Detlev Schlichter on the Nature of Money and the Evolution of an Inflationary Depression
The Daily Bell is pleased to present this exclusive interview with Detlev Schlichter.
Introduction: Detlev S. Schlichter is an Austrian School economist and author, frequent media commentator and senior fellow with The Cobden Centre in London. Until 2009, he worked in international finance markets for 19 years. Detlev Schlichter's book Paper Money Collapse – The Folly of Elastic Money and the Coming Monetary Breakdown was published by John Wiley & Sons in September 2011. Paper Money Collapse received the getAbstract 2012 International Book Award at the Frankfurt Book Fair in 2012. Mr. Schlichter holds an economics degree (Diplom-Ökonom) from Ruhr-Universität Bochum, Germany and lives with his family in London. Mr. Schlichter's blog, The Schlichter Files, can be found at his website, detlevschlichter.com.
Daily Bell: Where did you grow up and go to school?
Detlev Schlichter: I was born, raised and educated in Germany. My hometown is Bocholt, in West Germany, near the border to the Netherlands. I studied economics and business administration at the Ruhr-Universität, Bochum.
Daily Bell: What was it like to work in the realm of international financial markets, predominantly in investment management?
Detlev Schlichter: For most of my 19 years in the finance industry I loved it. I worked for some great companies, worked with smart people, had interesting clients and visited many fascinating places. I loved financial markets. I enjoyed trading and investing. But in the end, I became disillusioned and frustrated. Our financial system has less and less to do with free markets. It is unstable and unsustainable in its present form.
Daily Bell: You worked for J.P. Morgan & Co. (1990-98), Merrill Lynch Investment Managers (1998-2001) and Western Asset Management Co. (2001-09). Does Wall Street get a bad rap?
Detlev Schlichter: The public debate is entirely confused. Most people I worked with were hard-working and committed. Sure, they wanted to make money for themselves and their families (so did I) but most of them also wanted to do what's best for their clients. People don't question the system they work in. They take it for what it is and they operate according to the incentives that the system gives them.
Over the past decades the financial industry has been hugely advantaged by the massive expansion in fiat money and the resulting inflation in financial assets. It is what it is: All of us in the industry benefitted from it. But I fear that among many who work in the industry this has created a somewhat inflated view of their own importance and some unrealistic expectations as to compensation.
Even more importantly, our system of lender-of-last-resort central banks, essentially unlimited bank reserves and artificially cheapened credit, systematically encourages aggressive bank lending, the leveraging of balance sheets, the accumulation of debt and excessive risk-taking. This system tends to punish prudence and good business practices, and reward recklessness.
After years and decades, business ethics have deteriorated, not surprisingly. Some of the bad rap is now justified but one should not confuse cause and effect. A truly capitalistic system is one in which people have to live with the consequences of what they do, and that would be a system with much better checks and balances – imposed by the market, not by regulators.
Daily Bell: Why did you leave the industry in 2009 to focus exclusively on your first book, Paper Money Collapse? What inspired you to write it?
Detlev Schlichter: The realization that this system is truly unsustainable and that it is fast approaching its endgame. The explanation for why that is so can be found in the work of the great monetary economists, the Classical British economists of the 19th century and in particular the Austrian School of economics, first and foremost the great Ludwig von Mises. Mises explained, better than anyone before and after him, why 'elastic' money is destabilizing, why the lowering of interest rates through monetary expansion and extra bank lending causes not sustainable growth but boom bust cycles.
I have read the Austrian School economists extensively over the past 20 years, and over the last 10 years of my work in financial markets I realized just how powerful their monetary theories were in explaining the phenomena I observed in my work life. However, their insights were completely ignored in the debate in financial markets. Here, Keynesianism, Monetarism and Neoclassical economics dominated, and in an almost bizarre way, Keynesianism even still ruled – probably another bad habit that we can blame on 40 years of fiat money and central bank 'stimulus.' That a government agency, or government-sponsored agency, the central bank, administratively sets interest rates, determines the quantity of bank reserves, backstops the banks, which necessarily cease to be truly capitalist businesses in the process, and encourages and guides bank lending is now deemed by many to be almost equivalent of the natural order. To call such a system capitalism is simply absurd. But financial markets operate in an intellectual bubble. I wanted to help prick that bubble.
In 2009, I felt that the crisis we had entered could be The Big One, the one crisis that was too big to paper over (no pun intended!) with yet more money printing and debt accumulation. The system was approaching its inevitable endgame. This is the sort of crisis that is completely inconceivable outside a system of fully elastic fiat money. Only a system of elastic money can over time accumulate imbalances on this scale. It is a fiat money crisis. I felt that what was needed was a fundamental analysis of paper money systems that goes back to first principles: What is money? Why do we use it? What is money demand and how can it be met in a free market? What makes good money? I wanted to argue as logically rigorously as I could and make the conclusions as inescapable as possible so that the reader would either have to spot any logical flaws in the argument – I believe there are none – or accept the conclusion, which is that our paper money system is unnecessary, suboptimal, unstable and unsustainable.
The argument is Misesian but was not targeted predominantly at those already familiar with the Austrian School but at the people who I used to work with: financial market professionals and mainstream economists, who in general believe in the sustainability and even superiority of the present system. I apply Mises's work to the current unconstrained fiat money system and use it to challenge common misperceptions on money and central banking. But with all due modesty, I do believe that Paper Money Collapse is more than just a restatement of Austrian monetary theory. There are new insights in it.
Daily Bell: You are a senior fellow at the Cobden Centre, London, a free-market think tank devoted to issues of money and banking. Tell us what you do.
Detlev Schlichter: The Cobden Centre is an educational charity that promotes honest money, free trade and peace. We want to contribute to the debate on money and banking, in particular, and change the parameters of that debate. The Cobden Centre has supported me by raising awareness of my work and helping me spread my views. I have spoken at various events arranged by the Cobden Centre but I do not have a specific role or formal position. For me it functions mainly as a fairly loose network of like-minded people. There are, quite naturally, differences of opinion among us but we share certain principles. Not all people connected with the Cobden Centre are adherents of the Austrian School but there is a strong Austrian bias within the group – probably stronger than at any other free-market think tank in Britain. There is no political agenda or political affiliation, which I like.
Daily Bell: As you now live in London, please tell us what you think of Britain these days and the financial City.
Detlev Schlichter: I have lived in Britain for 16 years and it has become my home and that of my family. London is a fantastic city and we are very happy here. On the country's overall prospects I am very bearish but that is also the case for most other European countries and also the United States of America. All mature welfare-democracies are heading for bankruptcy. Now that the fiat money boom has come to an end and debt levels are clearly unsustainable, the inherent inconsistencies of the modern welfare state can no longer be covered up. Large sections of the population have become net recipients of state handouts and are thus inclined to vote for the continuation and even extension of government programs. This is the case almost everywhere. In Britain you can add a high level of personal indebtedness to the mix.
I think that as the crisis intensifies we will see more government intervention in markets and in our lives around the world. Liberty is already under attack everywhere. The state is going bust but, somewhat ironically, asserting itself more via regulation and legislation.
Should I move? Maybe. Switzerland has less of these problems and could stay on a different course for some time. On the other hand, going back to Germany is not really an option, in my view. Despite the good press the country gets of late, Germany has massive structural problems, and there is a deep-rooted tendency to ask for state action when things get bad.
My hope is that in Britain some of the old classical liberal tradition and a tendency to be tolerant are still alive among the general population. These traits will be needed in the coming crisis. Maybe that is naïve – but for the time being I am staying put. We are facing a global mess and there are no easy escape routes.
In my scenario the City of London is going to struggle.
Daily Bell: Are you a believer in conspiratorial history? Do you believe powerful central banking families control the BIS out of London?
Detlev Schlichter: I do not believe that powerful families in London control the BIS, and as an economist I stay away from "conspiracy theories" completely. Why, I will explain below. But from this does, of course, not follow that there are no conspiracies at all.
You cannot answer the question with a simple yes or no. If I were to say that all strategies and motivations behind any policy measure or business deal were always in the open, that the official announcements were always correct and complete, that there were never secret agendas or backroom deals, or even more sinister motivations in play, and that you could take anything at face value, just as reported in the media, you would call me naïve. Everyone who has the slightest idea of history, or indeed human nature, knows that this is not how the world works. But at the other extreme, to assume that nothing can ever be taken at face value, that behind every policy and every official announcement there is a secret plan or a hidden agenda, or some master plan, would be equally delusional.
I think most reasonable people will be somewhere in the middle. One should be skeptical and not take everything that is reported in the media at face value. One should be alert and keep an independent mind. I do not think that our 'history' is organized and guided by secret clubs. A lot of things – even big things – do indeed happen by accident. There is not a plan behind everything. The world is more chaotic than people believe. Equally, not everything is always what it seems to be.
But as an economist I have to stay away from conspiratorial theories altogether. There is a whole body of fully elaborated theory, shared by many very intelligent and well-meaning economists, that explains why fiat money can work and why it is superior to 'hard' money, such as gold. I believe that these theories are wrong and their conclusions incorrect but I have to argue entirely at the level of theory, and not try and discredit, for example, the central bankers by suggesting that they are in the pockets of the bankers, and even if someone gave me proof that they were I couldn't use it for my work as an economist.
My critique of central banking is not political, and it is never a critique of the individuals involved. I criticize the theories and ideas behind these institutions. Even if the central bank was run by the wisest, most intelligent, most impartial and apolitical person, we could find central banking would still not work. My criticism of our financial system is not that the wrong people run it, or that greedy bankers misuse it, or that dark forces in the shadows manipulate it. My criticism is that even on its own terms it doesn't work.
This is the right approach for the economist, although I suspect that, outside of intellectual debate and in real life, it sometimes makes me too gullible and not suspicious enough of any hidden agendas.
Daily Bell: Tell us more about your book, Paper Money Collapse. It provides a fundamental economic analysis of paper money systems in general and our present system in particular. How so?
Detlev Schlichter: As I said above, the book goes back to first principles. What is money, what is its purpose, why do we use it? From there we can define the often used but mostly misunderstood term 'money demand.' Money is simply the most fungible good in the economy, the one that can facilitate any number of transactions and that is readily accepted not because it fulfils any needs directly or offers any return, but because it can quickly and flexibly be exchanged again.
Ask yourself, why do I hold some of my wealth in the form of money? The answer is, because you like the unique flexibility that only money can give you. If you have demand for money, it means that you have demand for purchasing power in the form of money. It is not a specific number of paper notes or weight of gold that you desire to hold – neither, by itself, does anything for you – but it is the spending flexibility that the monetary asset gives you, its exchange value, that you demand.
From this, some powerful conclusions already follow. A growing economy does not need a growing supply of money. If people have more demand for money, they sell non-money goods (or reduce their money-spending on non-money goods) and accumulate money balances. In the process, the 'price' of money (its exchange value) goes up. The same physical quantity of money now gives everybody more spending flexibility. This process – a natural market process – has satisfied the rising money demand automatically.
Money is a medium of exchange, and it is in the very nature of a medium of exchange that any quantity of it – within reasonable limits – is sufficient and even optimal to facilitate any number of transactions and meet any demand for a medium of exchange. The buying and selling of money will change its exchange value and thus bring demand and supply in line naturally. There is no need for ongoing money production and no need for elastic forms of money, such as paper money. A growing economy that uses an unchanging quantity of a monetary asset (let's say a fixed supply of gold) as money will probably experience moderate secular deflation, that's all, and it is no problem. We do not need money producers.
At this stage it is clear that advocates of paper money cannot claim that their system is necessary. They must now argue that it is or can be made superior, that the ongoing expansion of the money supply has beneficial effects for the economy. Paper Money Collapse starts with some very simple models of money injections that then become, step-by-step, more complex and more realistic, until we arrive at our modern system, in which money is injected by central banks via the banking system and financial markets.
The conclusions are, in my view, inescapable: Money injections have no lasting benefit for the economy; they always distort relative prices and reallocate resources and thus change the distribution of income and wealth. Money injections always create winners and losers. In our modern system they cause near-term booms followed by busts later, although complete busts are usually avoided for some time through accelerated money creation (monetary 'stimulus') from the central bank during recessions. As a result, the economy accumulates substantial misallocations of capital and other distortions over time that require ever more money-printing to stop from unraveling. The end is currency disaster.
The money of a functioning market economy is inelastic, hard and apolitical.
Daily Bell: Do you believe in full-reserve banking? Would you place bankers in jail if they tried to create fractional-reserve systems?
Detlev Schlichter: I believe in the free market and spontaneous order. I don't want to ban anything, including fractional-reserve banking. I believe in free banking. I want the state out of money completely.
If the market is left free to choose its own money it will most probably choose something that is fairly inelastic in its supply so nobody can simply create more money at will: gold, silver, Bitcoin, who knows? Let's assume it is gold. The supply of gold is relatively inelastic, largely outside political control (or anybody else's control), and gold has a long global tradition as money. But again, I would leave that to the market. It cannot be excluded, and is indeed very likely, that banks will manage to occasionally issue fiduciary media – near-monies such as banknotes or deposits or whatever − and have the public use them in the same way the public uses money proper (gold).
Is this a problem? Sure. Whenever that happens, money has become more elastic. The banks have become money producers and their money injections will cause economic disruption, as explained above. But in a free market and a free society it should be tolerated. I do not believe that fractional-reserve banking is fraud or that all financial assets that become so liquid that they circulate as near-monies have to necessarily originate from fraudulent behavior. In a monetary economy, the distinction between what is money and what is not money will be fluid. The problems this creates are marginal, in my view. Remember that there is no central bank that functions as a lender of last resort, and if the banks set up their own central bank, it could not produce gold (=reserves) out of thin air. Fractional-reserve banking would be very dangerous for the banks, and on the scale it has been practiced in recent decades it would be entirely inconceivable. I am not saying that we would have complete stability – but complete stability is an unobtainable goal in a monetary economy anyway.
The problem is not fractional-reserve banking as such but the systematic and large-scale subsidization of fractional-reserve banking through fiat-money central banks.
Daily Bell: What is a proper gold standard? Would the state run such a system?
Detlev Schlichter: One in which money is gold, very simple. Any so-called gold standard that involves active management by the state, such as a gold-exchange standard, is not a proper gold standard, in my view.
Daily Bell: Why are paper money systems unstable?
Detlev Schlichter: Paper money systems are elastic money systems, in which the supply of money is constantly expanded. Injections of new money are always disruptive. The new money does not raise all prices simultaneously and to the same degree. Some prices rise more than others and sooner than others. Relative prices change and this leads to a reallocation of resources, a redirection of economic activity and a redistribution of income and wealth. These consequences are inescapable. None of this leads to the economy serving the public better – quite to the contrary.
In a modern fiat money economy like ours, money injections occur via the central bank and the banking sector (central bank-sponsored fractional-reserve banking). These money injections tend to suppress interest rates and encourage extra borrowing and investing. That sounds good at first but it isn't. Interest rates are important (relative) market prices. They coordinate saving with investment. Money injections disrupt this process and lead to de-coordination. The Austrian School has explained this best, and Roger Garrison has summed it up well (I paraphrase): Lower interest rates and additional investment as a result of additional savings lead to sustainable growth and prosperity; lower interest rates and additional investment as a result of newly printed money lead to boom and bust.
In our complete fiat money system, we have turned the Austrian boom-bust cycle into a credit-mega cycle: During recessions, which would normally cleanse the economy of the imbalances of the previous cheap-money boom, the central banks now lower interest rates and inject extra bank reserves so that the recession is shortened and the credit boom can continue. The result is that the economy becomes progressively more unhinged. Forty years of this policy mean that we now face the mother of all corrections.
Daily Bell: What do you think of the proposals of Ellen Brown, Bill Still and Stephen Zarlenga?
Detlev Schlichter: I would rather not comment but see question on origin of money below.
Daily Bell: How about Silvio Gesell and Major Douglas? They were famous in the 1930s and their theories are experiencing a revival.
Detlev Schlichter: I would rather not comment.
Detlev Schlichter: This is another form of elastic fiat money, of course. It comes with all the problems that systems of elastic money have. I am concerned that when the present system collapses we do not return to some form of hard market money that is outside of political control but that efforts will be made to introduce a new global form of fiat money. It would be a disaster.
Daily Bell: Systems of elastic money inevitably accumulate imbalances, you write, that lead to economic disintegration and chaos. They are fundamentally incompatible with capitalism. That's a strong statement! Your comment?
Detlev Schlichter: I think there is absolutely no way around that conclusion. I derive it through a very rigorous logical process in my book, Paper Money Collapse. This conclusion is supported, I believe, by the work of eminent monetary economists, from the Classical British economists to the Austrian School, in particular Ludwig von Mises. History also supports it.
Functioning capitalism requires the free formation of prices. Elastic forms of money systematically distort relative prices. Eighty years ago no leading economist would have called a system like ours a capitalist monetary system.
Daily Bell: You write that all paper money systems have ended in failure. Examples?
Detlev Schlichter: China's Southern Song Dynasty (1127-1279), China's Jin Dynasty (1115-1234), China's Yuan Dynasty (1271-1368) and the early period of the Ming Dynasty (1368-1644, voluntary return to commodity money), Massachusetts and then other British colonies in the early 18th century, France (1716-1720), North America (1775-1781), France (1790-1803), Britain (1797-1821, voluntary return to gold), the United States (1861-1879, voluntary return to gold), Germany (1914-1923). In addition, the 20th century, which was the century most hostile to gold money and most under the spell of big state ideologies, saw 29 hyperinflations!
Daily Bell: What's your take on tally sticks? We've written about that here: Now Let Us Celebrate Tally Sticks ... or Not.
Detlev Schlichter: No comment.
Detlev Schlichter: Yes. China was the first to experiment with paper money and after a number of failures the Ming dynasty returned to commodity money. China did not use paper money again for almost 500 years. Britain and the United States returned to gold in 1821 and 1879, respectively, after inflationary fiat money episodes.
Today the challenges are enormous: After 40 years of fiat money expansion the dislocations are massive (excess levels of debt, overstretched banks, inflated asset markets). Returning to hard money would cause considerable pain, as the market would certainly liquidate the imbalances and a lot of the debt would be defaulted on (first and foremost government debt). It would be painful but it wouldn't have to last long. If the market were allowed to operate freely, the economy would bottom out soon. But still, politicians do not want to allow this to happen. "Not on my watch" is the guiding principle.
The result of an end to cheap money would certainly be a smaller banking and financial sector and a much smaller state. That is a political challenge in our age of welfare democracy, outsized government spending and unrealistic expectations as to what the state can deliver. But the game is soon up anyway. The political fallout will be meaningful.
Daily Bell: What do you think of a private gold/silver standard? Isn't that the natural default?
Detlev Schlichter: 'Private' always sounds good to me. I want the market, i.e., the trading public, to decide what is money. Gold and silver would be my prime candidates but who knows? I am, in fact, quite intrigued by the Bitcoin experiment. Some of its aspects are fascinating. It can be thought of as a cryptographic commodity with no central issuer and no legal domain – and ultimately inelastic supply. Fascinating.
Daily Bell: Give us a sense of where you stand regarding Selgin and White. They had a big fight with Murray Rothbard over free banking.
Detlev Schlichter: I am more familiar with Rothbard 's work than with Selgin and White so I have to be careful. It is also a tough question as I risk offending all sides of the debate. I will say this much, and this is my personal impression:
Rothbard is correct to state that fractional-reserve banking (FRB) is unnecessary and always disruptive. He was wrong to label it fraud and thus wrong to assume that it would not occur in a private law society with no state and strict adherence to private property principles. My suspicion is that, as a private-property anarchist, he didn't really want to account for it in an anarcho-capitalist world.
Selgin and White are correct to point out that FRB is not fraudulent (or that it does not have to be fraudulent) and that it arose spontaneously in the market place. They are wrong to assume that it is (therefore?) not disruptive or that it can even help meet money demand. How money demand is being met I explained above. Banks are not even in the business of meeting money demand but in the business of meeting loan demand, and if they are FRBs, they can even stimulate that loan demand. The money (or fiduciary media) they create in the process is a by-product of their credit business. The factor that constrains them in their FRB activity is not the public's demand for money, or lack thereof, but the public's confidence in the banks' solvency.
Again, I am in favor of free banking but not because I believe that no FRB would occur or that it would be somehow non-disruptive. I simply believe the problems would be minor in a state-free monetary system with hard market money at its core.
Daily Bell: Where do you stand on free banking in general? What about US, pre-Civil War "wildcat" banking? Was wildcat banking truly horrible?
Detlev Schlichter: I am all for free banking. I am not an expert on that period and I would rather not comment. History can only help us so much. The discussion on money and banking has to be guided by proper economic theory in the end – and by common sense.
Daily Bell: Will a metals standard cause ruinous deflation?
Detlev Schlichter: This is one of the widespread misconceptions about 'hard' money. No. There is neither any theoretical foundation for this belief nor historical evidence. Interestingly, to my knowledge no paper money system was ever introduced because the public had tired of the 'ruinous deflation' of the preceding metal standard.
Theoretical analysis would suggest that moderate secular deflation is likely but even that is hardly discernible in the historical record. Prices would exhibit a slight tendency to fall over time, which has never been a problem. The idea that the person who expects things to get cheaper would not buy today but wait until prices are lower tomorrow, and by that logic wait tomorrow for the day after tomorrow is nonsense. This person would, in a deflationary environment, allegedly never buy anything. This idea completely ignores the concept of time preference, which does not represent an element of psychology but constitutes a necessary ingredient of any form of human action. To want something means, all else being equal, wanting it sooner rather than later.
Daily Bell: How much government involvement need there be in the monetary economy? Some? None? What kind?
Detlev Schlichter: None, whatsoever. Of course, as in any other walk of life, contracts must be honored and private property protected. In our society, this is supposed to be a key function of the state. But beyond that, I see no specific role for the government. Indeed, I would propose the complete separation of money and state. There is certainly no place for anything like 'monetary policy.' Such a policy must always be counterproductive.
Daily Bell: Are banks necessary?
Detlev Schlichter: Let the market decide. There is certainly a need for financial intermediation, that is, the channeling of savings into investments. Something like banks can play a role in it. But I see no need for fractional-reserve banking and neither do I see a need to ban it.
Daily Bell: How did money begin? In the temple or was it privately circulated?
Detlev Schlichter:Does it matter? Listen, the whole idea that we should now ask anthropologists and certain monetary historians to tell us what money is and what is wrong with our monetary system is preposterous. We all use money every day. We know why we use money and what it does for us. And besides, economics may be a fairly young science but it is 300 years old, and some very smart people have produced some really good work in it. History can only help us so far. Without proper theory we cannot even understand and interpret history. This whole excitement about the anthropologist David Graeber and the idea that he dethroned Adam Smith and, one assumes, by extension all of modern monetary theory is not only nonsense, it provides a classic example of how, without proper theory you misinterpret historical facts. I may not be an anthropologist but David Graeber is certainly no economist.
Let's start again with a couple of rather uncontroversial statements. There are two ways in which trade can be conducted: via direct exchange or indirect exchange. In direct exchange you trade goods and services for other goods and services. In indirect exchange you exchange goods and services for a medium of exchange (the most fungible good that is money), and then the medium of exchange again for other goods and services. It is self-evident that under indirect exchange a much more extensive network of trading relationships is feasible, and that our modern economy, which crucially relies on extensive division of labor, is inconceivable without money. I am sure you agree with the logic here even if you have not spent any time with the tribes of Papua, New Guinea or studied the iron disc money system of ancient Sparta. Why can you instantly understand this? Simple − because you yourself are part of this modern money economy. Again, you are a money user yourself. You know why you use money and why it is of value to you. That is a better starting point for any theory on money than digging up the evidence for why somebody supposedly used something like money two thousand years ago.
What some of the new anthropologists and 'historians' now claim is that there was no or very little barter in the early days of civilization but instead, right off the bat, an elaborate credit system. You help me build my hut and I repay you in wheat in a few months' time when the harvest comes in. So what? That is barter, too. It is direct exchange. There is simply a time gap between the two components of the transaction. If you take the wheat later and consume it, this was a barter transaction; if you take the wheat because you can exchange it again for something else that you really want, it is an indirect exchange and potentially the beginning of a monetary economy – depending on whether the use of wheat as a medium of exchange spreads in your community. And if we agreed on an amount of wheat but at time of delivery you rather take the wheat-equivalent of milk, then this, too, was a direct exchange, barter. Building works for milk or wheat.
That indirect exchange has advantages over direct exchange is beyond doubt and instantly understandable by anyone who has ever used money. The claim by certain anthropologists and historians that those who did the trading thousands of years ago did supposedly not grasp the advantage of money but that the invention of money and therefore the start of indirect exchange required the state, or the high priests in the temple, is truly surprising but, if indeed correct, does not change the fact that once money circulated the benefit was reaped by the trading public, which now could establish more far-reaching and thereby necessarily prosperity-enhancing trade relationships. So even if the state invented money, the benefits of money accrue directly to everybody who uses it – to this day. This also explains why whenever the state itself collapses or state money dies (hyperinflation), the public instantly uses other commodities as media of exchange (jewelry, cigarettes, gold or silver coins).
It gets completely bizarre when the claim is made that because the high priests in the temple allegedly invented money, therefore their modern successor, the state, should control money, because that is in the nature of money. I am sorry but this is truly ridiculous. This borders on mysticism. Our understanding of money and banking requires reason, analysis and proper economic theory. Money is a social convention and an economic tool. As with any other tools we understand it by using it.
Daily Bell: What happens to the euro? Is the Yuan going to take over?
Detlev Schlichter: As we approach the endgame of the present, mankind's latest and so far most ambitious, experiment with unconstrained fiat money, the choice is the same as always: Either we stop printing money and return to some form of hard money that allows the uninhibited formation of true market prices and the liquidation of the accumulated imbalances, or we fight this necessary and ultimately unavoidable 'cleansing' by further and ever faster fiat money production. Presently, policymakers seem determined to go for the latter option. That includes, on present evidence, policymakers in the US, the Euro Zone, Britain, Japan and China. My outlook is therefore for a massive global currency crisis, a hyperinflationary endgame.
Daily Bell: Is the world headed toward a generalized depression?
Detlev Schlichter: We will see the present muddling-through continue until the point is reached where the public loses confidence. When they start selling bonds and reducing their money balances, the game is up. An inflationary depression is the endgame.
Daily Bell: Is the money issue the most important one of all?
Detlev Schlichter: The most important issue is the ongoing erosion of our individual liberty. But liberty and money are intimately connected. A free economy and a free society are incompatible with state-controlled money. As the crisis intensifies I fear that we will see ever more aggressive state intervention in the economy and in every walk of life. My outlook for freedom is not a good one. Sadly.
Daily Bell: Thanks for your time.
Many thanks to Detlev Schlichter for a very interesting interview. What comes across powerfully in this interview is how deeply Schlichter has studied monetary issues and how cautious he is in some of his answers.
His take on Rothbard is especially interesting. We long ago decided that Rothbard's stance regarding the criminalization of fractional-reserve banking was questionable. We're glad to see that someone who has thoroughly studied the issue agrees with this.
Other comments and non-comments were interesting, as well. We've pointed out in various articles that the amount of UN backing and involvement in LETS systems is curious, indeed. As for Bitcoin, we have written several articles pointing out that its usage is perhaps not so secure as its proponents claim.
When it comes to Bitcoin, in particular, the fundamental anonymizer is Tor. But Tor was constructed by the US Naval Research Laboratory. The US government is still a big sponsor of Tor via the US State Department and the Broadcasting Board of Governors and National Science Foundation are major contributors.
Schlichter's caution regarding comments on alternative monetary systems only confirms what we've already concluded (and documented in numerous articles) − that there is much more swirling around beneath the surface of these alternative monetary proposals than many are willing to acknowledge.
Schlichter's comments that the argument over the antecedents of money is not a notable one strikes us as debatable. Those who want to impose a pure, state-run fiat scheme have used historical analysis to buttress their case but this analysis is not necessarily accurate. You can see one of our analyses here: "Now Let Us Celebrate Tally Sticks ... or Not."
Monetary theory is actually the ground zero of the alternative media these days. Schlichter's general wariness regarding certain issues is perhaps just as instructive as his general erudition and profundity regarding others. We do live in interesting times.
Posted by Danny B on 12/03/12 11:33 PM
Dear Bell, I have a very late observation. I was looking for a good thread to put it on.
I hope an Elf will take the time to read it.
The Financiers and the Nation
Click to view link
" The government should create issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers... .. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government's greatest creative opportunity. By the adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power.
Senate document 23, Page 91. 1865"
"However, the response by the private bankers to this sudden threat to their banking empire was swift and brutal as this extract from The Times of London in 1865 shows:
If that mischievous financial policy, which had its origin in the North American Republic, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedence in the history of the civilised governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed, or it will destroy every monarchy on the globe."
Posted by Summer on 11/18/12 06:58 PM
Reply from The Daily Bell
Thanks for commenting, Summer. But we find BM's perspective more persuasive than A. Migchels' or Memehunter's ...
Posted by Summer on 11/18/12 06:53 PM
Anthony Migchels debunks the 'debunker' BM:
You don't get the difference between turnover and money supply: the money supply can be converted only once, but it can be used for transactions often. The same 5,500 would go around time after time until it's converted, it could create (and probably did at some points) hundreds of thousands in transactions.
You are counting 7000 in transactions as the money supply.
You also seem to miss the point that as long as there are lagging payments it is natural there will be more transactions. Once things settle back to normal, less transactions are required.
The miracle was sustainable. Not in the sense that the economy would have grown so quickly for ever, but that a balance at near full employment would have been established, as it actually did before it was shut down. In the midst of the greatest depression that IS a miracle and had the certificates continued, the economy would have continued to funtion at normal pace (at the very least). It's also notable that after the experiment ended, the economy imploded immediately.
So the 'miracle' did transpire and the certificates simply proved to be a vastly superior means of exchange. If you disagree, you'd need to explain what it is exactly that you want from a means of exchange... ...
I disagree with your afterthought on money and his perceived 'rights'. Here Bastiat comes in the picture: the third party (the commonwealth) who is cleary suffering from insuffcient circulation. Money is something we do together. If one is the only one perceiving something as money it is worthless, because nobody will use it to trade. The commonwealtmost definitely has not only the right, but the duty to create a functioning monetary system. Interest bearing notes, good for hoarding and suiting the rights of the holder of money, imploded the economy, both then and today. Demurrage money circulates in a way serving the needs of all, not just the few holding gmoney.
Also, I'd be interested in your asset position. I'd bet 10 dollars that you personally has much, much more to gain for a demurrage economy.
Perhaps the few dollars that you hold are worth and the interest that you make on them is actually, far, far less then you pay in hidden cost for capital and a chronically (and at the moment critically) depressed economy as a result of sluggish circulation?
Reply from The Daily Bell
"Money is something we do together."
With current Western governments? God help us! ...
Posted by Summer on 11/18/12 06:51 PM
Hope all is well with you and your family.
Not sure where my "faith" came into the equation but I certainly do try to cultivate in myself a modicum of humility and an open and inquiring mindset - hence my questions to AM and your good self.
Your tone in your posts seems slightly haughty and arrogant and a little angry? Try and relax.
A cool assessment of the arguments put forward thus far seems to favour the abolition of interest and the insidious and nefarious neo-colonial wealth transfer that it invariably leads to. Margrit Kennedy is a nice lady and seems very relaxed when she describes the scale and magnitude of the artificial wealth redistribution brought about by interest - hard to argue with such a cool-headed and nice lady talking sense backed up by facts.
Just so we're clear: Worgl is not the issue - It's the Interest, Stupid! Why Bankers Rule the World (Ellen Brown's words - not mine).
Abolish interest - its a relatively modern device that was instituted by a bunch of money-lenders and their paid cronies. Don't get hung up on Worgl - its a nice town - you might want to take a break and visit? Peace and quiet so you can relax...
1) That the *principles* applied in Worgl were in operation for hundreds of years through the zakat system leading to prosperity.
2) That demurrage and the no-interest system of Worgl *remedied* the misery of the depression in the town, caused by the compound interest debt system.
4) Since you now seem to accept (as an Austrian) that calculations can be used in estimating economic results, look at Kennedy's. Even if some or all of the certificates were exchanged for schillings, people would only have lost out on 2% value whereas in a system with interest, Kennedy has calculated that 45% disposable income alone would be spent on it. Therefore, people would still be much better off with the Worgl/zakat type system. The people of the town loved their free-market experiment and realized it benefited the society at large by preventing hoarding and increasing the velocity of the currency (but you have now realized that was the main point after your initial lapse even after you research).
5) People would not have to pay up to 3 times the price for their homes due to interest.
6) That goods and services were cheaper due to no interest. Kennedy gives the example of rent, around 75% of which is made up of hidden interest.
7) Examples such as of those of Guernsey and Liverpool illustrate that merely removing interest from the point of money creation resulted in better economic conditions for locals and yet you have no problem with interest.
8) You're hung up on a hypothetical scenario about what people might have done, don't you believe in human action? Perhaps people would have bought gold, property, shares or other commodities with their spare certificates in order to avoid demurrage and if so the experiment certainly could have continued even if a less rigorous pace (people may have converted some certificates).
I am sure, as before, you will cherry-pick points but there it is. Debunk away!
Posted by bionic mosquito on 11/15/12 08:31 PM
With his reply, Migchels only proved the point that the experiment was doomed to fail. Can you figure out why, without asking him?
Don't worry, I will give you the answer at the end of this post; but first let's address a couple of other points he raised:
AM: Well, it was far from impressive, was it not? It's really strange to write two articles on Worgl and not notice that velocity was the key issue.
BM: I listed several specific reasons why the experiment was nothing more than a government forced boom and Gresham's law at work - I wrote over 6000 words and listed almost 20 sources. None of these specific criticisms have been addressed by you or (to my knowledge) Migchels.
As to the velocity issue, I addressed it in a subsequent post in reply to memehunter. But I suspect you know this. Further to the velocity issue, Migchels deep-sixes this benefit in the passage of his that you quote - being clear that the 'key issue' of velocity is only temporary. Can you figure out why, all on your own? (Don't worry, I will get to this.)
AM: But this is a very difficult concept to grasp for those infested with Austrianism, which is only concerned with the sacred rights of those holding money. This 'Entire society be damned, it's MY CASH and I CHOOSE' kind of mentality is really very hard to get rid of.
BM: it is easier to attach labels (especially when one has no understanding of the term) than deal in facts. The disposal of private property isn't an Austrian issue; it is an issue of justice. However, with this sentence, Migchels makes clear the spirit behind his advocacy of demurrage - theft and envy. This is the mentality that is 'very hard to get rid of.' It is the mentality behind the theory of government and state as practiced throughout the world today.
AM: The fact that 'the fear of demurrage' solved unemployment and the associated profound suffering is really irrelevant in the face of the fear of that great ogre of Austrianism: INFLATION.
BM: In my article I explained in detail why the experiment worked as it did and why it was bound to fail. I did not blame it on inflation, or potential inflation. But again, Migchels seems to be hung up on lables. Inflation was not likely as long as the scrip was convertible…and Migchels states this later in his comments. What if the scrip was not convertible? Well, let's wait to answer that.
AM: the total amount of trade financed by the certificates amounted to the equivalent of 2,5 million Schillings. While only about 5,500 worth of certificates were circulating on average. Meaning that the small demurrage of 12% made the certificates circulate at least a hundred times faster than the Schilling.
BM: Get it? According to these numbers, 7,000 schillings of scrip transferred hands every day (2.5 MM / 360 days). I will give you a hint to the big answer - how Migchels kills his own argument: the parish had 40,000 schillings of national currency at the bank as backing for the scrip. Keep the figures 40,000 and 7,000 in mind.
AM: By the way: there was no threat of inflation in Worgl: the endgame would have been that all backward payments would have been settled and then the certificates would have been converted back to Schilling and out of circulation.
BM: There you have it. Did you see it? What did Migchels say would happen to the scrip when all the back taxes were paid?
Let's walk slowly: 7,000 scrip schillings of transactions a day will no longer occur; instead this same 7,000 schillings will be returned to the bank for national currency according to Migchels (and he is correct, for as long as the conversion game can last). But wait! The bank only holds 40,000 national schillings available for the exchange. In six days…POOF. Not a very long game of 'velocity.' So much for 'the key issue.'
What do you think it would do to his (and your) daunted velocity, once all the scrip was removed from circulation and replaced with the national currency?
Migchels says 'that velocity was the key issue' yet he shoots himself in the foot. He knowingly or unknowingly predicts a bank run.
Alternatively at this point the parish could stop converting the scrip. Now what? Come on, summer. What do you think that would do to the value of the scrip?
OK, I will tell you. Worthless scrip. Inflation if not hyper-inflation (assuming any merchant would even take it).
Summer, you are stumbling in your faith, not wanting to recognize that your belief is based on faith. You want to believe in miracles. You are stumbling because you cannot handle the faith being questioned by fact. That's OK - I believe every word of the Bible, and I would feel the same way on that subject. But at least I admit my belief in the Bible is based on faith, so I don't get hung up about it.
Bring back some serious criticisms and questions. Address the specific points in my article.
Posted by Summer on 11/15/12 06:00 PM
Anthony Migchel's Article on Worgl:
Click to view link
"... The Mayor smiled forgivingly. He knew that bigger men would make the same mistake. Even Professor Dr. Bundsmann, lecturer of macro-economics at the University of Innsbruck and honored with the Austrian title of 'Honorary Civil Servant' would call the success of Wörgl with its fast circulating money a hoax, because he could not understand how 5100 Schilling in taxes could be paid from an issue of only 1000 Schillings. That was beyond the expectancy of the Mayor himself. But every Schilling coming as Bill was re-circulated right away to pay an invoice, and was back and out again in short order, because this money attracted a penalty when idle. At that time the National Bank of Austria kept in circulation a constant amount of about 914 million Schillings for a population of some 6 million, or 153 Schillings per person. At the issuing peak, the value of Wörgl Bills was 7443, less than 2 Schillings per person. But these 2 Schillings gave more income and profit to each person than the 153 Schillings of the National Bank. Why? Because they were designed to entice people into using them, which is what money is for: to pay, to do business, to exchange. A. Hornung, who was against this 'free money' and the whole experiment, reported grudgingly: 'The issue of relief money was back in the coffers of the municipality within days. From there it could be re-used for payments. The total average in circulation was: August 1932 3675 September 3375 October 3525 November 6350 December 5725 January 1933 5450 February 5650 March 5625 April 5750 May 5675 June 5875 July 5800 August 5825 September 5825 Average: 5,294
How ludicrous is the thought of people with no inkling of the importance of money's velocity of circulation for the economy.
AM: the total amount of trade financed by the certificates amounted to the equivalent of 2,5 million Schillings. While only about 5,500 worth of certificates were circulating on average. Meaning that the small demurrage of 12% made the certificates circulate at least a hundred times faster than the Schilling."
Anthony Migchel's comment on BM's article in a feedback stream:
Click to view link
"Well, it was far from impressive, was it not? It's really strange to write two articles on Worgl and not notice that velocity was the key issue.
It has nothing to do with 'Keynesianism'. Wat the demmurrage did was to get the scarce cash out of hiding and people started to use it for what it was actually meant: to pay with.
But this is a very difficult concept to grasp for those infested with Austrianism, which is only concerned with the sacred rights of those holding money. This 'Entire society be damned, it's MY CASH and I CHOOSE' kind of mentality is really very hard to get rid of. The fact that 'the fear of demurrage' solved unemployment and the associated profound suffering is really irrelevant in the face of the fear of that great ogre of Austrianism: INFLATION.
By the way: there was no threat of inflation in Worgl: the endgame would have been that all backward payments would have been settled and then the certificates would have been converted back to Schilling and out of circulation.
BM doesn't mean badly, he tried to write an even handed article, he just completely missed the point."
Posted by Summer on 11/11/12 03:49 PM
the link from previous post: Click to view link
Posted by Summer on 11/11/12 12:11 PM
Isn't it interesting that when I *twice* mentioned velocity/circulation of the currency:
1) 'This is to ignore the significant individual and private sector business prosperity resulting from the increased velocity of the money supply.'
2) 'Even if 'one-time events' contributed to the level of economic success in the public sector, it does not follow that other positive effects, such as the increased circulation of money, were not primary factors in the success of the town's economy as a whole. In the Islamic Empire, the Zakat system (negative interest) was employed for centuries and prosperity was firmly established throughout that period.'
BM completely ignored it. Could it be something to do with a certain mind-set from BM?:
'It might work if you are peddling faith…'
'Otherwise, you sound like a priest peddling a religion. About as credible as seeing an image of Mother Mary in the church tower.'
But when Memehunter said this to BM
Click to view link
'…you apparently neglected to address the effect of demurrage on the velocity of the circulation of money…Couldn't the increased velocity be the main reason, or at least an important factor, behind Wörgl's relative prosperity? And, if that is the case, why wouldn't it be "sustainable"?'
Then in response BM said:
'I suspect the velocity is certainly an important factor in the relative prosperity of Wörgl during the time of the experiment (and I have no doubt that demurrage contributed to this velocity directly)'
The anti-Worgl and pro-Worgl expert (BM):
'... I support having an infinite number of experiments all around the world; and 2) I guess I could see if my *suspicions* would have proved out.'
Posted by bionic mosquito on 11/09/12 12:33 PM
Summer, you offer so many straw men. Many of your straw men only demonstrate that you did not fully read or understand even the most basic points in my article. I will not chase them. You make numerous assertions without one bit of evidence in support.
The story of Wörgl is simple. The mayor, knowingly or unknowingly, devised a method by which he motivated the citizens to part with wealth and pay back taxes as well as future taxes. He did this by introducing a currency that was certain to lose purchasing power month after month - while accepting this scrip for tax payments. These funds were then used to support the projects.
This pot-of-gold was exhausted at the end of the year. No further miracle could be sustained. The facts are quite clear in the 20 or so items I have read. I have stated them in my paper. I have provided links. Go to them and point out my errors. To this I am open.
'An analysis of the increased prosperity of the town of Worgl as a whole (not just the public purse) is necessary comparing the increase in private wealth to public spending. We need to look at the increase in profits in industry and commerce and the commensurate increase in disposable income.'
What do you mean 'we' need to look at the increase? Do your homework - I have done mine. Please show me your evidence of the surge in the private sector - in all the papers I read, the only facts I found regard the government-funded projects. Assumingyou find such evidence, show me how both the private and public sector would have been sustained absent continued collection of the no-longer-existent taxes owed in arrears.
What would have happened when the government could no longer finance additional new projects? We already know the answer.
Find the source documents that back your assertion. Find some documents that contradict the facts I have found. Do something other than claim 'utter nonsense.' It might work if you are peddling faith. Try that with a thinking audience, see how far you get.
Once the new currency was no longer good for paying taxes that were no longer owed, what do you suspect the desirability for the currency to be? How fast do you think the holders of the scrip would have taken it to the bank for exchange - even at a 2% penalty? Demonstrate your answer via some understanding of economics and monetary theory.
If it is a Miracle, any sort of evidence will answer, but if it is a Fact, proof is necessary.
Deal in the facts. Show some proof. Otherwise, you sound like a priest peddling a religion. About as credible as seeing an image of Mother Mary in the church tower.
Posted by Summer on 11/09/12 11:57 AM
BM focuses on government and its effects on society at large in Worgl rather than the entire economy - public *and* the far more significant larger private sector.
The example of Guernsey, given by lietaer, was obviously provided to illustrate merely how the absence of interest debt does not burden the money supply and makes for a healthy economy.
Even if the tax arrears had contributed to the initial surge and success of the experiment, tax payment and its implications (government spending) is by no means the whole story of an economy. This is to ignore the significant individual and private sector business prosperity resulting from the increased velocity of the money supply.
BM:'It seems that the entire experiment was a Keynesian one - significant increased spending on public works financed by …'
Utter nonsense! It is a local currency initiated by local people. Yet, free-market types want to equate it to a 'statist' endeavor just because the authority of the day, which was local, was obviously working alongside the government! Now, if free-marketeers really believe in free choice then the form of government is also the people's choice - anyone wanting change must utilize the existing political structure or seek revolution etc. Isn't that what Ron Paul is doing? Using the existing imperfect political structure for positive change rather than sitting pretty, waiting for a complete structural change in society to occur by itself.
An analysis of the increased prosperity of the town of Worgl as a whole (not just the public purse) is necessary comparing the increase in private wealth to public spending. We need to look at the increase in profits in industry and commerce and the commensurate increase in disposable income. Also, a local-government default does not create a surge in a failing economy. Furthermore, just the absence of usury alone in other examples: Click to view link demonstrates how an economy thrives without interest.
BM: 'Wörgl was not a miracle, but an example of Gresham's Law and Keynesian spending. It is certain that the experiment could not have continued much longer even if the national government did not shut it down. Virtually all of the money used to pay for the projects came from one-time events:'
This is nonsense. Even if 'one-time events' contributed to the level of economic success in the public sector, it does not follow that other positive effects, such as the increased circulation of money, were not primary factors in the success of the town's economy as a whole. In the Islamic Empire, the zakat system (negative interest) was employed for centuries and prosperity was firmly established throughout that period.
Also BM fails to mention one point - no interest was payable on bank loans which means that, for example, a mortgagee would not pay three times the actual value of their home via interest - that would certainly make the ordinary citizen more prosperous.
Interest free economics is the only effective way to push the wealth through the arteries of the economy and away from the parasitic banking fraternity to the real wealth creators - private enterprise. What say you?
Posted by bionic mosquito on 11/08/12 10:27 PM
Thank you; regarding both articles.
Reply from The Daily Bell
Now you may wish to examine regional currencies in general including the CHIEMGAUER. You can aid efforts at comprehending these currencies by figuring out why the United Nations is so involved in backing them and why so many of them apparently support the UN's Agenda 21, or the general logic behind it ...
Click to view link
Here are some articles we've written on the subject:
Why Is the UN Installing Mutual Credit/Pure Fiat Systems Around the World?
