News & Analysis
James Grant Calls for a Gold Standard
Must Read: Jim Grant Crucifies The Fed; Explains Why A Gold Standard Is The Best Option ... The Federal Reserve Bank of New York has invited some of its public critics to visit the bank to unburden themselves of their criticisms. On March 12, it was Jim Grant's turn. The text of his remarks follows: Piece Of My Min ... My friends and neighbors, I thank you for this opportunity. You know, we are friends and neighbors. Grant's makes its offices on Wall Street, overlooking Broadway, a 10-minute stroll from your imposing headquarters. For a spectacular vantage point on the next ticker-tape parade up Broadway, please drop by. We'll have the windows washed. – Zero Hedge from Grant's Interest Rate Observer
Dominant Social Theme: Return to a gold standard is an absolute necessity.
Free-Market Analysis: We've always admired James Grant's writing style and self-deprecating wit. But perhaps in this Internet era he has aged out a bit.
We don't know why he continues to insist on a formal gold standard. This is a standard in which governments set the price of gold.
In the US, as we understand it, the government's refusal to recognize additional silver discoveries in the 1800s via its mints helped destabilize silver.
When we look at the process of silver de-monetization it appears as a pattern throughout the world. The power elite that controlled government had apparently decided on a two-step process of de-monetization – first silver and then gold.
Grant doesn't recognize any of this. He wants to give the power of the mint back to the government for precious metals. Here's some more:
In the not quite 100 years since the founding of your institution, America has exchanged central banking for a kind of central planning and the gold standard for what I will call the Ph.D. standard. I regret the changes and will propose reforms, or, I suppose, re-reforms, as my program is very much in accord with that of the founders of this institution. Have you ever read the Federal Reserve Act?
The authorizing legislation projected a body "to provide for the establishment of the Federal Reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper and to establish a more effective supervision of banking in the United States, and for other purposes." By now can we identify the operative phrase? Of course: "for other purposes."
.... The nation was on the gold standard. It would remain on the gold standard, Glass had no reason to doubt. The projected notes of the Federal Reserve would—of course—be convertible into gold on demand at the fixed statutory rate of $20.67 per ounce. But more stood behind the notes than gold. They would be collateralized, as well, by sound commercial assets, by the issuing member bank and—a point to which I will return— by the so-called double liability of the issuing bank's stockholders.
... One can think of the original Federal Reserve note as a kind of derivative. It derived its value chiefly from gold, into which it was lawfully exchangeable. Now that the Federal Reserve note is exchangeable into nothing except small change, it is a derivative without an underlier.
Or, at a stretch, one might say it is a derivative that secures its value from the wisdom of Congress and the foresight and judgment of the monetary scholars at the Federal Reserve. Either way, we would seem to be in dangerous, uncharted waters ...
We can see from this that Grant is partial not only to government gold ratios but also to the initial Fed act. He does admit the Fed "fell into sin almost immediately," but in doing so implies this was some sort of unusual occurrence.
It was not. Very obviously, this was what the cabal behind the Fed intended. Are we meant to believe that the Fed's immediate printing of notes beyond legal ratios was some sort of accident?
No, it was premeditated. At this point, seeing what is going on in the modern age, we'd even advance the idea that such overprinting was done in the full knowledge that it would cause a crash. And it did.
It is simply a fact, in our humble view, that once you give government the monopoly power over money, those in charge will abuse it.
In this case, a great, globalist conspiracy took advantage of Money Power. The result has been an implosion of wealth.
It is very necessary to divorce Leviathan from money because government is inevitably manipulated by mercantilism.
Conclusion: The best idea is to keep government out of the monopoly money game. Let currencies – even pure fiat – compete. Within such a context, gold and silver could freely float and find their rightful place in the monetary universe as they have in the past.
Posted by MarketMentat on 11/04/12 02:10 AM
Oops... "confulating"? I meant "conflating". Can't edit comments here... no Disqus/IntenseDebate/JSKit.
Either way: @Bischoff's ardent bloviating about the Labour Theory of Value is an atrocimacy (that's NOT a typo) that makes me flush with epicaricacy (also not a typo) at yet another example of the internet's ability to furnish ever-growing vindication of the Dunning-Kruger effect.
Posted by MarketMentat on 11/04/12 02:05 AM
@Bischoff - so you believe in the Labour Theory of Value? How quaint (and wrong). You're confulating COST and VALUE.
Marxian pseudo-Economics called, and they want their theory back.
Posted by Bischoff on 09/18/12 02:30 AM
DB: "This is nonsense. Anything that people recognize as money IS money. What you are promoting flies in the face of history, which somehow never seems to bother you."
BISCHOFF: It does... ??? What history is it to which you refer... ??? It seems that you don't understand that money is that commodity which has constant or nearly constant marginal utility. There can only be one such commodity. The commodity has proven out to have that marginal utility is gold. It has done so over 2,500 years of history.
It is the work to mine and refine gold which gives it "value". It is the value of a quantified amount of gold which is the standard by which to measure the value of any other good or commodity which is defined as the "gold standard". Denying it changes nothimg. The idea of calling a thousand different commodities "money" at the same time is absurd on the face of it. You might just as well call every "barter" transaction a "money" transaction.
Posted by Bischoff on 09/17/12 10:44 PM
@ Danny B
DANNY: "Bischoff, feel free to correct my inaccuracies."
