News & Analysis
Gold Standard Good? ... or Another Power Elite Meme?
Let's return to the gold standard ... It might be said that a simpler approach than Mr. Lehrman's might be the most likely way to get back to a gold standard. The Ron Paul strategy is more direct, but at the same time more subtle. In early 2011, the Texas Congressman introduced H.R. 1098, a refreshingly short (three pages) bill which he called "The Free Competition in Currency Act of 2011." It would repeal the legal tender laws of the United State Code which give the Federal Reserve a legal monopoly on money creation. – American Spectator
Dominant Social Theme: A gold standard is good! Let's build another Bretton Woods?
Free-Market Analysis: The American Spectator, an often truculent, right-wing publication that sees American enemies everywhere in the world, is out with an article on an impending return of a gold standard. (See excerpt above.)
The article focuses on gold-standard prescriptions of "gold bugs" Ron Paul and Lewis Lehrman. When these two served (with many others) on a US Gold Commission to evaluate the role of gold in the monetary system during the Reagan years, they wrote a minority report recommending a return to some sort of gold standard for the US and perhaps the West.
The Spectator article is written by George Melloan, who, we learn, is a "former columnist for the Wall Street Journal and author of The Great Money Binge: Spending Our Way to Socialism." He recommends a return to a global gold standard in the process of profiling the ideas of Paul and Lehrman.
The question is ... what kind? The answer (if "Austrian" free-market logic is to be adequately and logically extended) is one WITHOUT CONSTRAINTS. This is a logical outcome of the modern anarcho-capitalism movement founded by free-market economist Murray Rothbard himself. Ron Paul, a longtime gold backer, admits these days that money ought to operate in a competitive environment.
Murray Rothbard, who helped invent the modern Libertarian movement, was a proponent of a full-gold standard for most of his professional life. But even he was moving toward a similar viewpoint (competing monetary units via free-banking) before his death.
Rothbard apparently hewed to a full-gold standard in part out of loyalty to his teacher, Ludwig von Mises. But von Mises himself was no free-market slouch. He was the modern proponent/author of two of the most significant monetary theories in the world, "human action" and the central-bank driven business cycle.
Human action shows us definitively that government cannot mandate behavior because people will take their own actions to contravene or respond to those mandates. That's why laws are for the most part useless or result in what can be considered anti-social behavior.
As a result, American regulatory democracy now houses up to six million prisoners under lock and key. Up to 30 percent or more of all US citizens have had some sort of criminal legal interaction by the time they are in their early 20s. You can see our article on this astonishing fact here: Is It a Prison Planet? ... One Out of Three Now Face Arrest in US.
The theory of the business cycle shows us that central bank monopoly money printing eventually causes tremendous booms and then ruinous busts. It is impossible for anything other than the market itself to mandate the amount of money an economy needs.
Anything else is just a price fix. When human beings themselves print and distribute monopoly money (rather than allowing the market to create and distribute it), inevitably this leads to a transfer of wealth from those who create it to those who haven't and are not apt to utilize it efficiently.
All schemes that suggest human beings can print and distribute monopoly money using various mathematical or demand-based formulas are likely doomed to failure. If money is not market-based, it is likely distortive and ultimately ruinous.
Of course, even within a market economy, money can distort dependent on supply and demand. But at least within a market environment, people have the ability to respond quickly and are not constrained by the force of laws. That's why during the free-banking era of the United States in the 1800s there were often varying interest rates on money from region to region.
There were numerous different kinds of money ratios during the American free-banking, "wildcat" era. The trouble with free banking, as Murray Rothbard showed, was that many banks were forced to purchase municipal bonds as part of their larger charter.
These bonds often lost considerable value due to the corruption of town affairs, collapsing the bank as well, and causing bank runs. Additionally, many banks were apparently forbidden from setting up more than one branch, introducing artificial fragility into the system.
We can see from this quick summary that modern Western environments have rarely if ever been divorced from some sort of artificial restraint. Lehrman's prescriptions would seem to continue this trend.
According to Lehrman – the rich Rite Aid scion apparently involved with the Bilderbergs – a kind of reverse Bretton Woods is called for. He has it all worked out. The elites will set the price of gold convertibility and central banks will continue to exist, though only to print currency linked to gold at a pre-set ratio. They will be constrained, in other words.
Melloan is less expansive about libertarian congressman Ron Paul's vision of a gold standard. He mentions that Ron Paul has sponsored legislation that would "reinforce the Constitutional mandate in Article 1, Section 10, that forbids states from making anything but gold and silver coin a tender in payment of debts."
In other words, H.R. 1098 would make Federal Reserve notes subject to domestic competition. Should it become law, who knows what would happen, but most likely Americans would gravitate toward a more reliable form of money, quite likely based on a precious metal.
OK, so more competition would be the result and perhaps metals-based money. But ironically, as we've just noted above, even in the US money has not operated without constraints. The US Constitution itself apparently created various restrictions when it came to gold and silver along with what was called the "Spanish Dollar." Such a dollar was to contain a certain amount of silver.
Even when it comes to the US – perhaps a country with some of the freest [Ed. Note: historically speaking] modern money – we can see that money was still subject to certain monopoly laws. In fact, as modern, neo-Austrian free-market economists have observed, money is whatever people choose to make it.
Throughout history, for various reasons, cultures have often chosen silver and gold as money. Silver and gold (fungible, portable and beautiful) have floated against one another so that if the ratio becomes distorted, the average person will know that the powers-that-be are fiddling with one metal or the other. It's a free-market solution against insolvency.
The logical extension of modern anarcho-libertarianism is competing money without ANY government constraint. Anything else is a price fix and inevitably distortive, though certainly a convertible gold standard might damp the destructive inflation that is such a feature of the current ruinous system.
A metals standard would surely help constrain the current criminal, Anglosphere power elite that is driving the world toward global governance using the resources of central banks that it controls. Put limits on money and Money Power itself will begin to wither.
That's because the power elite has shown us historically that (for one thing) IT WILL NOT SPEND ITS OWN MONEY, certainly not within the context of creating world government. Constrain central banking and Money Power itself will gradually become increasingly impotent.
When those great Anglosphere families that apparently run central banks try to manipulate the market within a free-money environment, they will find it increasingly difficult. They will try to reduce the circulation of gold to raise prices and people will dishoard, as Murray Rothbard has argued. Or mines will open back up.
It is seemingly impossible to maintain a coercive monopoly in a free-market environment. Some have argued that the monetary elites will then turn to force. But the Anglosphere cannot even win in Afghanistan. Those involved with the current horrible system will likely surrender to the inevitable if a real free market in money were somehow to be implemented.
These shadowy forces only survive based on the dominant social themes they have disseminated through such agencies as Tavistock. By brainwashing people into believing that government – especially expansive government – is necessary to civil society, they create the necessary conditions for the mercantilism they need to control whole societies. Kill expansive government and you kill mercantilism.
Government is dangerous and powerful as fire. There are few examples in later Neolithic history of minimalist governments that existed for long periods of time. Nevertheless, minimalist government (not involved in money at any level) is devoutly to be wished for. It allows people to exercise the human action necessary to live confident and increasingly comfortable lives.
Just as importantly, free-market money (perhaps a free-market gold and silver standard) would reduce the violence of price inflation. As Rothbard showed clearly, technology gradually reduces prices while expanding savings.
Gentle deflation within the ambit of a prosperous, free society is perhaps the best of all worlds. It is unfortunate that there is so much ignorance about money and that so many these days are floating various manipulative schemes that ultimately will involve government coercion. There are those, too, who conflate depressions with deflation. Historical bunkum?
Lehrman's schemes are yet coercive, in our view. A new Bretton Woods gold-standard conference and an additional role for central banks provides Money Power with yet another opening. Austrian, free-market academics generally, to the extent they move toward a model of competing currencies and free-market money, are on the right track.
Set money free. Let people use the monies they wish to use. All of them. Gold and silver will likely be a feature of such a system anyway. Would such a system work? We would tend to believe free-market money will be Western society's default position if the current system is not "rescued" by a new Lehrman-like Bretton Woods.
Of course, we don't want it rescued. The dollar reserve has ALREADY failed, as we've pointed out numerous times. When central banks are printing and disbursing some US$50 TRILLION to re-liquify a frozen system, there's really not much left to salvage. We certainly don't want the same powers-that-be inventing a NEW system. What credibility do they have at this point?
Some have suggested the natural price of gold is ALREADY US$10,000 per ounce, absent the shenanigans of central banks and the commercial banks they control. Whatever it is, the current system is on its way out If the elites themselves are not able to create a new, international "consensus" then perhaps it will crumble as it should and a new, free-market money will emerge.
Freedom! Free our money. There is nothing to fear from it. Those in Iceland overcame their fears. It's strange that so many people have such a hard time conceiving of it. Perhaps, as we have suggested previously, it has something to do with damaged childhoods.
What we call the Internet Reformation has provided the world with an ideal opportunity to start over with free-market money. The Internet is a great educative device. Absent those who are distorting the history of money (intentionally or not), the Internet will provide people with a great education about how money REALLY works.
It's not complicated. Money is what people to choose to use in order to trade and save. Throughout history people have used free-market money freely within a free-market environment and hopefully, as the Internet Reformation continues to unfold, such environments shall spring forth again.
Conclusion: The need to suggest schemes that control people's behavior seems overwhelming to some. Too bad. It is keeping us from realizing our dreams, our destinies, our true desires – the ability to build authentic, happy lives for ourselves and our families.
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Posted by Abu Aardvark on 02/16/12 11:58 AM
"Set money free. Let people use the monies they wish to use. All of them (... ) The need to suggest schemes that control people's behavior seems overwhelming to some. Too bad. It is keeping us from realizing our dreams, our destinies, our true desires - the ability to build authentic, happy lives for ourselves and our families."
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Once more, a compelling and beautifully written plea for freedom. Outstanding, DB!
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Two typos:
"It's a free-market solution to protection against insolvency."
"Would such a system work? We would tend to believe it is the coming default if the current system is not "rescued" by a new Lehrman-like Bretton Woods."
Reply from The Daily Bell
Thanks ... and thanks.
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Posted by Jonathan on 02/16/12 12:13 PM
Off topic, but the DB should see this ..
The character of Julian Assange is played by the English movie actor, Julian Sands.
More info. on Click to view link.
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Posted by Don from the Republic of Lakotah on 02/16/12 12:14 PM
"the power elite has shown us historically that (for one thing) IT WILL NOT SPEND ITS OWN MONEY"
Even if such parsimony means mothballing their war machine. God curses the PE with an eternal appetite for just one penny more. A double-duty catch-up leave-behind penny to narrow or widen the gap with rivals. A penny towards enhancing feelings of security.
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Posted by jimmya67 on 02/16/12 12:54 PM
"Perhaps, as we have suggested previously, it has something to do with damaged childhoods." Or maybe it is instinctual as described by this free book.
Click to view link
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Posted by bionic mosquito on 02/16/12 02:09 PM
DB
A very concise and enjoyable commentary on the desire for truly free markets in money. I can't wait for all of the visionaries with their preferred dreams (all requiring government force) to start piping up on this. Somehow free-market money is the desire of the elite (they claim) while government enforced money (the people's money) would be a terrible blow to the elite. Laughable. But I could use a good laugh today.
On Rothbard and free banking, I have noted a brief snippet here:
Click to view link
From "The Mystery of Banking", Chapter 17, section 3:
'While the outlawing of fractional reserve as fraud would be preferable if it could be enforced, the problems of enforcement, especially where banks can continually innovate in forms of credit, make free banking an attractive alternative.'
While I have a slightly different view about FRB than does Rothbard, it does seem that he realizes that the market is the only solution for proper enforcement of money and credit practices (what else could Rothbard conclude, after all?).
On Mises and free banking, I offer the following (both from Human Action, Chapter 17 Section 12):
Click to view link
'A lot of nonsense has been written about a perverse predilection of the public for banknotes issued by dubious banks. The truth is that, except for small groups of businessmen who were able to distinguish between good and bad banks, banknotes were always looked upon with distrust.'
It seems until the government got in the business of guaranteeing and requiring the use of dubious banknotes, most every-day people avoided the use of such instruments.
Click to view link
'Free banking is the only method available for the prevention of the dangers inherent in credit expansion. It would, it is true, not hinder a slow credit expansion, kept within very narrow limits, on the part of cautious banks which provide the public with all information required about their financial status. But under free banking it would have been impossible for credit expansion with all its inevitable consequences to have developed into a regular - one is tempted to say normal - feature of the economic system. Only free banking would have rendered the market economy secure against crises and depressions.'
Mises makes clear that free banking is the best check on un-backed credit expansion, yet also in a free market, credit expansion is to be expected, and presumably tolerated within the context of a competitive market environment.
DB: There are those, too, who conflate depressions with deflation.
Interesting, this is from an article at Mises just today:
Click to view link
'The phenomenon that central bankers of the world are so resolutely scared of, and have agreed to fight with all their might - deflation - is a creation of their own hands. Without the period of inflation leading up to the present, there could be no threat of deflation.'
