Sorry to butt in, Bill...

Memehunter: "Just out of curiosity, since I see that you use the word "redeemable": are you talking about a currency using fractional-reserve lending?"

B: There are only two types of paper currencies. One currency which is linked to a standard of value such as Gold. The other currency is an irredeemable currency which is not linked to a standard. Normally, such paper currency will end up to have "legal tender" protection.

The redeemable paper currency works on the Quality Theory of Money. The redemption feature of the redeemable currency uses the standard of value of gold to give "quality" to the currency. It doesn't mean that there has to be 100% backing, because 100% backing amounts to using gold as currency. Gold as currency is unworkable. Luckily, there is the Real Bills Doctrine of creating redeemable paper currency under the Gold Standard. With the redeemable RBD currency, the producers/sellers can calculate their production costs to be sure to produce/sell at a profit. The RBD currency creation rests on consumer demand and the subsequent drawing of Real Bills by producers and sellers. The RBD currency created against Real Bills expires when the Real Bill is settled. Therefore, the quantity of RBD currency is in the hands of the consumers. The added benefit of RBD currency is the fact that people can save it.

The irredeemable paper currency works on the Quantity Theory of Money. It is a de-monetized currency, meaning that it has no fixed value. It floats against the value of gold, because gold is recognized world wide as the standard of value, even so no paper currency in the world today is fixed to the value of gold. Its is the quantity of irredeemable paper currency in circulation in comparison to the goods and services in the market which determines the value of the currency. This sort of currency requires central control of issuance and the monetization of sovereign debt. It is done through a political process, through control of resources and supply, IOW it is a managed economy using central bank money and a political process to direct it. It is a debt obligation which circulates and is unsuitable for savings. The investment of irredeemable currency eventually leads to all sorts of contortions and eventual loss of all investments denominated in irredeemable currency.

Currency using fractional reserve lending is not a paper currency at all.
Fractional reserve lending instruments are multiple deposit receipts written against the same amount of deposit. It is lending, not banking.

When a warehouse operator issues multiple deposit receipts, even with the express permission of the depositor, all he does is to accept credit risks for a fee. The depositor earns a return on the deposit without having to accept the risk. Of course, it depends on the quality of the warehouse operator whether he can engage in fractional reserve lending and still return the deposit as agreed. To describe fractional reserve lending/ multiple deposit receipts as currency is false. Such currency are loan contracts. If they involve fractional reserve lending of gold, the standard of value of gold is integral to the loan instrument.

"Answer A, assuming that money is redeemable asset based: The quantity of backing assets (eg, gold) determines (not "rule of man") the "amount" of money."

Just out of curiosity, since I see that you use the word "redeemable": are you talking about a currency using fractional-reserve lending? If not, and assuming that one "paper gold" note is always reedemable for one gold coin, then why do you need to talk about "redeemability" and "backing assets"? Why not separate clearly between "paper gold" (or whatever is being "backed" in your example) and physical gold?

"The "value" of money is limited by something REAL (assets), thus, the market discipline "punishes" entities who issue too much money, by reducing the "value" of each currency unit such that the "value" of total currency outstanding equals the assets of the issuer."

Actually, the purchasing power (what you call "value") of each currency unit will eventually be reduced, but those that spend the new currency units first are likely to benefit because there is always a delay between the time that the newly issued currency is spent and the time that the prices adjust across the board.

If the newly issued currency is not spent and simply accumulated, then this delay between the issuance of new currency and the adjustement of prices may take years or even decades. This is the situation we have now, with a "virtual wealth" (denominated mostly in dollars, but also in Euros or other major currencies) far surpassing the real wealth, which means that hyperinflation (much, much worse than the "price inflation" we have now) will come sooner or later, when all that virtual wealth tries to "convert" to real assets.

"Please demonstrate how "market discipline" will not print too much. "

Answer A, assuming that money is redeemable asset based: The quantity of backing assets (eg, gold) determines (not "rule of man") the "amount" of money.

Answer B, assuming that money is not asset backed, but is a "promise to pay" of some free market entity which people can freely choose to use, or not: The veracity (as evaluated by traders, using currency) of "promise to pay" is the "value" of the money, in terms of willingness to accept and hold. This resolves to the REAL assets of the free market entity.