BISCHOFF: Thank you for the generous offer. However, before I do, I must say that I am very impressed by the way you are slowly moving to an understanding of the whole "money thing", because you are touching the important points necessary to understand "money", before you can argue about the subject and the "Gold Standard".
DANNY: "I believe that the price of gold is a reflection of the work involved in extracting it... not so much it's rarity."
BISCHOFF: This statement of your hits at the crux of what "money" and "value" is, which the DB keeps missing. However, as the DB, you confuse the "price" of gold presented in your statement with the "value" of gold. Gold has "value", but under the "gold standard" it does not have a "price".
The "value" of any good or commodity is derived from the "work" applied in producing it. "Work" can be quantified scientifically, though used as a concept of "quantified" work in economics, it refers to a catagory of human thought which judges the expenditure of human energy (LABOR) with or without the use of tools (CAPITAL) applied on or to raw land or natural resources (LAND) against some standard.
The "quantified" work involved in the mining and refining of a specfic amount of gold is set as the standard of value (work expended) by which the "value" of any other good or commodity is measured. That is the definition of the "gold standard".
You can see how that differs from the "supply and demand" model for gold the DB puts forth. This model is based on the "Quantity Theory of Money", which as you rightly sense is nothing but the "barter" model of exchanging goods and services. The QTM model, when applied to a monetary system can only work with people who are unable to realize its many pitfalls. I will not point out these pitfalls here.
Gold under the "Gold Standard" does not have a "price". The "price" for any good or commodity is determined by comparing its "value" to the "value" of a specific amount of gold. The ratio obtained in this comparison is the "price" of a good or commodity expressed in aliquot parts of a specific amount of gold. The fixed, specific amount of gold allows aliquot parts to be determined, and this "fix" provides the "standard" for "price". Gold is the "standard" of measure of "value". The value of gold can vary, depending on the amount of "work" it takes to mine and refine it. However, a "fixed" amount of gold and its aliqout parts are constant and never vary. Therein lies the difference between "value" and "price".
By comparing the "value" of gold to itself, you get no ratio. Therefore you cannot obtain a "price". That's the reason for my statement that "gold has no price" under the "gold standard".
When it comes to "Real Bills", we are talking about a whole different subject. With "Real Bills" we are talking about how to create efficient "means of exchange". Because of its superior physical and chemical characteristics, gold is a perfect commodity to store "value" (work) as well, as to measure "value" (work). However, it is unsuitable as "means of exchange", because of its scarcity.
George Clymer and Benjamin Franklin were the first who thought up the idea of using 90-day "Real Bills" as the basis against which to print uniformily denominated bank notes and to circulate those bank notes as "means of exchange" instead of the 90-day "Real Bills". As associates of "The Philadelphia Bank", they bought up 90-day "Real Bills" and in the 1750s created the most successful colonial currency in North America known as the "private" version of the "Pennsylvania Pound". Adam Smith later refined Clymer's and Franklin's idea of monetizing "Real Bills" to call it the "Real Bills Doctrine" laying out the rules for creating currency or "means of exchange". He gave them credit to the "Pennsylvania Pound" in his book "The Wealth of Nations", published in 1776.
"Real Bills" are used to finance production of consumer items in urgent demand. They are not a credit instrument, because the credit is furnished by the urgent demand of the consumer. Furthermore, "Real Bills" can be immediately turned into cash with a valid signature by the drawee, certifying acceptance of the Real Bill, and acknowledging payment obligation upon maturity. Banks are eager to buy these "Real Bills" at a discount to earn the difference between the discount and the face value of the Real Bill upon maturity. In the mean while, the banks use the un-matured "Real Bills" in their vaults to create and circulate bank notes which act as a "clearing" instrument.
"What is a "clearing instrument"... ??? What is "clearing"... ??? Think of commodity market in which brokers "sell" and "buy" all day long, but only reconcile or "net" all sales and purchase only at the end of the day. Bank notes acting as "clearing instrument" here means that instead of you being paid "in kind". let's say you work in a bakery, you get paid in bank notes. The guy that works in a dairy gets paid in bank notes as well, instead of being paid in gallons of milk. The consumer market exchanges bread for milk, etc. using the bank notes as the "means of exchange".
These bank notes "clear" the "in kind" products earned as "income". When the whole process is "netted", the difference that exists must be due to "in kind" products which have not been exchanged for immediate consumption, but have been set aside as "savings". It is this "savings" discrepancy which is "cleared" with gold. Gold miners have to eat and drink, and their income "in kind" is refined gold. In this way, "savers" end up with a perfect commodity to store "value" (work) for use decades later without having to worry about loss of "value" to to spoilage or other type of deteriation.
I think, by now you get the idea of how 90-day "Real Bills" work and why RBD banking can only work with a fixed monetary standard which employs a commodity as "money" which guarantees longterm storage without loss of of "value" (work). Furthermore, as long as RBD currency is redeemable into the "money commodity", the standard to measure value is preserved.
There is a lot more to all this, but I think these remarks address your thinking process as expressed by your comments.
Reply from The Daily Bell
The "value" of any good or commodity is derived from the "work" applied in producing it.
This is nonsense. Anything that people recognize as money IS money. What you are promoting flies in the face of history, which somehow never seems to bother you.
Posted by Danny B on 09/17/12 11:24 AM
Ahhhh, semantics. I often argue that "decimate" has just one fixed meaning. I often hear people using the word "moot" as signifying unimportant.