In any case, let the crazies and control freaks come out, and let the fireworks begin. Only crazies can advocate that government force can be used to keep the elites in check and free markets are the desire of those same elites.
Reply from The Daily Bell
Thanks!
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Posted by dave jr on 02/16/12 02:16 PM
I will bet my last FRN that any elite "solution" will reserve the right to alter the currency / gold ratio. Like they do now with interest rates. This will offer them the biggest prize of all, an open door to manipulate international currency exchange rates. The elite can not maintain their stature in a free market environment, and will never willingly give up their manipulations required to monopolize.
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Posted by Hoss on 02/16/12 02:33 PM
Our masters are beginning to take notice.
Here's another one for the Elves to look at:
Click to view link
Reply from The Daily Bell
Hoo boy! Someone ought to build a website making it possible for people to debunk elite promotional articles like that! Hey, wait ...
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Posted by Hoss on 02/16/12 02:38 PM
Great research, Bionic! It is interesting to see what both Mises and Rothbard thought about the issue.
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Posted by bionic mosquito on 02/16/12 03:54 PM
Thank you ...
I don't claim to be an expert on all of what Mises or Rothbard have said on this subject - there is enough debate even amongst Austrians on the subject of free-banking that I am not sure that a definitive conclusion can be reached about the views of these two gentlemen.
However, certainly in the case of Rothbard (if he were alive today), I expect if pressed he would certainly come out in favor of only utilizing market forces to discipline the financial system in all its forms.
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Posted by dave jr on 02/16/12 04:16 PM
Hi Hoss, long time...
Reading that article made me feel ill, but this is what I'll take away from it. A gold standard will not cure us of manipulation by central elites. But free of manipulations, a free market will most likely prefer a gold standard at its core.
Ramesh Ponnuru ponders how central banking control of the monetary supply can best mimic a free market, which reveals where his loyalty is.
We all know something is going to blow soon. The centralists are in full force, trying to guide the debate.
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Posted by Jonathan on 02/16/12 05:01 PM
Here is Ron Paul played by Sir Ian McKellen http://www.billyjoe77.fastmail.fm/
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Posted by Pat Fields on 02/16/12 05:11 PM
Completely unrelated to the The American Spectator opinion cited, I also oppose a 'gold standard', rather in favor of a poly-metallic alternative, because any mono-metallic scheme engenders concentration of economic power in that sector of a society most suited to the highest frequency of trade in its proximity of value on the rational scale. Poly-metalism enhances economic independence across the full spectrum of societies, by suppression of coersion. This 'smoothing' of empowerment additionally acts as a check against any of the metals from willfully induced disparities in their valuations for any sustained period, especially where the 'lesser' metals are prolific and most commonly held in broad private possession.
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Posted by Nightcrawler on 02/16/12 05:46 PM
Thanks for the link Hoss.
Like dave jr, the article gave me a sinking feeling in the pit of my stomach until I read the comments section. It seemed to me that about 3/4 of the commenters supported Dr. Pauls views.
The attacks aren't going unanswered.
On a slightly diffent note, I'm excited about going to a Ron Paul rally in Spokane, WA tomorrow. Should be interesting!
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Posted by seer on 02/16/12 06:56 PM
"The theory of the business cycle shows us that central bank monopoly money printing eventually causes tremendous booms and then ruinous busts. It is impossible for anything other than the market itself to mandate the amount of money an economy needs." Behavioral economics shows all traders naturally bid up prices and create bubbles in whatever commodity. Too much inflation robs wealth from everyone but the government and Banks.
Ron's competing currency scheme will not be accepted as this would make it most difficult for the government to track incomes in order to COLLECT TAXES. Economies are about social engineering,how to allocate resources to a population. Limited resources must be allocated in a manner that recognizes their scarcity.
The current western form of capitalism is based on debt expansion and expansion of production and consumption. This violates reality. As we have seen in smaller scales, when a region is raped of its natural riches we end up with deserts, empty seas, lakes and basically areas that do not support life. Our current system will collapse when we run out of cheap resources.
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Posted by Don from the Republic of Lakotah on 02/16/12 10:05 PM
@jimmya67
"The Flinch," pdf version.
Click to view link
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Posted by Bischoff on 02/16/12 10:17 PM
"There were numerous different kinds of money ratios during the American free-banking, "wildcat" era."
