
Its real purpose is to trade labor for hamburgers and beer. Or, chickens for an equity. The medium itself should exist only for that reason.
When your unit of exchange deflates, it becomes temporarily more valuable just in itself. It’s a thing worth holding onto. You’re not looking to buy a hamburger and some beer because you don’t want to part with something that will be worth more — unit to unit — than them tomorrow.
That’s a very bad idea. Invest in investments, not tokens.
That’s a very savvy insight. I’m not sure there’s a good answer for this. There would a cost here. Unavoidable.
On the plus side? That transaction cost would actually provide a real benefit. Auditing, analysis and oversight.
Remember that cliche about someone biting down on the coin to see if it was real? I like it. I’d like to see what that might look like in the modern day.
I agree. I’d very much like to have many different reserve options with notes from these competing banks forming a commingled basket of reserves that they each allocated as best they could reason it out. That very basket could become its own etf to allow an arbitrage opportunity in case they got sneaky. Who knows?
If the gold standard is inherently superior to other types of money and we allowed a competitive marketplace of private currencies, wouldn’t a private currency issuer who backed their issue with gold have a natural marketplace advantage and drive out the competing currencies, or does the gold standard need to be the exclusive currency for its true benefits to be seen?
Also, do we necessarily need to use gold, or could we use other things (say, silver or platinum) or a combination of several things to achieve the same effect?
One possible solution for counterfeiting when you have multiple currencies is to have part of the paper money or coinage be standardized; for example, one quarter of the issued currency would be the same no matter the issuer. This could be by government regulation or by cooperative agreement between issuers to facilitate acceptance of their currencies.
Multiple exchange rates pose a greater problem. I imagine what would happen is that there would be a base currency accepted at a retail establishment (probably whatever was most popular locally, or what that establishment pays their employees or suppliers with), and then they would contract with a money changer for accepting other currencies to shield them from risk due to fluctuations in the exchange rates. The money changer would then give the retailer the exchange rates they are willing to pay. These would change relatively infrequently, but at generally less advantageous rates than the spot price to compensate the money changer for the exchange risk.
Practical problem: I want to buy an item denominated in dollars, but I only have yen on me, and the cashier only has pesos left in the till. How do I make sure I’ve received the correct change?
At a guess? You’ll use an i-phone app.
#62, that’s not really my argument.
#63? #64 isn’t really a joke. It’ll be a debit card or a web app to a third party clearing house. Just like now.
Mr. Zeen’s 62 does aim toward my question the other day about whether there aren’t small nations taking advantage of a good thing, if it’s true that gold backed currency is a good thing. And I picked on small nations on account of their independence (from a higher governing power) to treat their currency as they see fit, more or less anyhow, depending on the state of their present balance sheet (in the sense that they aren’t already a possession of the World Bank or IMF, I mean) — where a private issuer operating under a higher sovereign political regime may have to jump through various legal encumbrances (or almost certainly have to hoopjump because the boss will say “hoopjump”). But all in all, I see the question as a sort of reductio.
Just heard on radio Hugo Chavez is planning to nationalize gold in Venezuela. I’ll have to look for a story to link.
Here we go: