News & Analysis
Federal Reserve Is Mercantilist – Not Private
Alert: Federal Reserve Tries to Censor Infowars Video ... Alex Jones addresses the latest intimidation tactic from the private Federal Reserve bank, whose San Antonio branch has filed a privacy violation with You Tube demanding the removal of a video filmed at the location during an "occupy" rally. Alex tells them cease and desist this action, which violates the First Amendment. Federal Reserve branches across the country have a long history of trying to stifle free speech and press coverage, from fraudulently claiming that filming its buildings is illegal to threatening arrest and more. "I can't take the Bankster Fed pushing people around any more! Now the Fed wants to take down the video where we prove the Federal Reserve is a private bank impersonating a Federal agency. The Fed is the fraud that gives the globalists their power." – PP Forum
Dominant Social Theme: It's a private entity, folks. That's the problem!
Free-Market Analysis: Ellen Brown, Alex Jones and others have done much good work to ensure people know the Fed is "private" not "public" – and the latest action by the Fed in attacking Alex Jones is another indication of the essentially private nature of the US central bank. Here's more from Alex Jones's PP forum:
Federal Reserve Tells YouTube to Take Down Critical Video ... We have received a privacy claim by agents of the FED. They are threatening to remove the video and take down the channel within 36 hours if we don't bow down to their demands. Alex is preparing a video response later and will talk about this more on the (Monday Edition) of the Alex Jones Show. Alex is also looking at taking legal action against the Privately owned Federal Reserve for violating his crews first amendment rights when they were shooting film at a world war one memorial back in April 2009.
But despite the OPERATIVE posture of the Fed as a private institution, it is not entirely private. Alex Jones actually comes close to defining the problem in the forum excerpt above when he explains that the Fed is a "private bank impersonating a Federal agency." There is already a word to define this process: Mercantilism.
Ms. Brown – who has been most vocal on this issue – does not use the word "mercantilism." She wants to emphasize the PRIVATE nature of the Fed so as to offer the alternative of "public banking." Public: good. Private: bad.
The Federal Reserve is a MERCANTILIST entity, one that hides behind a government endorsement. It's private but it would not work without the monopoly power provided by the government. That's how mercantilism works. Powerful private interests seek and receive legal approbation for their private activities.
The Fed didn't come into being until Congress passed an act legitimizing it and even today the US Congress is directly and significantly involved in its structure and activities. Congressman Ron Paul, for instance, is conducting an audit as we write.
It is true that the Fed OPERATES as a private entity, but that's different from stating that the Fed is FORMALLY a private entity. It's evidently and obviously not. As the Fed website itself points out: "[T]he Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute."
Ms. Brown's response? In a 2008 article, "Who Owns the Fed?", she focused on the reality of the Fed as opposed to the statutes justifying its existence. From her point of view, the Fed's activities prove that it is private rather than public, as follows:
As we know from watching the business news, 'oversight' basically means that Congress gets to see the results when it's over. The Fed periodically reports to Congress, but the Fed doesn't ask; it tells. The only real leverage Congress has over the Fed is that it "can alter its responsibilities by statute."
It is time for Congress to exercise that leverage and make the Federal Reserve a truly federal agency, acting by and for the people through their elected representatives. If the Fed can demand AIG's stock in return for an $85 billion loan to the mega-insurer, we can demand the Fed's stock in return for the trillion-or-so dollars we'll be advancing to bail out the private banking system from its follies."
If the Fed were actually a federal agency, the government could issue U.S. legal tender directly, avoiding an unnecessary interest-bearing debt to private middlemen who create the money out of thin air themselves. Among other benefits to the taxpayers, a truly "federal" Federal Reserve could lend the full faith and credit of the United States to state and local governments interest-free, cutting the cost of infrastructure in half, restoring the thriving local economies of earlier decades.
One can see the inevitable logic flow from the argument that Ms. Brown has presented. If the Fed is "private" and only nominally public, then it ought to be publicly "perfected" and its attributes and functions fully nationalized.
But there is nothing magical about taking private functions and turning them into public ones. Government is not a magic wand. In fact, in the case of the Fed, it could not pursue its destructive monetary policies without a government mandate. The government's endorsement is part of the problem. But fully federalizing the Fed will only make things worse.
The Fed, like all central banks these days, prints money from nothing. There is no "governor" on how much money the bankers at the Fed authorize – and always central banks print too much, causing first booms and then terrible busts.
Eventually this central banking business cycle bankrupts the communities it serves. It hollows out economies and promotes ruin. That's what's going on now. Some even say it's being done on purpose to promote globalist solutions as a better alternative.
In any event, a PUBLIC central bank would not likely print less money. There is no human being in the world – or committee of human beings – that understands how much money an economy needs. It is impossible. Only private money issued into the economy through the market itself offers a solution.
History shows that in a private economy, gold and silver (or representative equivalents – digital or otherwise) would probably circulate. Too much gold and silver, and mines shut down and people begin to hoard. Too little gold and silver and mines open back up and people dishoard. Simple.
This is how a private economy works. WHETHER THE VOLUME OF MONEY IS CONTROLLED BY A PUBLIC ENTITY OR A PRIVATE ONE, THE PROBLEM REMAINS: HOW MUCH MONEY IS NECESSARY AND HOW DO YOU CALCULATE THE AMOUNT?
This is the crux of the matter and neither Ms. Brown nor anyone else knows how to answer it. The Fed, with its government imprimatur, has many public signifiers. It is chartered by the government, enjoys a monopoly from the government, and issues money on behalf of the public – entirely bypassing the marketplace of private money creation.
Calling the Fed a "private bank" is a kind of sub-dominant social theme. The nomenclature takes the emphasis off "mercantilism" and places the blame for what's taken place on the activities of a "private" group of bankers. This suits certain (elite) agendas but it's not accurate.
Conclusion: The monetary debate now raging has been complicated by the refusal to use the correct terms. The term for the Fed is "mercantilist" not "private."
Edited on date of publication.
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Posted by cmciis on 10/22/11 10:17 AM
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Posted by RR on 10/19/11 10:55 AM
(Case Reveals Fed's Status as a Private Institution)
Lewis v. United States, 680 F.2d 1239 (1982)
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Posted by nickspm on 10/19/11 01:54 AM
"Mercantilism is the use of the state to fulfill one's personal objectives and self-interest. The use of the state, conflating private with public, allows the individual or small group to obtain clout that would otherwise not be feasible."
It seems to be at odds with the following definition:
"Mercantilism is economic nationalism for the purpose of building a wealthy and powerful state. Adam Smith coined the term 'mercantile system' to describe the system of political economy that sought to enrich the country by restraining imports and encouraging exports."
The Concise Encyclopedia of Economics
Mercantilism
by Laura LaHaye
Click to view link
There's quite a difference between the two definitions: night and day.
I'm going to go with the definition from the economics encyclopedia to make a few points.
The Federal Reserve doesn't encourage economic nationalism. It seems to promote economic globalism. In fact the Federal Reserve wants the American public to be on the hook for bailing out the European banks to cover all of the phony derivatives.
If the Federal Reserve is practicing economic nationalism, it certainly isn't economic nationalism for the benefit of the United States.
The Fed isn't restraining imports and promoting exports. If anything, just the opposite. This is globalism, not Mercantilism.
The definition that your website uses suggests to me that Mercantilism is nothing more than a private entity taking over a public entity for self-interest to do things that couldn't be done otherwise. I think that definition is incorrect.
Also the title of this article is misleading:
Federal Reserve Is Mercantilist - Not Private
Again, it appears that your definition of Mercantilism is incorrect. Also this point about whether the Federal Reserve is private has already been established:
Court Rules Federal Reserve is Privately Owned
(Case Reveals Fed's Status as a Private Institution)
Lewis v. United States, 680 F.2d 1239 (1982)
Click to view link
Reply from The Daily Bell
Our definition merely paraphrases the following (below, from the Austrian School) and is not much different from the one you cite except the emphasis in our view is accurately on "individuals and groups" not the "country."
For Smith, of course, the country was paramount. He named his great treatise, the Wealth of NATIONS, though as Murray Rothbard has pointed out (no fan of Smith's) he ought to have called his opus the "Wealth of Individuals."
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The Austrian School of economics, always an opponent of mercantilism, describes it this way:
“Mercantilism, which reached its height in the Europe of the seventeenth and eighteenth centuries, was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state."
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As far as US Courts go, you can use them as an authority but that does not make them so. The Federal Reserve is evidently and obviously NOT entirely private, as it is subject to enabling statutes. Its authorities serve at the pleasure of the US political class, etc.
'Here is the famous case, courtesy of Wikipedia citing the"penumbras and emanations" of the Constitution! For nine silly men in black robes, no sophistry is irrelevant and no leap of logic unfathomable. ...
Griswold v. Connecticut, 381 U.S. 479 (1965), was a landmark case in which the Supreme Court of the United States ruled that the Constitution protected a right to privacy. The case involved a Connecticut law that prohibited the use of contraceptives. By a vote of 7–2, the Supreme Court invalidated the law on the grounds that it violated the "right to marital privacy". Although the Bill of Rights does not explicitly mention "privacy," Justice William O. Douglas wrote for the majority that the right was to be found in the "penumbras" and "emanations" of other constitutional protections ...
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Posted by Jimi Bigbear on 10/18/11 04:31 PM
You can only believe that public money will be a better solution in the long term, anyway, than mercantilist (private/public) money if you ignore the Invisible Hand and Human Action. How you can ignore these two fundamental, magnificent points of intellectual evolution is beyond us.
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OK Daily Bell, you gotta make a choice here - take a stand - if Smith's Invisible Hand and Mises' Human Action are truly based on Natural Law, then they have to apply no matter what. Are you saying that if money and banking are in PUBLIC hands, this will be counter to Invisible Hand and Human Action? That these theories can only work when the money and banking are in PRIVATE hands?
Is not the greed and corruption of Wall Street Human Action? Or are these parasites not human?
RR and Speedy - good posts!
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Posted by speedygonzales on 10/18/11 02:27 PM
Everything which is not forbidden is allowed is a constitutional principle of English law - an essential freedom of the ordinary citizen. The converse principle - everything which is not allowed is forbidden - applies to public authorities, whose actions are limited to the powers explicitly granted to them by law.
This is reason why they gave corporations status of living human being and they shift power from government to private incorporated entities: from banking cartel to IMF,World Bank, UN, private military and so on.Unlimited power with limited liability of corporations versus full liability of citizens versus limited power, by law, of government is the game.
There is a theory known as the Theory of Cognitive Dissonance (TCD) that holds that the mind involuntarily rejects information not in line with previous thoughts and/or actions. Brace yourself, the following message may be entirely different from anything you heretofore believed to be true. If you are unaware, you are unaware of being unaware!
Click to view link
At the end of his interview journalist Greg Palast concluded "the solution to world poverty and crisis is simple: remove the bloodsuckers."
To do this, its necessary to understand how the bloodsuckers obtained their power. Herewith a brief description of how a cleverly devised banking system robs the average person of the right to a decent life while providing enormous wealth for its corporate owners and stockholders:
Henry Ford, Sr., staunch member of the United States business community, once said "If the people of the nation understood our banking and monetary system, I believe there would be a revolution before tomorrow morning."
Workers around the world have vastly increased their productivity, yet their standard of living has fallen drastically. How many people work two jobs to pay back money created out of thin air using their own personal credit? How many millions in this country die premature deaths because theres no money for food and doctors bills? How many people in the Third World starve to death because their countries are burdened with enormous debts to international bankers?
If competition is a sin for them, as once Rocky stated, then give 'em competition on any level. From State owned banks thru minicipalities creating joint ventures with foreign corporation to state controled corporations or supporting employees owned.
I know, ye call it socialism. How do you call socialism for the rich? So cumulating wealth in hands of few is OK. Spread it to people is not? Thank You.
Wall street is fraud, ponzi scheme since there is not real price traded but demand. They sell one thing 2,3,4 times. Someone must be short somewhere.
After WW2 Bavaria controled Volkswagen, and many more, thru Golden stack. And they make Audi, VW, Skoda,Seat. Until Porsche corrupted european technocrats so they declared it as not free market. Amd guess what? Porsche started shipping jobs instead of cars out of Germany. Thru golden stack Bavaria did not allowed what happened in USA.
There can be public projects done by municipalities instead of private corporations. Because. First someone win public tender. Of course there are rules set which do not allow smal companies enter. Then winner sell it or hire small company to do job. Finally Mexicans do the job for $8 an hour. Winner has in his pocket bunch of money to corrupt municipalities so scheme runs again and again. If municipalities hire small company directly thru join venture we can save our taxes. This is not the way how free market worx. Right.
This scheme runs up to the Pentagon. Bechtel,Halliburton. They do not make anything they are just main contractor and subcontractors do jobs.
As soon as there is something public in free market corporations are short and they are loosing ground. We can look at health care in Austria, and in Europe generally. There are private health care insurances. But people do not choose them at all. In USA there is state controled car insurance in North Carolina and selling alcohol as well. Why not go further? Similar unfortunate thing happened with education in america. They take school tax from homeowners, but if you do not like schools in district have to pay again. Where is competition? In Europe are schools financed from taxes: income, sales. Not extra school tax to punish homeowners. You have a kid which is in school age. Governement splits money for every kids and where parents asign kid this school gets money. No matter if private or public. From one part of the country to another. If communism ain't worx, american communism neither.
As you promoted Golden frank in Switzerland, we have hundreds of local currencies in Germany beside Euro. The Havelbluete, the Augusta and the Chiemgauer might sound like the names of locally brewed beers, but they are in fact micro-currencies which, like micro-breweries, are in abundance in Germany. There are more than two dozen local currencies in circulation, and 40 or so initiatives are about to start printing their own banknotes. These notes are not gimmicks. They're recognized legal tender - at least within each local region.Click to view link
In capitalist free market USA they will put ye to jail as counterfeiter. This how democracy and power of people worx. Live. They have everything under control.
As I said long time ago but not received Nobel Prize. China made excelent trap for western capitalists. Capitalists sold companies to China's commie party and they expected to create revolution and take it back in privatization. What I said that China is not depended on western markets. backed by military power is enough if they will rise minimum wage. Time is Here we go. China made law that wages must go up 13% a year. When Chinese worker would buy their own product they will not be depended on export anymore. We are talking about 1 bilion people. India is next. They will start giving credit from money printed from thiny air.
Theory and practice are sometimes two different things.
Actually this was reason why they created 2 wars in europe. To replace succesfull socio-economic system with borderless capitalism a la England. Dolfi was right when he created his political program, now called NSDAP even at this time, 1920, NSDAP did not exist.
William H. Dawson, in his sympathetic exposition, Bismarck and State Socialism (1890), explained the difference:
"Socialism would abolish the existing political order altogether, while State Socialism would use the State for the accomplishment of great economic and social purposes, especially restoring to it the function, which Frederick the Great held to be the principle business of the State, of 'holding the balance' between classes and parties."
Bismarckian state socialism meant to save the established order from revolutionary upheaval and societal disintegration by admitting many of the criticisms that socialists made against a market economy-exploitation of the workers by employers, self-interested behavior that fails to serve the general welfare, poverty of the many in the midst of material riches enjoyed by the few-and by introducing a series of interventionist and welfarist policies that were to improve the economic lot of the masses while saving what was good and worth preserving in the traditional social order.
Because it was succesfull they created war against 'em. Competition is a sin!
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Posted by RR on 10/18/11 12:40 PM
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Posted by Bischoff on 10/18/11 12:32 PM
What is mercantilism... ??? It is the method and the restrictions by which a nation or state shields itself against competition posed by other nations or states.
The U.S. economy is open to imports, both goods and capital from other nations or states, as no other. It recycles trillions and trillions of USD/FRN used in world trade.
Please, tell me again how the Federal Reserve is mercantilist...
Maybe, there is something I don't understand.
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Posted by RR on 10/18/11 12:23 PM
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Posted by RR on 10/18/11 09:53 AM
Reply from The Daily Bell
It is very simple. In a PRIVATE MARKET gold and silver standard, the PE could not flood the market with gold (or silver) without the distortion being noted - and the price of gold being driven down considerably, which would inform people of what was going on and allow them to take appropriate action. That's how people protected themselves in the past. All of these things were figured out historically by previous "primitive" elements and no doubt, sooner or later the solutions will be adopted again ... At least some of them ...
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Posted by rossbcan on 10/18/11 07:40 AM
If the currency printer does not have a monopoly, then it matters little whether it is a public/private entity: if the currency is managed soundly, people will keep using it, if not, they will switch to a competitor (obviously, this works best if people also have the option to save in a "hard currency" like gold, but this would be valid in all situations).
Let's focus on the "monopoly power provided by the government" issue, rather than on the public/private issue.
Absolutely correct. Public/private is a question of "which men should rule / control" some aspect of civilization. Manipulators love to keep us myopically focused on the "who to trust" question so they can eternally "bait and switch" us by placing THEIR agents in positions of control as faux "OUR agents", representing THEIR and not OUR interests.
In general, elites want to keep us eternally dazed, frustrated, confused and especially fighting over the question of "rule of which men" as opposed to the "rule of law", definer / enforcer of peace and civilization:
Click to view link
Justice Defined: We are all free to profit or suffer and learn (adapt to excellence) by facing the consequences of our OWN choices. Injustice is to be forced to suffer the consequences of choices of unaccountable (irresponsible) others..
"The danger is not that a particular class is unfit to govern. Every class is unfit to govern. The law of liberty tends to abolish the reign of race over race, of faith over faith, of class over class." ~ Lord Acton
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Posted by memehunter on 10/18/11 07:10 AM
Why do Neo-Libertarians (yep, they've been neo'd too)and the Alabama Austrians have a Gila monster grip on this "government bad - free market good" mentality/meme?
Is the PRIVATELY owned "FED" enjoying a monopoly that the People gave to it, or one that it STOLE? I believe the latter, and I believe the facts as brought out by Bell contributor Ed Griffin (Creature) and Eustace Mullens' Secrets of the Fed support me.
Come on Bell! Does the tail really wag the dog? America's money has been in PRIVATE hands for MOST of its history. Let's give PUBLIC debt free and USURY free money and banking a 20 year run. If we do we will see UNBRIDLED prosperity, liberty and peace, and America will never again allow PRIVATE control of the MONEY POWER.
If the currency printer does not have a monopoly, then it matters little whether it is a public/private entity: if the currency is managed soundly, people will keep using it, if not, they will switch to a competitor (obviously, this works best if people also have the option to save in a "hard currency" like gold, but this would be valid in all situations).
Let's focus on the "monopoly power provided by the government" issue, rather than on the public/private issue.
Reply from The Daily Bell
A good restatement. However ....
We also wrote: "The Federal Reserve is a MERCANTILIST entity, one that hides behind a government endorsement. It's private but it would not work without the monopoly power provided by the government."
The article was about nomenclature in particular, not about the issue of monopoly power.
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Posted by rossbcan on 10/18/11 06:37 AM
is only possible when evidence is in a central location, an aspect of hierarchical command / control organization. A "reliability risk", failure mode. Not possible with redundancy and ad-hoc, competing functions organization.
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Posted by rossbcan on 10/18/11 06:23 AM
Benjamin Guggenheim, Isa Strauss and John Jacob Astor were three of the richest men in the world, and all publicly opposed the idea of America having a central banking system. Coincidentally, all three perished on the night of April 12, 1912, when the Titanic hit an iceberg on its maiden voyage.
JP Morgan, who strongly wished to have a Federal Reserve established, owned the White Star Line, which in turn, owned the Titanic. Soon after the Titanic sunk, the Federal Reserve was established.
Isn't it convenient that the man who helped establish the Federal Reserve (JP Morgan), along with Warburg and Rockefeller, owned the Titanic, and that his 3 most powerful opponents died on the Titanic?
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Posted by Jimi Bigbear on 10/18/11 01:21 AM
Why do Neo-Libertarians (yep, they've been neo'd too)and the Alabama Austrians have a Gila monster grip on this "government bad - free market good" mentality/meme?
Is the PRIVATELY owned "FED" enjoying a monopoly that the People gave to it, or one that it STOLE? I believe the latter, and I believe the facts as brought out by Bell contributor Ed Griffin (Creature) and Eustace Mullens' Secrets of the Fed support me.
Come on Bell! Does the tail really wag the dog? America's money has been in PRIVATE hands for MOST of its history. Let's give PUBLIC debt free and USURY free money and banking a 20 year run. If we do we will see UNBRIDLED prosperity, liberty and peace, and America will never again allow PRIVATE control of the MONEY POWER.
Reply from The Daily Bell
You can only believe that public money will be a better solution in the long term, anyway, than mercantilist (private/public) money if you ignore the Invisible Hand and Human Action. How you can ignore these two fundamental, magnificent points of intellectual evolution is beyond us.
it is also worth noting that even Christ's Sermon on the Mount (an eloquent statement for believers and non-believers alike in our view) advocated PRIVATE action.
This virus that making something "public" immediately confers advantages on it is most questionable. How then does one explain the inevitability of the Tragedy of the Commons, etc. So much genuine information about the Way the World Works must be ignored before someone can truly support the meme of public banking ....
How will public bankers know how much money to print? Private ones don't.
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Posted by memehunter on 10/18/11 12:47 AM
Benjamin Guggenheim, Isa Strauss and John Jacob Astor were three of the richest men in the world, and all publicly opposed the idea of America having a central banking system. Coincidentally, all three perished on the night of April 12, 1912, when the Titanic hit an iceberg on its maiden voyage.
JP Morgan, who strongly wished to have a Federal Reserve established, owned the White Star Line, which in turn, owned the Titanic. Soon after the Titanic sunk, the Federal Reserve was established.
Isn't it convenient that the man who helped establish the Federal Reserve (JP Morgan), along with Warburg and Rockefeller, owned the Titanic, and that his 3 most powerful opponents died on the Titanic?
Who sunk the Titanic?
Click to view link
Titanic conspiracy:
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Investigating the Titanic conspiracy:
Click to view link
Titanic conspiracy and the Federal Reserve:
Click to view link
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Posted by memehunter on 10/18/11 12:41 AM
This process allows the gold price to fluctuate with the overall price level (either inflationary or deflationary doesn't matter) but because the two fluctuate together overall we get price stability (in theory), assuming prices are quoted in gold or gold backed paper.
@rossbcan: The theory of money creation is you can do it (without being inflationary) as long as goods and services production increases at the same rate. Actually you need to do it otherwise you have too few currency units chasing more and more goods and services, which is deflationary or people resort to barter which I think is great but governments find it too hard to tax.
This is not true. As long as the currency units are (practically) infinitely divisible, there is absolutely no reason to increase the amount of currency in circulation, even if goods and services production increase.
What is happening in the situation you describe is that the currency printer is effectively hijacking the economic benefits of the increased productivity, instead of having savers see their purchasing power increase (which should happen in a economy with stable money supply but increasing productivity).
I agree with Bischoff at 9:05 PM.
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Posted by RR on 10/17/11 10:35 PM
Federal Reserve is a money cartel just like a drug cartel or an oil cartel. A cartel is a coalition of government and special-interest groups having a common cause.
Unless the unimaginable concentration of wealth in the hands of the PE is removed, the gold standard and private money will do absolutely nothing. The gold standard and private money actually works in their favour because they own all or most of the gold. This is very well explained in the movie "The Money Masters"
Click to view link
Therefore public banking is a necessary first step before the ultimate transition to the gold standard and free markets. There is no great need to criticise public banking, it is a necessary first step to weaken the power of the PE. Public central banking is better than the present setup of the money cartel, a mercantilist, a government private combo Federal Reserve. Too much focus and crticism by DB makes one think that DB could be a controlled opposition too. We already heard praise for the John Birch Society recently from DB.
Reply from The Daily Bell
Where did we "endorse" JBS? And how does a public banker know how much money to print? Statements like this make us believe you may be a troll, RR.
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Posted by Angoose on 10/17/11 09:35 PM
Benjamin Guggenheim, Isa Strauss and John Jacob Astor were three of the richest men in the world, and all publicly opposed the idea of America having a central banking system. Coincidentally, all three perished on the night of April 12, 1912, when the Titanic hit an iceberg on its maiden voyage.
JP Morgan, who strongly wished to have a Federal Reserve established, owned the White Star Line, which in turn, owned the Titanic. Soon after the Titanic sunk, the Federal Reserve was established.
Isn't it convenient that the man who helped establish the Federal Reserve (JP Morgan), along with Warburg and Rockefeller, owned the Titanic, and that his 3 most powerful opponents died on the Titanic?
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Posted by Bischoff on 10/17/11 09:05 PM
This process allows the gold price to fluctuate with the overall price level (either inflationary or deflationary doesn't matter) but because the two fluctuate together overall we get price stability (in theory), assuming prices are quoted in gold or gold backed paper.
@rossbcan: The theory of money creation is you can do it (without being inflationary) as long as goods and services production increases at the same rate. Actually you need to do it otherwise you have too few currency units chasing more and more goods and services, which is deflationary or people resort to barter which I think is great but governments find it too hard to tax.
That is Milton Friedman's theory, which is a modification of J. Maynard Keynes' theory.
In theory, it sounds like a practical solution. In practice Friedman's theory brings on currency collapse only slower than will Keynes' theory. Milton admitted as much before he passed away.
Just restrict currency rate increase to the rate of increase in production and services, and everything will be honky-dory. It sounds nice and simple, but with a little thought applied to the practical application, and you will see that it cannot work.
I'd be interested to see a step by step application of Friedman's theory to prove that it will work in the long run.
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Posted by turtle on 10/17/11 08:11 PM
Wait a second. As the price sinks, what's the incentive for mines to open back up again? wouldn't the profitability of mining be going down? Same idea for, lets say, oil rigs? Yes, people would "pitch the midget" as gold and silver went down..
This process allows the gold price to fluctuate with the overall price level (either inflationary or deflationary doesn't matter) but because the two fluctuate together overall we get price stability (in theory), assuming prices are quoted in gold or gold backed paper.
@rossbcan: The theory of money creation is you can do it (without being inflationary) as long as goods and services production increases at the same rate. Actually you need to do it otherwise you have too few currency units chasing more and more goods and services, which is deflationary or people resort to barter which I think is great but governments find it too hard to tax.
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