My POV is that every transaction was barter. There is a hard-rock gold mine at 11,000 feet elevation in Colorado called "purgatory". I believe that the price of gold is a reflection of the work involved in extracting it,,, not so much it's rarity.
Gold was just the most portable barter item. ALL transactions were at one time barter.
This gradually evolved from physical conveyance to conveyance of certificates of ownership. Especially in the case of land, it couldn't be physically moved.
Tally sticks and "chops" kept things honest.
I'm guessing that real bills replaced tally sticks out of simple convenience.
This was still barter with paper, direct representation of actual, particular wealth.
When paper money came along it was direct representation of actual, non-particular wealth... . as long as it was backed with gold or some physical standard.
Unbacked paper is backed by fiat and some amorphous non-standard, non-fixed wealth.
No unbacked paper has survived. Paper can survive if it is backed by particular OR non-particular wealth. Real bills is not susceptible to over-printing nor embezzlement. Gold backed currency is susceptible to overprinting as JFK and LBJ proved. Real bills would be superior because it is backed by particular wealth.
This would eliminate most banking and preclude GOV inflation.
Bischof, feel free to correct my inaccuracies.
Posted by Bischoff on 09/16/12 11:20 PM
DB: "The world does not need a single fixed measure of gold, silver or anything else for transaction purposes. It was a fixed measure of gold along with a fixed ratio to silver that crucified the West on a "cross of gold." Let private interests develop private ratios responsive to the local, regional and national markets."
BISCHOFF: You don't seem to realize that what you suggest as a solution is the very thing you claim will not work.
Let me see, if can make it clear.
Do you agree that a yardstick ought to be made of stable material and not elastic material... ??? Using the value of a certain amount of refined gold as the standard to measure the value of other wealth is the same as using stable material for a yard stick.
Do you agree the the same argument should hold for a meter stick... ??? The meter stick in this example could stand for silver as the standard measure of value.
Would you agree that there is a difference between the length of a yard and the lenght of a meter... ??? If you intermingle measurements of value using gold at one time and silver at another time, it's the like working on a building changing from yard measurement to meter measurement back and forth at will.
The Jennings Bryan argument amounted to fixing the value of a certain amount of silver and setting it equal to the value of a certain amount of gold. This is the same as proclaiming the length of a meter to be equal to the length of a yard. It makes no sense. That's why in 1900 the Gold Act officially proclaimed the U.S. to only use the "gold standard" in measuring value.
By arguing that private interests develop private ratios responsive to the local, regional and national markets is the same as advocating that a rubber band be used to measure any length, be it yards or meters. That makes no sense to me.
Are you really advocating an elastic measurement "standard"... ???
Reply from The Daily Bell
Again, you write to us from a perspective that invalidates thousands of years of history during which various, differing gold and silver standards were evidently and obviously used within private enterprise. According to silver-advisor/investor David Morgan, the silver/gold ratio has varied considerably over the eons.
Proclaiming something is obvious doesn't make it so. It is a bit like arguing for centralized interest rates, when if money were privatized, there would be numerous regional interest rates and the global boom/bust cycle would be providentially shattered. Bigness and standardization when it comes to money is NOT necessarily good, not at all.
Posted by Bischoff on 09/16/12 12:06 PM
DB: "BISCHOFF: You surely don't mean for people to "take the law into their own hands"... ??? Why then have common law and criminal law... ???
Click to view link
BISCHOFF: I am very much in alignment with the thinking of Judge Napolitana. I very much admire his legal stance. As regards enforcement of weights and measures, I can easily go with his suggestion of insurance, and the right of the insured to pursue redress.
Reply from The Daily Bell
Yes, you claim to be for marketplace operations, but then you go right back to misconstruing the word anarchy (claiming it is an absence of civic order) as if you'd never read FA Hayek and had no idea what "spontaneous order" was).
Posted by Bischoff on 09/16/12 11:49 AM
DB: "It is not merely words that you redefine at will but also facts - such as your insistence, flying in the face of thousands of years of recorded history that gold is money and silver is not."
BISCHOFF: It was in Lydia during the 1st Century BC that the value of gold became the standard by which the value of goods were measured. The scarcity of gold used as currency hampered trade. Silver was routinely discovered alongside with gold finds. Its value could be related to the value of gold at an almost constand ratio of 1:15 for many centuries. As long as the natural ratio held, it didn't matter which measuring device was used to measure value. However, once that natural ratio fell apart, government interference to reset it artificially had to lead to disaster.
It matters little whether the value of gold is used as the standard to measure value, or whether the value of silver is used to do so. Unless the ratio of the value between the two metals is fixed by nature, only one of the metals can function as "Money", i.e. serve as the standard to measure value.
Because of its superior electrical conductivity, silver is much better employed for use as an industrial commodity, than it is for use as "Money".
DB: "The reason you insist on this is in order to justify your larger points about Real Bills, the necessity of banking and above all government interference as regards setting standards - by force."
BISCHOFF: You read my intentions entirely wrong. What larger points about Real Bills am I trying to justify... .??? I simply don't understand what governments have to do with Real Bills, or why it would matter to RBD banking whether it uses the "gold standard" or the "silver standard".
As far as government interference in RBD banking is concerned, all I care about is that adherence to "weights and measures" be enforced. Whether those weights and measures are set by government or by a private organization does not matter to me.
Posted by Bischoff on 09/16/12 11:00 AM
DB: "No, the value of precious metals should float based on supply and demand not government price fixing."
BISCHOFF: "Value" is something different than "price". Under the "gold standard", the value of gold is used as the standard to measure the value of any other wealth. The value of gold can vary. The questions is what gives "value" to gold or any other wealth... ???
The "price" of something is its value in comparison to the value of gold. This ratio is expressed in aliquot parts of a fixed amount of gold. It does not matter what that fixed amount of gold is, or what it is called. It may be called a US Dollar, a Canadian Maple Leaf, an Austrian Dukat or a South African Kugerrand. What matters is that the amount of gold be fixed, and that it stay fixed so as to provide a standard for "price".
"Supply and Demand" in a "Free Market" distribution system is a meaningless term. "Prices" are discovered in "free markets" by arbitraging the "use value" of a good to arrive at an "exchange value" in terms of aliquot parts of gold.
Reply from The Daily Bell
Whether governments fix the "amount" of gold from which aliquot parts are calculated, or whether some mutually agreed upon organization does it, is totally immaterial.
It is not immaterial at all. The world does not need a single fixed measure of gold, silver or anything else for transaction purposes. It was a fixed measure of gold along with a fixed ratio to silver that crucified the West on a "cross of gold." Let private interests develop private ratios responsive to the local, regional and national markets.
Posted by Bischoff on 09/16/12 12:56 AM
"Back then gold was fixed at $20.67. Will that mean when gold hits $2067 the dollar is toast?"
The U.S. Dollar was fixed at 1/20.67 of an ounce of gold to establish a standard of pricing. This was authorized by Section 8, Article I of the U.S. Constitution.
The U.S. Constitution in Section 10 of Article I prohibits states from making any Thing but gold and silver coin legal tender in payment of debts. By this, the framers set the standard for measuring value. As to the ability of the federal government in this regard, the Constitution is silent.
As long as state chartered banks created redeemable currency under the Real Bills Doctrine, the measure of value was gold and silver. When in 1933 FDR nationalized gold, he killed the Real Bills market. With the Banking Act of 1935, the federal government established a central bank for the purpose of creating an irredeemable currency by monetizing congressional deficits. This did away with the standard for measuring value.
Irredeemable currency has no "value", accept such as people will lend it at the time of its use in transactions. Gold has value which is preserved indefinitely due to its physical charateristics. These special physical characteristics make it uniquely suited to serve as money, meaning to serve as the standard for the measure of value. However, if you cannot redeem the USD/FRN for a fixed amount of gold, then the irredeemable USD/FRN has no value accept as a piece of paper, in case of actual printed currency.
You can find the value of the irredeemable USD/FRN by looking up the "price" of gold in terms of USD/FRN and then converting the quote to fractions of an ounce of gold per USD/FRN.
If you are really curious about how the present worldwide monetary system works regarding value, you can check out the syncronicity of the price of a barrel of oil with the price for an ounce of gold.
Reply from The Daily Bell
"However, if you cannot redeem the USD/FRN for a fixed amount of gold, then the irredeemable USD/FRN has no value accept as a piece of paper, in case of actual printed currency."
No, the value of precious metals should float based on supply and demand not government price fixing.
Posted by Bischoff on 09/16/12 12:04 AM
DB: "The question is," said Alice, "whether you can make words mean so many different things."
BISCHOFF: That indeed is the question. The dictionaries reflect the meaning of words as they are used colloquially. They do not reflect the definition required for words necessary for use in a disussion about political economy.
Discussion of political economy require words which have a consistent definition across the spectrum. When it comes to "Money" or "Currency", there is not one dictionary which agrees with any other dictionary in its definition of these words.
How can that be... ??? As Alice asked, "how can you make words means so many different things?"
If you don't speak the same language when engaging in a discussion which required exactness in the definition of words, what value is there in the intercourse... ???
Reply from The Daily Bell
It is not merely words that you redefine at will but also facts - such as your insistence, flying in the face of thousands of years of recorded history that gold is money and silver is not.
The reason you insist on this is in order to justify your larger points about Real Bills, the necessity of banking and above all government interference as regards setting standards - by force.
For instance, in normal economies silver almost always seems to trade in tandem with gold. Because of the varying relationships between silver and gold, it is impossible for government to sustain its interference in the market.
You will not grant such points however, instead making statements such as the ratio of silver and gold is 15 to 1 when it has varied far more than that throughout history.
As soon as government attempts to fix ratios or anything else regarding money there will eventually be trouble as natural law is inevitably contravened.
Posted by Bischoff on 09/15/12 11:20 PM
@ Danny B
"Our current form of capitalism is very Darwinian. Do the elves believe that a true free market would be any less Darwinian?
There will always be monopolies and cartels. Labor has to compete against machines and people. Labor can't tolerate an interruption in income [food]"
BISCHOFF: So much depends on the definition of words used in discussing political economy, that unless these definitions are accepted as part of the dialogue, no conclusions can be reached. Take the definition of CAPITALISM.
CAPITALISM is an economic system. It has nothing to do with Darwin, nor are there different versions of capitalism. There is just CAPITALISM.
An economic system derives its name from the primary factor of one of the three factors of production in the creation of wealth.
Thus, SLAVERY is an economic system where human LABOR is the primary factor of production. This economic system met its demise with the fall of Rome. It was replaced by the economic system instituted by the Roman Church, known as FEUDALISM, under which LAND was the primary factor of production.
The system of FEUDALISM established on the European Continent clashed with the barbaric laws the Anglo-Saxons brought with them to England which they settled upon the departure of the Romans in the 4th Century AD. Anglo-Saxon law considered LAND to be a common, while under FEUDALISM the LAND was "owned" by monarchs through divine right confirmed by the Church of Rome. The question of "who owns the land" and what kind of economic system should prevail on the English Isles was settled between the Normans, invading England from the Continent, and the Anglo-Saxons at the Battle of Hastings in 1066.
The settlers in the American colonies were in essence refugees from the feudalistic system being established in England by the Normans. It was by providence that the Anglo-Saxon system took hold in the American colonies. Nevertheless, impoverished British aristocrats settling primarily in the Southern colonies pushed for the stablishment of a feudalistic system on the North American Continent. The vastness of the lands in America and the ability of indentured labor to flee to freedom by going West made the traditional form of FEUDALISM impossible to establish on the North American Continent. The fallback for those British aristocrats was the establishment of black slavery, enabled by English slave traders. American black slavery turned out much worse than the SLAVERY economic system that met its demise with the fall of Rome.
With the victory at Yorktown by the Americans over the British in 1782, the Anglo-Saxon economic ideas finally won out over the feudalistic approach of controlling LAND by divine right. If you wonder why the U.S. Constitution expressly prohibits the granting and acknowledgement of aristocratic titles, the reason is that the founders wanted to guard against the establishment of FEUDALISM through ownership of land by monarchs based on divine right proclaimed by an establishment church.
The U.S. Constitution required the establishment of a republican form of government for every state which conformed to the Anglo-Saxon economic and political ideas and which is modeled after the Anglo-Saxon shire system. The U.S. Constitution is in essence the premier document which establishes the economic system known as CAPITALISM. Under this economic system, the CAPITAL factor in the creation of wealth is the premier factor.
People always contrast CAPITALISM as an economic system with SOCIALISM, which is a distribution system. There are only two distribution systems. One is known as the "FREE MARKET" which rests on the voluntary discovery of "prices", the other is SOCIALISM which is a distribution system that uses mandates by government. Thus, you can have CAPITALISM as an economic system and SOCIALISM as a distribution system. Depending on the political bent of government, such system is either known as FASCISM or COMMUNISM.
CAPITALISM as an economic system works best when wealth is distributed through the "FREE MARKET", as long as the portion of the wealth which is purely due to the benefits derived from nature is used for the common good.
The arbitrage which turns "use value" into "exchange value" in a free market has no Darwinian aspect to it. Every transaction is voluntary, and arbitrage is the process which leads to the transaction. No mandates are necessary in a Free Market distribution system.
LABOR and CAPITAL always compete. This is very healthy as long as the factor of LAND is properly considered when it comes to the distribution of the wealth created by LAND, LABOR and CAPITAL. That portion of WEALTH which is derived from the benefits provided by nature must come to the common good, if the "Free Market" price discovery process is not to be harmed.
Monopolies and cartels built on the "ownership of land" seek to collect the benefit provided by nature for their own use and not for the common good. It is the basis for achieving "economic power". Economic power does not come from simply being sharp or even ruthless in engaging in arbitrage. Being a "good" businessman has nothing to do with establishing a monopoly or cartel. In a free market setting, monopolies and cartels can only survive with protection furnished by government. As soon as that happens, we are back to government mandated distribution under a political system of either FASCISM or COMMUNISM.
Maybe the current fight in this country is not CAPITALISM versus SOCIALISM, but rather FASCISM versus COMMUNISM. Have you ever thought about that... ???
With an worldwide irredeemable currency system, free markets are impossible. Therefore, the distribution system worldwide today is SOCIALISM. It varies only in degrees from one country to the next, or from one economic block to another. Government mandates in the distribution of wealth are NOW ubiquitous.
As to tolerating an interruption in income, this has to do with the irredeemable currency system which is a "Ponzi" scheme unable to tolerate interruptions, unless it should fall apart.
Posted by Bischoff on 09/15/12 07:28 PM
DB: "OK, goverment administers land and collects a tax. Sounds an awful lot like ownership."
BISCHOFF: It may sound an awful lot like "ownership", because the words "collecting a tax" are emotionally laden.
Sober analysis however, reveals that that portion of wealth collected to pay for government is strictly that portion of wealth which is due to the benefits provided by nature, i.e. LAND, and not that part of the portion of wealth created by LABOR or by CAPITAL. In other words, the word TAX merely indicates that the portion of wealth due to the benefits provided by nature is collected for use to run government. The most IMPORTANT aspect of collecting the portion of wealth due the use of LAND (benefit provided by nature)is that it equalizes the application of LABOR and CAPITAL across the board. If Sir Thomas Dale hadn't recognized that principle in 1614, when he saved the settlement of Jamestown, it would never have survived nor prospered under his administration. It turned out to be the model for administering the use of LAND in the American colonies. The Constitution of Connecticut in 1636 and the Constitution of the United States in 1787 reflect these principles.
DB: "As to money, the recognized commodity to measure value is GOLD. Do you doubt that... ??? --- Yes for the 1000th time, gold and SILVER are historically money."
BISCHOFF: Gold from the very beginning served as the favorate commodity to measure value. The problem of Gold as currency lay in its relative scarcity. Since the finds of gold to silver finds historically were at the rate of 1:15, silver was suited as money as well, as currency much better than gold. When silver became too scarce to serve as currency, the RBD currency system evolved, and it solved the problem of scarce commodities serving both as "currency" and as "money" at the same time.
DB: "... as long as the weights and measures are enforcible. --- Let people enforce it as they will ... "
BISCHOFF: You surely don't mean for people to "take the law into their own hands"... ??? Why then have common law and criminal law... ???
Reply from The Daily Bell
BISCHOFF: You surely don't mean for people to "take the law into their own hands"... ??? Why then have common law and criminal law... ???
Click to view link
Posted by Danny B on 09/15/12 06:53 PM
Had to break it up
"Why don't you give such generous concepts as free markets"
This is where the Bell and I diverge.
I, of course, read The Fountainhead and Atlas Shrugged.
The free market works fine for me. BUT,
"So when you add 12,673,000 and 87,897,000, you get a total of 100,570,000 working age Americans that do not have jobs.
Yes, there are certainly millions upon millions of working age Americans that do not have jobs and that do not want jobs."
Click to view link
Do the elves believe that a free market would bring full employment?
Do the elves believe that automation has permanently destroyed many job niches?
Do the elves believe that all public assistance should be stopped, reduced?
Our current form of capitalism is very Darwinian. Do the elves believe that a true free market would be any less Darwinian?
There will always be monopolies and cartels. Labor has to compete against machines and people. Labor can't tolerate an interruption in income [food]
America is on it's way down as far as living standards go. A free market will bring us down to global wages in many areas. Do we support the redundant people on the way down or do we cut them loose?
Click to view link
I have no need of authoritarian solutions myself. But, I am thinking of the many millions who have no viable job niche or support.
I've been through the ghettos and aboriginal reserves and Indian reservations and slums in many countries. Our mechanized society casts off millions every year.
GOV absorbs millions in make-work jobs. This is reaching a breaking point.
We can all agree about the wonders of a free market. We must also consider the fallout.
Reply from The Daily Bell
-Do the elves believe that a free market would bring full employment?
If money and industry were left alone by the power elite, if waves of violent fiat money were not poured out of government, of course there would be close to full employment. How else would people live? Some of it might be subsitence farming, but people would still be employed ...
-Do the elves believe that automation has permanently destroyed many job niches?
Of course not. It is fiat money that distorts economies and creates the boom bust cycles and artificial technologies. Do we really need five Iphones. Do you really believe such constitutes a technological advance?
-Do the elves believe that all public assistance should be stopped, reduced?
Public assistance is ultimatly a trap to starve people when the fiat money boom subsides. See how much starvation is going to take place in the next decades. Public assistance is the flip side of central banking - and both, eventually are likely equally destructive.
Also ... anyone who has read us knows we are not Randians.
Posted by Bischoff on 09/15/12 06:50 PM
@ Danny B
I am glad to read your comments which point out the evolvement in your thinking about currency systems and "Money". It is totally refreshing to see how many of the points Antal Fekete makes about RBD currency are finally bearing fruit with others as well. It is much easier to believe his points, particularly in light of what we are presently experiencing with the USD and the EURO as well, as with the FED's QEs and the ECB's fight with Germany over EURO bond purchases.
Good to see you back, Danny B.
Posted by Bischoff on 09/15/12 06:39 PM
DB: "EVERY involvement of government in money is PRICE FIX, ultimately distortive of the product or service Jim Grant does not seem to understand this and neither do you."
BISCHOFF: Government has nothing to do with "Money". You are confusing "Money" with "Currency". "Money" is a commodity, the value of which is used as a measuring device. "Currency" is merely a "Means of Exchange".
Government can create "Currency", but it cannot create "Money". As to "PRICE FIX", if you mean that government sets the weight and measurement of money (the commodity which is money, GOLD) from which aliquot parts are determined, I cannot see how this setting of the standard for "price" can in anyway be distortive.
To the contrary, it is the ultimate of stability. I think you are confusing "Value" with "Price", which BTW is the problem for most people.
DB: "You CANNOT argue against natural law no matter how you try".
BISCHOFF: I am a great believer in Natural Law. The Law of Nature allows that to survive which works. I argue for RBD currency which has proven to work for several hundred years around the world, in contrast to any other currency.
The demise of the RBD currency is not a proof of violation of Natural Law. To the contrary, the goverments' installation of a worldwide irredeemable currency system, which is falling apart after only forty short years of existence, is proof that central banking and fractional reserve lending is abhorred by Natural Law. So, who is arguing against Natural Law... ???
DB: Here from Investopedia ...
BISCHOFF: Your quote from the Investopedia only supports my contention that academic drivel, as reflected in the quote, is myopic when it comes to central banking. My contention is that the "gold standard" is simply not understood, not by the contributors to Investopedia, or by Jim Grant, nor by the DB. I am sorry to say it, but that's a fact.
Reply from The Daily Bell
From the Oxford Dictionaries:
Definition of currency
noun (plural currencies)
1. a system of money in general use in a particular country: the dollar was a strong currency ...
1. A medium that can be exchanged for goods and services and is used as a measure of their values on the market, including among its forms a commodity such as gold, an officially issued coin or note, or a deposit in a checking account or other readily liquefiable account.