In practice A and B are equivalent. The "value" of money is limited by something REAL (assets), thus, the market discipline "punishes" entities who issue too much money, by reducing the "value" of each currency unit such that the "value" of total currency outstanding equals the assets of the issuer.

These market forces are implacable and, also apply to the FED and $US. What backs them? "Full Faith and Credit" of US. What has / will happen to this asset? Same thing that has / will happen to $US. The "value" of total currency outstanding and "backing assets" are identical.

And, there is not a damn thing that decreeing "rule of man", counterfeiting, can do about it.

DB: This is why the libertarian formula for making things more livable is probably the correct one. Shrinking the state is probably preferable to trying to control it, especially if it remains un-shrunk.

You can't shrink it unless you try to have control/influence over it. Isn't that what Ron Paul is doing? He's using government as a means for change.

DB:Absent market discipline, those in charge of printing money will always print too much...

Please demonstrate how "market discipline" will not print too much.

DB: As for OWS, this movement wants to use the levers of the state and the modern penal-industrial complex to "punish" greedy Wall Street crooks. There is no talk of addressing the larger issues having to do with the dynastic families and their enablers and associates around the world.

The same could be said for Ron Paul.

It's time for a merit-based approach to addressing issues rather than purely philosophical leanings - interest causes 80% of all wealth to transfer to 10% of the population. If that isn't "distortion" what is?

Bill,

The whole thing boils down to human nature. Work is a habit which must be acquired. Man doesn't eat without work. However, eating is instinctual. It trumps habit everytime. So, if you can let your instincts run and eat by the benefit of someone else's labor, you do it. Unless, of course you have been taught bu your parents, your church, your school, your community that the fair thing is for everybody to work.

"Man can live and satisfy his wants only by ceaseless labor; by the ceaseless application of his faculties to natural resources. This process is the origin of wealth. But it is also true that a man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder. Now since man is naturally inclined to avoid pain - and since labor is pain in itself - it follows that men will resort to plunder whenever plunder is easier than work. When plunder becomes a way of life for a group of men living in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it.
--Frederick Bastiat

M: "... I simply don't think that having a fixed exchange rate between currencies and gold is the best way to go in the long run. It's probably better that we agree to disagree on that one."

B: That's fair enough. You stick with your understanding you get from FOFOA. I'll stick with Benjamin Franklin, Adam Smith and the U.S. Constitution. I haven't enough guts to think that I am smarter then all those founding fathers and a Professor of Humanities of the Scottish Enlightenment known for a premier publication on economics.

The fellow that blogs the FOFOA website has been in contact with me, and I understand his points. I agree that he is not a central bank stooge. However, I also know that he doesn't understand RBD currency and the gold standard.

Hosea 4:6 "My people are doomed for lack of knowledge".

Ingo, I agree that physical gold is an ideal store of value. I simply don't think that having a fixed exchange rate between currencies and gold is the best way to go in the long run. It's probably better that we agree to disagree on that one.

The reason why I mentioned that the DB and some other feedbackers also disagree on that specific point is not to justify my point, but to refer to recent threads where this debate already took place and also to show that even people who disagree on many other monetary issues agree that a fixed exchange rate between gold and other currencies is probably not the optimal solution.

If any "propaganda" has influenced me on this topic, it is mostly FOFOA's (I mentioned his work several times), and I very much doubt that he is a central bank stooge.

M: "Also, the problem with your system is that it does not make sense in practice to have a fixed value for gold, at least not over the long run. And who would fix this standard value anyway? Other feedbackers (and the DB elves) have criticized this aspect of your system.

B: I don't care how many feedbackers and how often the DB criticizes the "gold standard". The "gold standard" is the only moral and just standard by which a "Money" economy, and therefore a political economy can exist. Everytime a feedbacker or the DB retorts my explanation of the RBD currency and the gold standard, the arguments clearly show that they have no idea whatsoever about RBD currency, Money and the gold standard.

You have proven it again. You say, "It makes no sense to have a fixed value for gold, at least not in the long run". Why... ??? You simply cannot explain it. You make a statement that has been drilled into your head. That's how mass propaganda works. When I come along and disagree, your justification is that other feedbackers and the DB agree with you. Why do you think that is... ??? Because, they are as propagandized as you are.

You cannot refute my insistence on the gold standard for a paper currency except to say it won't work, it is a "red herring"... ??? That's all you have... ??? I dare you to explain why a "gold standard" doesn't work. Please, don't justify it that others think the same way as you. You know that is false logic.

You and other feedbackers, as well as the DB, are incapable of making a distinction between the "Quantity Theory of Money" and the "Quality Theory of Money".

That the "Quantity Theory of Money" necessitates the intervention of government or a central bank never seems to dawn on you. By necessity, somebody has to control the quantity of your currency.

The "gold standard" has absolutely nothing to do with the quantity of currency in circulation. It has to do with the quality of currency in circulation.

You seem to ignore the fact that the "gold standard" is still in existence at this very moment. It isn't applied to the central bank currency, true enough, but does that mean it is not in existence... ???

You simply don't understand that an uncountable number of people, past and present, all across the world have decided in a "free market" fashion to accept gold to be "Money" and nothing else. This "free market" or "acceptance" is so large that it can not be topped, not by any individual, not by any group, not by any government. This doesn't seem to dawn on you. No government can change the acceptance by people accross the world that Gold is "Money". They can outlaw the use of Money, but they cannot outlaw "Money". (Gold is a measure and store of value)

So, since Gold is Money, and since there is a limited amount of gold, gold won't work as a currency. Well of course, that is true. That is why people used all sorts of things as currency other than gold, but they never lasted and they never will last, unless there is a specific amount of gold to serve as a standard affixed to that currency.

The whole debate is further confused in that at one time it came down to a battle between silver and gold as the standard. Gold won out, as was predictable. The battle was NOT between gold and silver as currency. The battle was between gold and silver to serve as measure and store of value.

What is value... ??? Value is obtained by application of work. The best standard to measure value is by setting the amount of work required to mine and refine a specfic amount of gold as the standard to measure the expenditure of all work. In the case of a U.S. Dollar, it was the specificification set by Congress in 1791 to be the amount of work required to mine and refine 1/20.65 ounce of gold. Only 1/20.65 of an ounce of gold is needed to set a standard for a redeemable "U.S. Dollar" currency. You don't need thousands of tons of gold to set a standard.

M: "As long as people can exchange their currency for gold on the market, there is no reason why it needs to be made "officially redeemable" at a fixed value."

B: Do you see how silly this statement is. People don't care to hold gold for gold's sake. People hold gold to store value. People "buy" gold daily to store value, because the irredeemable currency they give for it doesn't have a standard. It now has exploded, brought on by the fact that compounded interest has all but destroyed the currency. Have you heard of TARP or QEs... ??? Are you saying that governments and individuals who have stored 155,000 tons of gold have fallen for a "red herring"... ??? Only in your world.

M: "And if the value of the currency drops so that people need more currency to buy the same amount of gold, this is actually an honest signal that would be masked (for a while at least) if an officially set exchange value was imposed by some kind of authority."

B: Another insane comment which proves that you can think only in one dimension. Who do you think is in charge of the quantity of irredeemable currency in existence which you can exchange for gold... ??? Heavens, man think. What about TARP, QEs... ..???? Don't you see what you are saying... ???

Meme hunter I like you. You do honestly discuss these matters to shed light. You are not a central bank stooge, but you have been marginalized by their propaganda, and you seem unable to escape its effects. My sharp tongue in replying to you is not meant as a personal attack, but to help other readers to wake up to what a "gold standard" means, and how it most effectively applied to RBD currency.

Howdy, Ross!

Care for a dainty bit?

'Feds Spend $133 Million to save $280,000 a Year (Maybe)'

Click to view link

"The only thing that holds the system together is a quadrillion dollars worth of derivative obligations. Who is going to unwind those... ???"

Ingo is absolutely correct. Just as "organized power" insists that uninvolved third parties (THEM) are forcefully involved in the affairs of US (such as taxing trades they had absolutely no contributation, apart from negative in), for symnetry, THEY also insist that WE are involved in trades among THEM, for bailout reasons, when their greed exceeds their grasp and, the unseen hand smites THEM.

JUSTICE is and will stop them DEAD IN THEIR TRACKS, mainly because nobody, any longer is in a position or willing to bear the CONSEQUENCES of THEIR ACTIONS:

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

Ingo, see my response to Dave about inflation. Physical gold is likely the only long-term answer for people who want to protect themselves from inflation. Inflation is less relevant for the means of exchange function. You said that you are aware of FOFOA's work, right?

Also, the problem with your system is that it does not make sense in practice to have a fixed value for gold, at least not over the long run. And who would fix this standard value anyway? Other feedbackers (and the DB elves) have criticized this aspect of your system.

I would much prefer a fluctuating rate of exchange between the currencies and between physical gold. Again, this is essentially FOFOA's Freegold concept. This "redeemability" stuff is a red herring, Ingo, and you seem stuck on that. As long as people can exchange their currency for gold on the market, there is no reason why it needs to be made "officially redeemable" at a fixed value.

And if the value of the currency drops so that people need more currency to buy the same amount of gold, this is actually an honest signal that would be masked (for a while at least) if an officially set exchange value was imposed by some kind of authority.

"When you use debt and monetize it into a currency, you constantly have to run debt on top of debt, unless you want to collapse the currency. Debt on top of debt means interest on top of interest, which means compound interest, which means an exponetial growth of interest debt on top of principal debt.

When the exponential curve of interest debt intersects the the linear growth of principal debt, the game is over. We are well past that point now. The only thing that holds the system together is a quadrillion dollars worth of derivative obligations. Who is going to unwind those... ???"

I completely agree with that part.

D: Only in a closed regulated fiat system of musical chairs, does my activity affect you.

M: No, this would be true for any interest-bearing currency issued as debt. It can also be gold coins "assayed/coined" by an authority if they are initially entered in circulation as loans.

D: I do not prefer to pay interest to anyone, and I am able to avoid it, but it is difficult for the average saver to avoid the ravages of inflation.

M: To avoid inflation, there is physical gold as a long-term store of value. More generally, inflation is a problem whether you have a currency issued as interest-bearing debt by private banks, or as interest-free credit by government. It's not like one is inflation-proof. This is one of the reasons why FOFOA foresees a clearer separation of the store of value and means of exchagne function in our future.

Also, interest does affect the entire society, through increased capital costs and transfer of wealth. We have discussed this several times already.

D:And PMs are not issued, rather assayed/coined by an authority.

M: What is the difference, if the coins initially circulate as debt or as a loan? This is a fundamental point that you seem to miss.

M: " I still think that mutual credit (which is different from social credit) could work equally well and seems to be a more modern option (I know that Ingo will probably disagree). But from what I understand Real Bills would already be much better than the current system, although I don't agree with Ingo that gold should be (or even can be in the long run) a fixed standard of value, which means that we have a different idea of "redeemability".

B: "Mutual Credit"... . You are a fan of those "two word" concepts, aren't you... ??? "Money Power", "Mutual Credit", etc... ..

"Mutual credit" is an alternative currency in which the currency used in a transaction can be created at the time of the transaction. Pure and simple, it is barter credit or "Barter Scrip".

I've used "barter credit" in business for many years. However, the accounting is done in USD/FRN and tax liability rests on that valuation.

So, tell me more about how terrific "Mutual Credit" currency is... . It's nothing but a method to extend barter over space and time. Have you used Mutual Credit currency to buy equities, or to make long-term investments... ??? Of course you haven't. So you invented a method to make barter slightly more efficient, and you think you invented a new "Money Economy"... ??? Please, give me a break.

As to your objection to have currency fixed to a specfic amount of gold, I didn't know that you came out foresquare to enable plunder. If I can fix the value of what I owe in payment of debt at sometime in the future, you are perfectly fine with that.

