News & Analysis
Central Banks Won't Produce Natural Interest
The Bank of England should raise interest rates next week ... Most people that read finance columns have heard of the "natural rate of unemployment", and many will know that the term was introduced by Milton Friedman. But far fewer will know where he got the term. He said himself, in his Nobel Prize lecture, that "The 'natural rate of unemployment' [is] a term I introduced to parallel Knut Wicksell's 'natural rate of interest'". But who was Knut Wicksell and what is the "natural rate of interest" – and does it matter? We shall see that it does indeed matter, and tells us something important about current UK monetary policy and the outlook for the UK economy and George Osborne's chances of delivering his fiscal plans ...Three years, now, at 0.5 percent, and counting. That compares with a natural rate of interest that was about 5 percent when times were better and will be around 3-3.5 percent now. (Essentially, add the 2.5 per cent RPI inflation rate that's about the target to the 1 percent or so sustainable growth rate, and you get a decent guess at the natural rate.) Having interest rates so far below the natural rate damages the sustainable growth rate of the economy. – UK Telegraph/ Andrew Lilico
Dominant Social Theme: We just have to figure out what's natural and then fake it.
Free-Market Analysis: Here comes Andrew Lilico, an economist with Europe Economics, and a member of the Shadow Monetary Policy Committee, according to the UK Telegraph (see article above).
The gibberish contained in the above excerpt is only magnified throughout the article. It is really incredible. What is it about price fixing that such intelligent commentators don't understand?
If you artificially set a price by force – and this is what central banks do – then that price is almost bound to be incorrect. Only the market itself can generate a "natural" rate of interest or determine monetary volume.
That's because the market itself is competitive. The "Invisible Hand" of competition creates naturally fluctuating interest rates and the appropriate volume of money stuff.
This is why monetary competition historically yields up evermore efficient and healthy money. People voluntarily choose the kind of money they want and the volume of money as well.
Within this context, gold and silver have proven to be a historically popular money stuff. Used with each other, gold and silver provide a ratio. If the ratio becomes distorted, people can tell that someone is trying to manipulate the market. This called bi-metalism.
Greenbackerism has made a startling comeback of late, which we have long predicted, citing Ellen Brown's effective boosting of the idea that government ought to have the sole franchise to print money.
But regardless of whether a mercantilist public/private body like the Bank of England or Federal Reserve prints paper-fiat money, or a fully public enterprise, such as those found in India or China, the problem of the natural rate and volume remains. Once human beings arrogate to themselves such decisions, money itself cannot help but be distorted.
Both India and China are now suffering from vigorous price inflation. That's because when human beings have a monopoly of something, it will inevitably be abused. It is impossible to expect mere flesh and blood not to print too much money. Money buys all kinds of fun, especially for those in control of it.
Over time, even within a competitive monetary environment, government eventually prints too much paper money, eventually debasing it. As this paper money became cheapened, people seek not to hold it, and try to get rid of it.
This is why schemes like Greenbackerism tend to lead to government consolidation of money authority. As people reject government money, those in charge gradually mandate its use. Within historical contexts, there tends to be an expansion of force as people are compelled to use what they would otherwise reject.
There are arguments that certain kinds of government monopoly money have proven more effective than other kinds. Ellen Brown, Bill Still and others argue that tally sticks were a wonderfully effective government initiated money that helped England build an empire.
But from our point of view this is perhaps a misreading on several fronts. First of all, there is nothing all that admirable about an empire. Societies tend to flourish, as we have often pointed out, when they are separate and singular but gathered closely together.
This allows people to travel from one place to another nearby place if they are being oppressed. Gradually over time, a culture of freedom is established as governments compete with one another to provide environments that are attractive and laissez faire.
Many great cultures have been established within this context. Rome had its Seven Hills, the Greek Golden Age and the Renaissance had city states, the United States had "these" united States.
Over time, consolidation usually takes place and gradually what was free and innovative becomes less so. Eventually dirigisme and socialism may set in.
Gradually the leaders of the consolidated country begin to become aggressive and to focus on outside threats to distract attention from an increasingly failed society. This is the empire phase.
It is unfortunate that most of history focuses on the "greatness" of empire when in fact, an "empire" is symptomatic of societal sickness not health.
During the tally stick era in Britain, Kings – having access to the money supply – apparently borrowed against the stock of tally sticks considerably for purposes of waging war. Not only that, but as tally sticks were generated to pay taxes, the volume of the money supply was seemingly artificially restricted.
This was great for those who controlled tally sticks – the ruling class – because an artificially restrained money deprived people of capital and likely had a retardant effect on social mobility and individual economic potential. Tally sticks were a perfect money for the elites.
There is seemingly no substitute for competitive money and for the Invisible Hand setting the volume and price of money. In economies that use gold and silver, hoarding and dishoarding sets the price of market money, along, perhaps, with the opening and closing of mines, depending on how much gold and silver is circulating. This is one reason why precious metals have been successful as money throughout history.
In the modern era, central banking has taken over the world – and the result is general catastrophe and ruin. This is only to be expected. It is in fact what those behind the system are intending to create.
The power elite that has seemingly installed modern monopoly fiat money – and the dollar reserve system itself – apparently seeks to build world government. It needs to foment economic turmoil and wars in order to move society toward one-world money.
Central banking is key to this strategy. The more monetary price fixing there is, the more economic chaos and catastrophe takes place. It is a closed loop, a virtuous circle from the power elite point of view.
The elites spend an enormous amount of time trying to justify central bank price fixing. It is one of their biggest dominant social themes – that only a handful of good, gray men can manage the economy and make decisions for everyone else.
Andrew Lilico wants us to believe that central banks ARE capable of mimicking natural rates of money production. In truth, there is no "natural interest rate" or rate of monetary production that human beings are EVER capable of creating.
Even if the top people at these monopoly money banks were capable of figuring out where the price and volume of money could be, there is no guarantee that they would generate the correct prices over time.
They would use their power for their OWN benefit. As indeed they have. We can see it clearly, even today. What misery there is in the world.
Conclusion: Power corrupts, and absolute power corrupts absolutely.
Posted by Abu Aardvark on 04/04/12 03:27 PM
'You insist on government fixing weight and volume, but not value (measurement of work)... ???'
I do NOT 'insist on government fixing weight and volume' of gold, never did, never will.
No idea why you would think otherwise.
Posted by memehunter on 04/04/12 01:54 PM
Economic conspiracy: The Wealth and Theft of Nations, by Keith Gardner
Click to view link
'Ultimately, monetary policy is about who controls the quantity of money. The most transparent method of giving the most control to most people is the use of public paper, with commodities left in the free market as a store of wealth. This gives the most oversight and transparency for the people. It provides them with transparent markets in savings and loans. It provides them the most freedom to choose commodities they want to use to store their wealth. Leaving currency strictly to the free market would make the supply unmanageable, the value of the currency volatile, and place the control of the economy in the hands of large private banks rather than the people who wish to use currency for trade. Adam Smith described the problems of free market currencies in the colonies in Wealth of Nations.
However, short of extensive and broad macroeconomics study, perspective, and understanding, one can realize the Ludwig von Mises Institute is a conspiracy.
'Many readers may be surprised to learn the extent to which the Graduate Institute and then Mises himself in the years immediately after he came to United States were kept afloat financially through generous grants from the Rockefeller Foundation. In fact, for the first years of Mises's life in the United States, before his appointment as a visiting professor in the Graduate School of Business Administration at New York University (NYU) in 1945, he was almost totally dependent on annual research grants from the Rockefeller Foundation.' - Richard M. Ebeling, The Life and Works of Ludwig von Mises
More information can be found direct from the source from Murray Rothbard's biography of Ludwig von Mises and an article published at the Ludwig von Mises Institute.
The William Volker Fund and Rockefeller Foundation funded people like Ludwig von Mises, Henry Hazlitt, and Murray Rothbard to promote a gold standard so that the bankers could manipulate the supply of currency and easily cause cycles of inflation and deflation to bankrupt the people. Ron Paul and Rand Paul receive donations from Bilderberger, Peter Thiel, and partnered with PNAC board member, Lewis Lehrman, to write a book, The Case for Gold, promoting the gold standard fraud using the same lie that gold is 'sound' and 'honest' money, which the bankers used over a 100 years ago when they first setup the gold standard during the Crime of 1873 by demonetizing silver and the Greenback. Lewis Lehrman also wrote Money and the Coming World Order: The Creation of International Monetary Order.