2. The official currency, coins, and negotiable paper notes issued by a government.
"I don't know what you mean by 'glory,'?" Alice said.
Humpty Dumpty smiled contemptuously. "Of course you don't—till I tell you. I meant 'there's a nice knock-down argument for you!'?"
"But 'glory' doesn't mean 'a nice knock-down argument'," Alice objected.
"When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be master that's all."
Posted by Danny B on 09/15/12 06:16 PM
DB, I have to agree with Bischoff. I don't see an automatic involvement of GOV in a real-bills enviornment.
I also don't agree with investopedia;
"system was flawed because countries needed to hold large gold reserves in order to keep up with the volatile nature of supply and demand for currency."
This is BS. The FOREX trades as much as $ 7 trillion a day. This is liquidated in paper, not metal. The CBs trade in paper and do final adjustments in metal at the BIS. Computerized accounting has superseded written receipts. A barrel of oil changes hands 26 times before it is consumed. You can bet that most of the transactions are just a float.
"because it also depended heavily on gold reserves, it was abandoned in 1971"
This too is BS.
The maintenance of the gold/dollar system depended on an honest, responsible U.S. GOV,,,, another oxymoron.
"Jim Grant does not seem to understand this and neither do you. "
Well, that's quite a claim.
Bischoff has previously demonstrated a comprehensive knowledge of the history and actions of the FED. He reported the very critical detail about Benjamin Strong selling Treasury notes on the discounted secondary market.
Jim Grant also demonstrated thorough knowledge of the FED.
Posted by Bischoff on 09/15/12 05:11 PM
"Ingo, you are constantly advocating government involvement in money and land. As a Georgist, you want goverment to own raw land. As a Real Bills proponent you seem for some reason to advocate government involvement in money."
You couldn't be more wrong.
I do not advocate government involvement in currency creation. As to money, the recognized commodity to measure value is GOLD. Do you doubt that... ??? That recognition is not a government edict. It is a universal recognition.
As to weights and measures, I could care less whether the International Bureau of Weights and Measures sets the standard for "price" or the government does,
As for me being a Georgist, I can only say that I believe in the ideas of George regarding the claim to the benefits provided by nature.
Furthermore, Real Bills have absolutely nothing to do with government. As a matter of fact, Real Bills are an anethema to government.
Reply from The Daily Bell
All George made clear was the Anglo-Saxon principles of treating benefits nature bestowed on the human race. It has nothing to do with "owning" raw land. As a matter of fact, LAND cannot be owned, period.
OK, goverment administers land and collects a tax. Sounds an awful lot like ownership.
As to money, the recognized commodity to measure value is GOLD. Do you doubt that... ???
Yes for the 1000th time, gold and SILVER are historically money.
as long as the weights and measures are enforcible.
Let people enforce it as they will ...
Posted by Bischoff on 09/15/12 02:56 PM
The "gold standard" is simply not understood. The purpose of the original Federal Reserve Act is simply not understood.
The "gold standard" has absolutely nothing to do with the quantity of gold coin and bullion in existence. Refined gold serves as a standard to measure "quantified" work. When governments set an amount nd weight of refined gold as the standard amount from which aliquot parts are to be derived, they merely set a standard for "price". In other words, the "value" of gold can vary, but the weight of the aliquot parts do not.
While the U.S. Dollar was originally set equal to the silver content of a Spanish "Pillar" Dollar, it was also set equal to the market price of gold in terms of silver. As long as the ratio of gold finds to silver finds remained at the historic ratio of 1:15, the markets worked well enough.
Once that ratio fell out of kilter, and the U.S. Congress fixed the gold/silver ratio, the demise of one or the other to serve as "money", i.e. as the standard of measure, was a foregone conclusion. For many good reasons, gold won out as the standard of measure over silver in the U.S. as well, as in most countries of the world until 1971. Ever since, the entire world monetary system has been represented by "floating" currencies without a standard other than the floating USD servings as the world's reserve currency. It is evident where this has led to... .
As regards the redeemable Federal Reserve Note created under the original Federal Reserve Act, it was created subject to the "Real Bills Doctrine", as had all currency in the United States until 1935. Currency created under the RBD acts as a clearing instrument. The education establishment is curiously silent about explaining the RBD. I wonder why... ???
The irredeemable "Federal Reserve Note" created by the 1935 Federal Reserve central bank is only evidence of a "debt obligation". Circulating irredeemable FRNs amounts to passing around debt obligations. In contrast, RBD currency served to clear consumable items in urgent demand. Any discrepancy in this clearing process amounts to "savings", and it is usually cleared with gold. Since "savings" amount to an average of 10%, the gold reserves required were always available under the RBD, particularly since gold savings were readily invested in interest or dividend earning instruments.
The only reason physical gold was needed under the RBD banking system was to enable "savers" to influence the market "prime" interest rate which was determined by the willingness of the savers to part with their gold savings for an acceptable return.
That the big money center banks had decided to sabotage the Federal Reserve Act of 1913 is evident from the fact that they financially supported the ratification of the 16th, 17th and 18th Amendments, pushed by the "Progressive Movement" and "Prohibition Movement", after it became clear that their supporters in the U.S. Congress were unable to deliver to them the control over the franchise to create the national "Federal Reserve Note" currency.