So, you really have nothing against inflation... ??? It's the interest that bothers you. You don't want Congress to vote deficits and use the Bureau of Public Debt to induce the Fed to sell debt instruments against interest payments in secondary markets... ??? Right... ??? You don't want the Congress to borrow money and pay interest. Instead, you want the Congress to authorize the U.S. Treasury to create "interest-free" irredeemable currency using the good faith and credit of the United States (its people), right... ???

So you are against Fed central bank irredeemable "Federal Reserve Notes", which obligates you to pay interest on the debt sold, but you are in favor of the U.S. Treasury creating "Bills of Credit" which inflate the currency. That's why you are against a value standard, right... ??? Interesting, very interesting...

You keep mentioning names of people who think they have a better answer for a workable currency than Benjamin Franklin and Adam Smith. Why is their that tendency to have to reinvent the wheel... ??? Isn't it possible that something much more advanced could have existed before, and that it was scuttled purposely. That an understanding of this superior currency system is completely undermined nby special interests today. Those special interests read all this stuff from von Mises, Rothbard Rockwell, Zarlenga, and Ellen Brown and they are laughing thir behind off. The will push these ideas to the hilt, because it obscure a currency system which really worked.

The only viable currency is RBD currency, made even more efficient with today's computer technology. All this digging around to find new wonderful solutions to today's monetary problems is an exercise in futility. When natural law proves that something works, why play god and try reinvent the system... ???

M: "So interest remains a problem even if the currency is not issued as debt."

B: "Payable interest" and "unpayable interest"... ..Here we go again with these "two word" concepts.

Unless a currency is self liquidating, i.e. be a clearance instrument which is settled for the balance with gold, you ain't got a viable currency. Period.

When you use debt and monetize it into a currency, you constantly have to run debt on top of debt, unless you want to collapse the currency. Debt on top of debt means interest on top of interest, which means compound interest, which means an exponetial growth of interest debt on top of principal debt.

When the exponential curve of interest debt intersects the the linear growth of principal debt, the game is over. We are well past that point now. The only thing that holds the system together is a quadrillion dollars worth of derivative obligations. Who is going to unwind those... ???

"We also currently have cartels that (... ) are not always closely associated with governments. Think of the food industry or the telecommunication industry, for instance."

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To suggest that the food or telecommunication cartels are not closely associated with governments is laughable at best, memehunter.

Power dominates government, monarchy and tribe - Power that's established through force.

'Power tends to corrupt and absolute power corrupts absolutely.'

'The danger is not that a particular class is unfit to govern. Every class is unfit to govern.'

Looks like the Internet Reformation is waking people up - Money Power dominates government, monarchy and tribe - Money Power that's established through exploitative interest wealth.

M: What I am saying is that, if the users of a particular currency want it to remain interest-free, then it is their business when two users of that currency want to get involved in an interest-bearing loan, given that it will lead to increased scarcity and competition among all users of the currency as I explained some time ago.

If I put my home up for collateral and currency is created for an interest bearing loan, and to regain clear title, I repay the loan with currency created and backed by my productivity; then I have to work longer to pay the interest. Even if currency needs to be extinguished by loan repayment, where is this scarcity you speak of? Only in a closed regulated fiat system of musical chairs, does my activity affect you.

M: In a pure free market (without any coercion), what prevents a powerful participant (or an alliance of participants) from using other tools at his disposal, such as intimidation or even physical force, to eliminate and/or coopt other competitors who refuse to go along with him?

Are you asking: without coercion, what prevents coercion? Should we just resign to serfdom in one form or the other?

M: We also currently have cartels that are not necessarily providing a stellar product and are not always closely associated with governments. Think of the food industry or the telecommunication industry, for instance. So if these cartels can be formed with minimal governmental assistance, why should they not flourish in a pure free market?

There is plenty of gov assistance (regulation) in your examples. Anyway, I am happy to see anything flourish in a truly competitive environment.

M: A government should, in theory at least, be accountable to the people it purports to represent, while there is no such requirement for private banks. Anyway, I am not promoting a government monopoly on currency issuance, but I really do not understand why you seem to prefer to pay interest to a cartel of private banks.