Different kind of "money ratios"... ??? Really... ???
"Free banking"... ??? Banking means creation of paper currency. Creation of paper currency in the United States was controlled by state governments until 1913. Any institution which wanted to create paper currency to be eligible in use for legal tender in payment of debt, had to have a charter from the state. All bank charters required that paper currency be redeemable in "lawful money" of the United States, which meant gold. The states thereby met their responsibility for compliance with Section 10, Article I of the U.S. Constitution.
If, as this article contents, banks were forced to purchase municipal bonds as a condition of receiving a bank charter, they either paid for them with gold, or with excess paper currency created under the RBD. If banks paid with gold for municipal bonds, it merely meant that banks held part of their "paid-in" capital in the form of an earning asset. However, if they paid for them with excess currency, it amounted to inflating the currency supply.
How "wildcatting" has anything to do with "Free Banking", escapes me.
Here is the real story about "wildcatting". Banks often got themselves into trouble by keeping currency in circulation which under the RBD they should have been kept in the bank's vault and out of circulation. Because of this transgression, banks often had difficulties in meeting redemption requirements.
If they failed to redeem on demand, the banks were guilty of fraud. To make redemption tedious and troublesome, many banks would redeem paper currency for gold only at branches which they had established "out in the wilderness with the wildcats". That's how the term "wildcatting" entered the vocabulary in use in banking circles to describe "branch banking" for the purpose of reducing redemption.
As to "Free Banking", meaning currencies competing against each other, it is an insane idea. Anyone who talks about "free markets" and links it to competing currencies proves that he doesn't understand the nature of "Money" or the need for "redeemable" currency.
There is no advocate of the "Free Banking"/"Competing Curency" idea that could step by step describe how such idea could possibly work in a "money economy".
Reply from The Daily Bell
Unfortunately for you, Mr. Bischoff, Selgin and White have spent full careers showing how free banking works, and has worked, especially in places like Scotland. It would have worked in the US too if banks had been unconstrained. Just because it doesn't fit into your narrow niche of what money is and was doesn't invalidate historical reality.
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Posted by Bischoff on 02/16/12 10:32 PM
"The current western form of capitalism is based on debt expansion and expansion of production and consumption".
Capitalism, is Capitalism. The term "Capitalism" merely describes an economy where capital is the prime factor in the production of wealth.
It is the central bank monetary system which promotes debt expansion and promotes consumption.
As to Income Taxes, this country would be well off to repeal the 16th Amendment, and have the states pay for the cost of the federal government. Of course that wouldn't happen without the repeal of the 17th Amendment and the elimination of the "legal tender" protection given the FRN.
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Posted by bionic mosquito on 02/16/12 10:42 PM
"There is no advocate of the "Free Banking"/"Competing Curency" idea that could step by step describe how such idea could possibly work in a "money economy"."
No more complicated than an injection molder choosing a grade and type of resin, or a metal fabricator choosing a grade and type of steel, or a publisher choosing a grade and type of paper stock.
We are in this mess because people too smart for our good try to portray money and banking and something so special that a free-market of countless millions / billions are not competent to figure it out.
Join the crowd of the few trying to protect the rest of us from ourselves.
I, like many others, have grown tired of the unwanted help.
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Posted by Don from the Republic of Lakotah on 02/16/12 11:01 PM
@Bischoff
In Lakotah wildcatters (ie "Guts and Luck" McMurray) drill wildcat wells, strike it rich, and make their own bank.
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Posted by Danny B on 02/16/12 11:57 PM
This post is off-topic,,, of course. It has to do with gold and transmutation.
A new branch of science is "Low Energy Nuclear Reactions" LENR
It started with Pons and Fleischman. After being hounded out of America, they went to Europe. Though they started out with PURE Palladium electrodes, they always found other elements after their tests. Here is a place to start reading.
Click to view link
This site has to do with transmutation of radioactive material.
Click to view link
Not to be left out, Mother Nature has long done elemental transmutation.
There is far more to read besides what I've cited.
Click to view link
It's even possible that the alchemists had something going on.
Click to view link
There is a vid by the Inventor John Bedini called "Petrovoltaics" where he discusses his research at manufacturing elemental gold. He gets a visit from "agents" who tell him to cease and desist. They further inform him that this process is already known and is used by Russia and America to produce tone of elemental gold.
There is a lot of evidence for transmutation. That would throw quite a Monkey wrench into things.
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