Click to view link
Margrit Kennedy and the 'Blue Economy'
Click to view link
New Book Further Confirms Eco-Affinity of Alternative Currency Proponents
Click to view link
Currency and Credit Schemes Blow Up ... and Go Green
Click to view link
Strange Bedfellows: More Authoritarian Linkages to Paper Money ...
Click to view link
Paper Money and the UN Perfect Together? More Currency and Credit Exchanges Supported by the UN
Click to view link
In Praise of Gentle Deflation Against Greenbackers and Other Paper Promoters
Click to view link
Are 'Green' Reciprocal Exchange and Credit Systems Part of a Larger Elite Promotion?
Click to view link
The Pure Fiat Con: Every Transaction Available for Official Scrutiny – and That's Just the Point?
Click to view link
Elites Promote Pure Fiat Currencies – Mutual and Social Credit – for Traceability?
Click to view link
US Judiciary Leans Towards Disclosure Laws That Could Confiscate Electronic Assets
Click to view link
Debt Jubilees and Memes ...
Click to view link
Poison of Neo-National Socialist Public Banking
Click to view link
Posted by bionic mosquito on 11/08/12 08:32 PM
DB: You should turn this into an article.
BM: Click to view link
Reply from The Daily Bell
OK, BM! ... A serious article by a serious writer. Now when people speak glibly of the Wörgl miracle, they may have to take this definitive article into account. Step by step certain truth-seekers reluctantly but determinedly confront historical errors. Gradually, the idea that state-enforced monopoly money printing in the hands of the "people" is any better than monopoly money in the hands of the "private" sector is being deconstructed.
The idea that the state or facilities of it - immune from competition - can do a better job of providing money than the private sector and its "invisible hand" simply flies in the face of everything we have come to understand in the 150 years since the advent of the neoclassical economic revolution.
You can see our article on Tally Sticks here:
Now Let Us Celebrate Tally Sticks ... or Not
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And here's one on LETS systems:
Are 'Green' Reciprocal Exchange and Credit Systems Part of a Larger Elite Promotion?
Click to view link
When confronted with evidence she'd used a false quote, one prosletyzer of public-fiat money reportedly replied that the quote was a popular one and therefore its usage was credible even if its attributed source was not!
Someone else, we've read, is doing a thorough debunking of Eustace Mullins, showing how often he dispensed not only with footnotes but also with facts. His imaginary history regarding the John Birch society is but one example.
And now you have provided us with serious insight into the Wörgl miracle. Interesting that the evil Keynes was a fan of Gesell. But then again, he was a Fabian and the Fabians apparently endorsed both Silvio Gesell and social credit's Major Douglas, printing their work in Fabian journals, no matter the occasional dissenting voice ...
Here from your conclusion ...
"Wörgl was not a miracle, but an example of Gresham’s Law and Keynesian spending. It is certain that the experiment could not have continued much longer even if the national government did not shut it down. Virtually all of the money used to pay for the projects came from one-time events ... "
This is great, BTW: Click to view link
Posted by bionic mosquito on 11/07/12 06:00 PM
Summer: BM's assertions fly in the face of the clear testimony of the majority of those present at the time.
BM: I cited the specific testimony of those present at the time. You have the opportunity to refute my statements one by one.
Summer: Why did mayors from all over Austria converge on the town?
BM: Could it be as simple as they wanted to find out how the mayor of Wörgl was successful at collecting almost 80,000 schillings of taxes in arrears, as well as getting his constituents to pay taxes in advance? Or how he stiffed the regional bank in Innsbruck?
Summer: Why did the central bank see it at such a threat and close it down?
BM: Because centralized power does not want to be diminished.
I know it falls on deaf ears, but I will say again: I am all in favor of a free market in money and banking. However, as in the case of this 'miracle,' I am also in favor of identifying the underlying causes. Coincidence isn't necessarily cause - and so far (although I still have work to do), it strikes me that Wörgl was nothing more than a Keynesian spending binge, facilitated by a local, depreciating currency that was used by the parish to collect taxes in arrears as well as accelerate receipt of future tax receipts.
Summer: The majority verdict is compelling and BM's 'alternative' analysis supported by anecdotal excerpts seems like clutching at straws.
BM: what 'majority verdict'? Go to the source documents and present your case based on the written testimony of eyewitnesses. At least I present evidence. What is it you have done with your post?
You do not address a single point I raised. Why is that? Instead you suggest…what exactly?
BM: Summer, this 'miracle,' like your favored bank of Denmark, or the Netherlands, or wherever, does not seem to withstand scrutiny very well….
Posted by Summer on 11/07/12 05:47 PM
BM's assertions fly in the face of the clear testimony of the majority of those present at the time.
Why did mayors from all over Austria converge on the town? Why did the central bank see it at such a threat and close it down? The majority verdict is compelling and BM's 'alternative' analysis supported by anecdotal excerpts seems like clutching at straws. If you dispute the success of Worgl, please explain the financial success of the Islamic Empire's Zakat system or the myriad other interest-free money systems.
Do you dispute that interest-based systems result in wealth flowing upwards from the productive populace to the parasitic elites (most likely ending up in Zionist hands)?
After all, how did the powerful banking families such as the Rothschilds and the Rockerfellers accumulate their wealth? Was it not through usury? You seem not to have noticed the pro-interest financial-mafia system crashing around your ears in the Western world as a direct result of interest/debt based funny money.
Elite/Masonic influence to ban interest-free money:
Reply from The Daily Bell
"After all, how did the powerful banking families such as the Rothschilds and the Rockerfellers accumulate their wealth? Was it not through usury? You seem not to have noticed the pro-interest financial-mafia system crashing around your ears in the Western world as a direct result of interest/debt based funny money."
This is a good example of an assertion that has no proof. Over and over, we hear that the "Rothschilds control "all the world's gold." But the world's gold is dispersed in numerous hands, including hundreds of millions of individual Indians and Chinese.
We read that central banks earn interest on money printed from nothing and that is the basis for the wealth of the great banking families. But central banks may RETURN profits to the state and some of the initial elements of the Rothschild's fortune was obtained via a famous securities speculation following the defeat of Napoleon at Waterloo.
When one apparently controls a good chunk of the world's central banking assets, the idea that one is enriched by interest is probably the least of it. Money flows upward via the ownership of corporations, natural resources, via taxation and numerous other revenue producers that have nothing to do with interest. In fact, the Fed is PAYING banks to hold funds in their vaults ...
Posted by Bischoff on 11/06/12 11:53 PM
@ Danny B
DANNY: "Maybe GOV plans to print U.S. notes to circulate them parallel with FRNs. GOV could back the U.S. notes with a gold standard and pay off our creditors with FRNs."
BISCHOFF: To circulate a currency along side the FRN is in fact a solution to resolving our financial mess. However, U.S. Note currency isn't it.
As long as the gold standard and the international bullion standard existed, the interest rate on sovereign debt was determined by individual savers. Two irredeemable currencies based on monetized debt could circulate under such circumstance.
However, with the demise of the international bullion standard in 1971, individual savers lost influence over the interest rate to the FOMC of the FED. With US Notes and Federal Reserve notes losing all standard, they both became currencies of negative value.
US Notes and Federal Reserve Notes were irredeemable after 1933. The issuance of US Notes was discontinued in 1971. The FRN received legal tender protection with the Coinage Act of 1982.
This is contrary to the assertion by the dogster who says, "It may interest you to know that acceptance of Federal Reserve Notes for cash transactions is entirely voluntary. You don't have to accept them."
"Legal tender" protection afforded the FRN in 1982 means, that if you offer to pay your debt with FRNs, and your lender refuses to accept them, he will in effect have relieved you from your debt to him. If challenged in the courts, the decision will favor you.