When government becomes accountable to the people, and not just in word, I will rethink my position. And if a private service is not accountable to their customers, due their reputation, they will not be in business for long. Not true of gov. I do not prefer to pay interest to anyone, and I am able to avoid it, but it is difficult for the average saver to avoid the ravages of inflation.

M: The same problem will happen with PM currencies if they are initially issued as interest-bearing debt. So, if by "fiat" you simply mean "paper", I disagree. If by "fiat" you mean "established by government decree", I certainly agree that it is not the best monetary system, but I repeat that interest will also be a problem for currencies that are not issued by the government, if they are initially issued as debt.

By fiat, I mean by government decree. Worthless paper deemed "legal tender for all debts, public and private".

Currency is an instrument of debt/credit, so can not be seperated. And I repeat that currency "issued" by an authority is the problem. And PMs are not issued, rather assayed/coined by an authority.

D: I advocate to let interest be a market function, whereas, you have been advocating its ban.

M: What I am saying is that, if the users of a particular currency want it to remain interest-free, then it is their business when two users of that currency want to get involved in an interest-bearing loan, given that it will lead to increased scarcity and competition among all users of the currency as I explained some time ago.

As for entities willing to issue interest-free currencies, there are several alternative currencies that do exactly that.

D: If they are created by a host of mutual agreements between productive parties, how can this be dominated by a cartel without the cartel providing a stellar and highly sought after product or service?

M: In a pure free market (without any coercion), what prevents a powerful participant (or an alliance of participants) from using other tools at his disposal, such as intimidation or even physical force, to eliminate and/or coopt other competitors who refuse to go along with him?

We also currently have cartels that are not necessarily providing a stellar product and are not always closely associated with governments. Think of the food industry or the telecommunication industry, for instance. So if these cartels can be formed with minimal governmental assistance, why should they not flourish in a pure free market?

D: But what is the differnce between a cartel of banks and the cartel of government?

M: A government should, in theory at least, be accountable to the people it purports to represent, while there is no such requirement for private banks. Anyway, I am not promoting a government monopoly on currency issuance, but I really do not understand why you seem to prefer to pay interest to a cartel of private banks.

D: Interest is not the problem, fiat currencies are the problem because they are in default right from the git go.

M: The same problem will happen with PM currencies if they are initially issued as interest-bearing debt. So, if by "fiat" you simply mean "paper", I disagree. If by "fiat" you mean "established by government decree", I certainly agree that it is not the best monetary system, but I repeat that interest will also be a problem for currencies that are not issued by the government, if they are initially issued as debt.

"I even remember having a discussion with Dave who did not believe that interest-free currencies could exist without governmental coercion."

No, I say let them exist if they can. What I don't believe is any entity other than a coercive government would be willing to do so, for other reasons. I advocate to let interest be a market function, whereas, you have been advocating its ban.

"I also believe that cartels could still arise in a free market situation."

Please explain. Currencies are not a natural resource. If they are created by a host of mutual agreements between productive parties, how can this be dominated by a cartel without the cartel providing a stellar and highly sought after product or service?

"Exactly, so why do they still borrow the currency from a cartel of private banks?"

Because the Federal Government serves this cartel instead of the people or the States who granted the Fed power, by way of a Constitution. The Federal Resrve (the cartel) could not have evolved into "money power" if it had not got its foot in the door of government.

"As you know, FRN ultimately represent debt to a cartel of banks, and this debt is essentially "backed" by the productivity of US citizens and the value of the land."

I agree. But what is the differnce between a cartel of banks and the cartel of government? Let the currencies be "backed" by the productivity of US citizens and the value of real estate, but government has no business promoting the process of an ordained few, brewing the advantages for monoply.

"I have made a distinction between "payable interest" and unpayable interest, when the interest is mathematically unpayable at the time the loan is made."

True enough. But it is the interest generated by irredeemable fiat currencies that are unpayable and thus compound. Payable interest does not compound unless in default, in which case the loan should be liquidated. Interest is not the problem, fiat currencies are the problem because they are in default right from the git go.

"The reason why we had all these discussions (... ) is that I focus less on the nature of the currency and more on how it is issued"

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Right, apart from your focus on "Satanist propaganda at the core of Libertarian doctrine and Austrian Economics"