It should be noted that among the Libertarian elite and even some of the members of the Ludwig von Mises Institute, Henry George is recognized glowingly but rarely promoted by their foundations to the libertarian masses, who are largely brainwashed anarcho-capitalists, falsely believing Henry George is a neo-classical progressive or socialist. There is some common ground with the Green and true Left, such as Dennis Kucinich, Ralph Nader, and Cynthia McKinney, who promote the principles of Henry George, though corrupted by more Marxist leanings.
Furthermore, classical Libertarians generally promote principles of Cicero's Natural Law, principles of right and wrong, principles of inalienable rights, and the original anarchist schools of Proudhon, Spooner, and Tucker, while the neo-libertarians generally promote the egoist schools where to the victor goes the spoils under Spencer, Stirner, and Ayn Rand, where the mythical and magical hand of self-interest will bring an altruistic order out of chaos. It should be noted that even the egoist anarchists believed that landed property was different than other property.
The two schools end up fighting over the classical liberals, though it should be evident by the Constitution, that the classical liberals followed Natural Law rather than egoist philosophies of anarcho-capitalism. The U.S. Post Office is hardly anarcho-capitalism.
Classical Libertarians don't have to spend their time apologizing for Ludwig von Mises with Murray Rothbard, apologizing for objectivist Alan Greenspan, or even apologizing for the deficit spending, corporate welfare, trickle-down, supply-side, military industrial complex Reaganomics. Classical Libertarians don't carry the baggage of neocons, nor do they carry the baggage of social Darwinism, Malthus, and eugenics, which stem from your egoist philosophies and which were debunked by the Georgist school of political economy.
The classical Libertarians look more like your modern embodiment of the Founding Fathers, whereas, the neo-libertarians following anarcho-capitalism look more like statist, feudal, and aristocratic thieves, stealing from the people with their statist ownership of land, which violates Libertarian principle, and their theft through deflation, the racketeering and inherit problems of free market currency, or a statist gold standard, where the government only accepts payment of taxes in gold and only allows banks to issue debt paper backed partially by gold reserves, favoring those who are capable of hoarding gold or who mine gold over those who were born without a silver spoon to buy their own land, start their own business, or hoard their own gold.
Since classical Libertarians are correct and address the economic issues in a honest manner, the classical Libertarians have the ability to draw from the Left and Right, resulting in greater political power. Your vulgar Libertarians are regulated to merely an extreme Right-wing ideology of a gold-hoarding, land-stealing, and Kool-Aid-drinking cult of economic anarchists and financial racketeers, incapable of achieving political success since they don't adequately address the concerns of the broader population.'
Reply from The Daily Bell
This is interesting, as the writer makes a distinction between classical liberalism and anarcho-capitalism.
It also shows the facileness of any delineation of the Luciferian church of Austrian economics. Treating Austrian economics as a dialectic rather than as part of a larger conversation of thought unfortunately adds another level of confusion to what needs to be clarified not obscured.
In the long run focusing on Satanism and conspiracy history rather than on real insights (human action and the business cycle among others) seems to us to place the emphasis generally on ethnic and cultural name-calling rather than economics.
There are, however, various strands of thought related to the freedom movement as Gardner seems to understand.
However, he is convinced there are only two of them when there are actually a rainbow of shades. This flawed analysis gives him the opening to attack anarcho-capitalism as ego-driven.
But anyone who has actually READ analyses of the roots and evolution of free-market thinking would soon come to the conclusion that these are evolutionary issues ... not subject to the convenient parsing of academic segmentation.
Posted by memehunter on 04/04/12 01:53 PM
AA: Well, then, PROVE IT!
M: I cannot 'prove' that the plutarchy will benefit from Austrian economics (AE) or Libertarianism (L), anymore that you or anyone else can 'prove' theoretical axioms of AE such as 'pure time preference' (as noted by Austrian Israel Kirzner, see earlier on this thread).
However, I can show, using the 'cui bono'/ 'follow the money' principle (regularly employed by the DB), that elites have supported AE/L for a very long time, which strongly suggests that they benefit from it, or at least that they attempted to direct the development of AE/L in a way that would benefit them. The evidence of the associations and linkages between various power elites (Money Power, Zionists, Jesuits, globalists, etc…) and AE/L is overwhelming at this point, even though the DB refuses to acknowledge it.
I also note that AE generally supports the gold standard and its attendant 'paper-gold' schemes (whether government-sponsored or not), does not condemn usury (and even justifies it, see Böhm-Bawerk), and seeks to eliminate trade barriers and reduce the influence of national governments (see Mises).