The NYFRB, almost from the beginning violated the FRA by failing to keep the necessary gold reserves, knowing the U.S. Treasury would not collect the fines for such violation. When in the 1920s the NYFRB engaged in secondary market sales of U.S. Treasury "Gold" Bonds, which was strictly prohibited by the 1913 FRA, the demise of the "redeemable" FRN was a foregone conclusion.
Banking, meaning currency creation, according to the "Real Bills Doctrine" under the "gold standard" was destroyed by FDR's nationalization of the gold holdings of American citizens.
The Banking Act of 1935 changed the Federal Reserve System from a number of regional associations of private banks agreeing to federal government oversight in the creation of redeemable national currency into a federal government agency which issues a national irredeemable currency by monetizing congressional budget deficits, and which determines the "prime" interest rate with the legal involvement of the big money center banks.
It is little realized that academicians benefit tremendously by supporting the existence of "central bank" currency. While 700 prominent business and economics professors issued an open letter in 1933, urging FDR not to nationalize gold, five years later, not a single one of those academicians could be found to speak up against central banking. If government sees to it that academicians who support central banking are readily employed, is it any wonder that most of them wholeheartedly support government central banking?
Professor Antal Fekete of Budapest, Hungary is one of the lonely voices in academia which speaks up forthrightly against central banking and for the REAL "gold standard".
The REAL "gold standard" has nothing whatsoever to do with the "Quantity Theory of Money" which gives justification to currency creation under central banking. Unless the difference between RBD banking and banking by QTM is properly understood, the crafting of a solution, which BTW is quite simple, is politically impossible.
Reply from The Daily Bell
Ingo, you are constantly advocating government involvement in money and land. As a Georgist, you want goverment to own raw land. As a Real Bills proponent you seem for some reason to advocate government involvement in money.
EVERY involvement of government in money is PRICE FIX, ultimately distortive of the product or service Jim Grant does not seem to understand this and neither do you.
If the price is not distorted right away, over time the distortion will take hold. You CANNOT argue against natural law no matter how you try.
Here from Investopedia ...
"Investopedia explains 'Gold Standard' ..."
The use of the gold standard would mark the first use of formalized exchange rates in history. However, the system was flawed because countries needed to hold large gold reserves in order to keep up with the volatile nature of supply and demand for currency. After World War II, a modified version of the gold standard monetary system, the Bretton Woods monetary system created as its successor. This successor system was initially successful, but because it also depended heavily on gold reserves, it was abandoned in 1971 when U.S President Nixon "closed the gold window."
There are similar problems even with a specie standard.
Posted by Danny B on 09/15/12 11:08 AM
The net is the ultimate forum to hash out ideas both bad and good and arrive at the best "model". I just found a page by Fekete that is 7 years old. The page is educational but, it also shows that the vast majority of the banking industry is unnecessary. This is a real epiphany to me. I never took the time to understand "real bills".
Click to view link
Yikes, this url is 5 lines long. I originally found this paper at 24 hrs. gold but, the left hand side of the paragraph is covered over by a banner.
Click to view link
This url is only 3 lines long. I hope that it doesn't break.
As I posted above, both the Marxists and the bankers want an infinitely elastic money supply. Bernanke and Draghi are in the process of stress-testing the ability of elastic.
As a "neo-Luddite", I seem to be a lone voice in the wilderness. The fact that 52.5 % of Americans rely on GOV for income is a sure sign that GOV created a lot of make-work jobs. Many of these jobs will be ending by the close of Q1, 2013.
There is definitely a huge crash in our future. I imagine that banks will fight real-bills tooth and nail.
I don't see much future in world socialism. A command economy run by banking cartels doesn't have a future either.
I do not know if a return to real bills would bring economic stability. Since real bills seems to bring immediate payment to the producer, I suspect that it brings very little to the non-producers.
As a neo-luddite, I have to espouse social-credit OR systematic culling. Unlike Tibor, I see multitudes of people who are untrainable and would never benefit from retraining. Investigation has proved that a person has to learn most of the basics while they are still young. Once they have passed their teenage years, they just don't have the faculties to learn the basics.
I can't quite support systematic culling. Sterilization yes but, culling no. Denmark, I believe, has proposed sterilization for non-producers. I expect to see this idea more often. Malthus may prove to be right eventually.
The bankers are the uber-parasites. GOV is their enabler. Ghandi said that there is enough for everybody's need but not enough for everybody's greed.
If ALL the parasites were relegated to the income provided by social credit, there would be a lot more to go around. This isn't an accolade for social credit. It is a call for income reduction for non-producing parasites.
There is a huge income inequality. Bernanke has shown the desperation of bankers.
Productivity by diktat has never worked. We will slide along the bottom until motivation is brought back. Jim Rogers sees America having a couple lost decades. Japan seems to indicate NO exit until the bankers are finally smashed.
Either we go to real bills and social credit or the bankers do slash-and-burn of the economy to stay in power.
The original "job" of bankers was to evaluate risk and dole out credit commensurate with risk and reward. Computers already tally your credit score. Computers could do all the rest.
The implementation of real bills along with computer control of credit could be a great solution to the present crisis. I do9n't expect it to have any appeal to all the overpaid people in the banking system.
Reply from The Daily Bell
Hey, Danny B. you're a very smart guy but you've arrived at a bunch of authoritarian solutions. Interesting. Why don't you give such generous concepts as free markets and human action a try? These days you seem pretty contemptuous of your fellow human beings. Too bad.