Since the FRN is a "legal tender" currency, there is no need to keep issueing a second irredeemable currency in the form of US Notes. US Notes issued on the "good faith and credit" of the United States are doubtful as to their value. This doubt cannot be overcome by trying to back US Notes with gold.
"Gold backing" is something totally different than the gold standard. While a government could "back" a currency with gold, it cannot issue a currency based on the gold standard.
To get out of the present world wide, irredeemable, "managed" currency system, the answer is to return to a redeemable currency based on the gold standard. However, that will not happen until the "legal tender" protection is removed from the FRN. If the situation with the FRN were as the dogster claims, the "Liberty Dollar" company of Cour d'Alene, Idaho would still be in business today.
As long as the FRN has "legal tender" protection, a redeemable currency based on the RBD and the gold standard, created by the private, productive sector, and private commercial banks, will not reemerge.
Redeemable currency, circulating parallel with irredeemable FRN currency, but unprotected by legal tender, will give savers and investors the opportunity to change their assets denominated in one currency to assets denominated in another currency based on free market valuation.
Posted by bionic mosquito on 11/06/12 09:57 PM
DB: You should turn this into an article.
BM: I intend to do something more thorough. Frankly, I was shocked at how easy it was to find these contemporaneous articles with the facts I identified below.
If you are interested, I will send you the link once it is done - but it might not be for several days.
Reply from The Daily Bell
Posted by bionic mosquito on 11/06/12 09:24 PM
dogster: "I've not heard of a default before - you imply that it was a necessary outcome of the Gesell money."
bm: Read the attached links. They describe the default ... I imply no such thing. However, it does seem that defaulting on the debt was part of what made this experiment a "miracle."
dogster: "Do you have a fundamental objection to this? Why?"
bm: My only fundamental objection to money / currency / banking / credit is when it is government controlled or backed. If it is derived in a free market, I have no reason to object, and in fact no basis to object - although I might have criticisms of the specific form ... All of the projects completed during this experiment were done using good old fashioned keynesian means, plus schemes to collect more in taxes. There is no miracle about this. "Wow, look what can be done with government spending." Some miracle.
China is doing it today, only at 100,000 times the scale. It doesn't make the practice economically sound or sustainable. It always ends in a bust.
Posted by Summer on 11/06/12 07:18 PM
The real cause of boom and bust - racketeering, see at 27mins:
Click to view link
DB: The real cause of the modern boom-and-bust cycle is monopoly fiat central banking. Anything other explanation is just ignorant or a cynical propaganda ploy.
Pot calling the kettle black.
Daily Bell: How about Silvio Gesell and Major Douglas? They were famous in the 1930s and their theories are experiencing a revival.
Detlev Schlichter: I would rather not comment."
Summer: I wonder why?! The implementation of Silvio Gesell's theory in Worgl has yet to be given a critique even mildly approaching worthy. Interest is the real issue as long as it is tolerated all are in servitude to Money Power, through the staggeringly inequitable wealth transfer it creates - 80% wealth to 10% of the population. How can any economic academic worth his salt ignore these facts?
DB: Again with the faux-numeracy of UN employee Margrit Kennedy.
Summer: Margrit Kennedy's calculations are independently verified, so is this comment a 'cynical propaganda ploy'? What kind of people can ignore and try to discredit this information without properly analyzing its devastating repercussions?
DB: The UN has all TEN fingers in these LETS systems and there is a disturbing amount of green propaganda as well. What's going on is questionable to say the least.
Summer: Libertarians and Austrians are affiliated with many mainstream/elite organisations so is this comment 'ignorant' criticism? Learn from Schlichter, if nothing else. He uses the *actual issues* rather than affiliations upon which to base his arguments.
DB: …We're fairly sure the Worgl experiment isn't exactly what it appears to be either…
How? A feeling in the gut? Is this ignorance, a cynical propaganda ploy or just blindness?
Who is moderating today? I mean seriously!?
Reply from The Daily Bell
The implementation of Silvio Gesell's theory in Worgl has yet to be given a critique even mildly approaching worthy. Interest is the real issue as long as it is tolerated all are in servitude to Money Power, through the staggeringly inequitable wealth transfer it creates - 80% wealth to 10% of the population. How can any economic academic worth his salt ignore these facts?
DB: On these very pages in this very thread, Bionic Mosquito has done the beginning of a debunking job. Turns out Gesell's "money," (which the inventor of social credit Major Douglas was contemptuous of) was of most benefit to the Worgl state that went on a building spree after collecting back taxes. This is the point of the Worgl experiment? It allowed Worgl to tax and spend with greater abandon. This is a positive development from your point of view? Anyway, we are not alone ... Go read up on what Major Douglas had to say ...
Margrit Kennedy's calculations are independently verified, so is this comment a 'cynical propaganda ploy'? What kind of people can ignore and try to discredit this information without properly analyzing its devastating repercussions?
DB: We are simply applying an Austrian analysis to Ms. Kennedy's critique. As she and her husband are long-term UN affiliates and deeply green we tend to distrust her anyway. And Austrian economics tells us it is very difficult if not impossible to quantify an economy with exactitude. You are welcome to believe that Ms. Kennedy's analysis is correct and verifiable. We don't ... anymore than we believe that cow farts and human exhalations are causing global warming. Only in the 21st century can someone who believes in such things be greeted as a prophetess. Or perhaps you believe in this green nonsense as well ...
The UN has all TEN fingers in these LETS systems and there is a disturbing amount of green propaganda as well. What's going on is questionable to say the least ... Libertarians and Austrians are affiliated with many mainstream/elite organisations so is this comment 'ignorant' criticism? Learn from Schlichter, if nothing else. He uses the *actual issues* rather than affiliations upon which to base his arguments.
DB: This is a canard. For every example of an "affiliated" Austrian or libertarian, we can provide one that is not. On the other hand, the UN has explicitly endorsed LETS systems and is an active proponent of them. So here is the deal, Summer. If you can find ANY active, FORMAL modern endorsement of the power elite of a legitimate Austrian anarcho-capitalist, provide it on these pages and we'll treat it with the seriousness it deserves.
…We're fairly sure the Worgl experiment isn't exactly what it appears to be either… How? A feeling in the gut? Is this ignorance, a cynical propaganda ploy or just blindness?
DB: See the comments of BM, below, already referred to ...
Posted by dogster on 11/06/12 01:23 PM
Bionic - You scoff at the 100,000 shilling investment, or 'investment' as you put it. My understanding of it was that
1. The Worgl wages paid for a large amount of reforestation, a benefit to a timber based economy;
2. Major improvements were made to streets;
3. A large ski jump facility was constructed to attract future tourism;
4. That unemployment was virtually zero at a time it was running 20-30% in the neighboring towns.
8,000 shillings generating 100,000 shillings in investment gives an implied velocity of over 12. Debt based fiat causes velocity, eventually, to decline to zero. Do you see any difference?
I've not heard of a default before - you imply that it was a necessary outcome of the Gesell money. I'm inclined to dispute that conclusion while I await further information.
Worgl money was money issued without debt or bonds. Its value as money is sustained by the 1% negative interest, a form of user fee. Do you have a fundamental objection to this? Why?
Posted by Weimarphobia on 11/06/12 10:43 AM
The author shies away from conspiracy theories, though is clear that big government and the central bank act hand in hand to heap massive new debt on their citizens to their mutual benefit: citizens forced into artificially increased progressive tax rates (imagine everyone forced into the highest bracket in one day, 1923 Weimar) and the central banks doling out virtually interest-free money to the very commercial banks that own them. If that does not sound like a conspiracy, what does? These banks are charging a higher ratio of interest charged vs. interest paid to their customers than any time in history, but the author talks about "cheap money."
The real question is: What does any nation, determined to live within its means( i.e., not enslave future generations a la the Hessians) have any need for a "central bank" The argument that it servesd as a "lender of last resort" does not hold water. it is profoundly immoral.