For more on why AE is a tool of the elites, I recommend following some of the links listed here - this should answer most of your questions:
Click to view link
To conclude, I will quote an extensive passage from an article by Keith Gardner, who, as a 'geoist', has a different perspective on the topic but comes to similar conclusions regarding AE/L. The DB should be happy to note that Gardner distinguishes between 'classical Libertarians' and 'neo-Libertarians', although the DB's ideas likely fall under what Gardner condemns as 'neo-Libertarianism'.
It is also important to quote Gardner extensively to show that Migchels and myself are far from being the only writers on the blogosphere discussing this topic, and to point out how ridiculous are the DB's attempts to continually accuse me of making 'mis-statements' or worse when the connections between AE/L and power elites are now common knowledge in the alternative blogosphere.
(continued in Part II)
Posted by Bischoff on 04/04/12 01:32 PM
That's amazing... .
You insist on government fixing weight and volume, but not value (measurement of work)... ???
Extra ordinary, I must say... ...
Posted by Bischoff on 04/04/12 01:20 PM
" it is a clear signal that the value of the currency is decreasing relative to gold - a signal which is masked (for a while at least) if the currency is redeemable at an officially set value."
You failed to understand my explanation of RBD currency, but don't feel badly, because the central banking crowd has done an absolutely brilliant job of wiping out any capacity to understand RBD currency.
However, since you are sincere in your quest to understand currencies, I will try again.
RBD currency is created against Real Bills. Real Bills represent goods in production moving to market. These goods have value in terms of gold. Therefore, Real Bills can be sold for cash or gold. By making the RBD currency, created against the value of Real Bills, redeemable for a fixed amount of gold, all you are doing is establishing the value of the goods in production moving to market in terms of gold.
However, if gold is not a standard of value, then "saving" makes no sense.
That's exactly what is happening today. Without gold people cannot save. Without savers competing for investment with their gold savings, the market interest rate cannot be established. Instead, the FOMC establishes the interest rate as they see fit.
" I understand that a fluctuating rate of exchange between physical gold and the "means of exchange" currencies would be more honest than a fixed ratio. This is essentially FOFOA's "Freegold" by the way."
I never thought much of the idea. Tell me, how can a ship caught in a taifoon establish its position by charting it against all the other bobbing ships... ??? It can't. That's why there are lighthouses.
Well, gold is the lighthouse.
Posted by memehunter on 04/04/12 12:46 PM
Bischoff: "Gold quoted in terms of USD/FRN puts the numbers upside down. It is the USD/FRN that is quoted in quantities of gold, if you know how to read it correctly."
M: I am well aware of that. I have been reading FOFOA for more than 2 years now.
But I think you did not understand my point below:
"On the contrary, if people notice that they need more currency to obtain the same amount of physical gold, it is a clear signal that the value of the currency is decreasing relative to gold - a signal which is masked (for a while at least) if the currency is redeemable at an officially set value."
This sentence shows not only that I am valuing the currency relative to gold, but also that I understand that a fluctuating rate of exchange between physical gold and the "means of exchange" currencies would be more honest than a fixed ratio. This is essentially FOFOA's "Freegold" by the way.
To be clear, I have nothing against a fixed ratio in itself, and I agree that it would make things easier if it could be honestly implemented in the real world. I just do not trust anyone (government or bankers) to establish and keep such a fixed ratio as a true representation of the value of the currency relative to gold, over the long run.
Posted by Abu Aardvark on 04/04/12 12:30 PM
'People certainly shouldn't trust your ideas... .'
Well, since I don't force people to trust 'my ideas', and since I don't advocate force to make people believe or do just ANYTHING, I think the 'danger' emanating from 'my ideas' should be neglectable.
'Not so sure about YOUR governmental gold-ratio fixing thingy, though.
Posted by Bischoff on 04/04/12 11:19 AM
People certainly shouldn't trust your ideas... .
Posted by Bischoff on 04/04/12 11:18 AM
"Again, the sophism that only government force can ensure the reliability of the private sector - in this case by harmonizing gold prices and thence accounting."
Where does government force come into the picture... ??? Bank charters are rules set to according to constitutional requirements... ???
The Congress is charged with setting weights and measures. Bank charters require that currency created conform to the weights and measures set by the Congress. The people can always change the Constitution. Until then, people can ask to redeem their paper currency for gold. If the bankers will not or cannot redeem their bank notes for gold, they are guilty of fraud.
I take from your comment that you find proscecution for fraud committed by bankers government interference... ???
Furthermore, it seems that your idea of "competing currencies" prompted the comment about harmonizing gold prices and thence accounting.
Are you in favor of theft by inflation or ruin by deflation... ??? Are you also advocating that government not proscecute fraud or mayhem... ???
Reply from The Daily Bell
Ingo, read your response again. You cite the Constitution and weights and measures set by Congress. Both cases are examples of government force, no matter how benign or admirable you believe them to be ...
Posted by Abu Aardvark on 04/04/12 07:47 AM
DB: 'Again, the sophism that only government force can ensure the reliability of the private sector - in this case by harmonizing gold prices and thence accounting.'
Same old story, again: free people are not be trusted. Their transactions NEED to be supervised by government - made of, um, PEOPLE.
Posted by Abu Aardvark on 04/04/12 05:39 AM
MH: 'The dialectic exposed by Migchels and myself is between Austrianism and Communism, or more generally between extreme individualism and extreme collectivism. In the end, both systems serve the interests of the transnational plutarchy that currently rules the world.'
AA: Well, then, PROVE IT! Demonstrate HOW, EXACTLY, 'the transnational plutarchy that currently rules the world' via mercantilism, directed history and evermore worldwide centralization, would BENEFIT from what you call 'extreme individualism', i.e., the freedom of every human being to live, associate and trade as he sees fit, as long as he doesn't harm others.
Show HOW the elite will make use of decentralized, small communities and the lack of government monopoly of violence and government fiat-money to further what 'they' desire most: CONTROL.
MH: 'Abu seems to feel that I don't criticize government harshly enough. Well, I've explained very clearly my position about government: change the driver first (the current driver is Money Power in most countries), and then we can talk about reforms and "minarchy".'
AA: No, I don't feel you 'don't criticize government harshly enough', and I never said so. Instead, I pointed out that you obviously cling to the 'illusion' that if only the 'right people with the right ideas' would occupy the drivers seat, i.e., run government, things will change for the better - or even worse: over time, people will get 'better' if guided in the 'right direction' via your proposed 'minimum of coercion'.
Ben O'Neill nailed it eloquently the other day:
'when people talk about the importance of democracy, it is never democracy as it has ever ACTUALLY functioned, with the politicians that have ACTUALLY been elected, and the policies that have ACTUALLY been implemented. It is always democracy as people imagine it will operate once they succeed in electing "the right people" - by which they mean, people who agree almost completely with their own views, and who are consistent and incorruptible in their implementation of the resulting policies. This is what allows an intelligent group of people to espouse mob rule as a desirable principle'
Click to view link
One can even phrase it much shorter - In fact, it HAS been phrased 130 years ago:
'The danger is not that a particular class is unfit to govern. Every class is unfit to govern'
'Power tends to corrupt and absolute power corrupts absolutely'
Click to view link
Reply from The Daily Bell
He can't prove it. It's merely a trope, something that sounds good. A parlor trick.
Posted by Bischoff on 04/04/12 04:24 AM
"I do not see why a currency needs to be "officially" redeemable."
It's very simple. Gold is the standard of measure. A redeemable currency thereby measures value in terms of gold. Without a fixed ratio to gold, the value of the currency would be all over the place. While such currency is ok for consumption purpose, you cannot use it in accounting. Your asset valuation will never give you an accurate financial picture. That is the problem today with the irredeemable USD/FRN. Corpoations are unable to make proper investment decision, because the unit of account isn't fixed.
Furthermore, people save about 10% of what they earn. Only redeemability will let them convert their paper currency into a fixed amount of gold for savings. That's the problem with the Greenback. As long as Greenbacks can be exchanged for RBD, there is no problem. However, if there are too many Greenbacks in circulation, gold can only be obtained by paying a premium.
The other fallacy under which you seem to labor is that you assume gold has a price. It does not. Gold is Money and Money has no price.
Gold quoted in terms of USD/FRN puts the numbers upside down. It is the USD/FRN that is quoted in quantities of gold, if you know how to read it correctly.
The USD was fixed at 1/21 of an ounce of gold in 1791. It was fixed at 1/35 of an ounce of gold in 1935, and finally fixed at 1/42 of an ounce of gold just before suspension of redemption in 1971.
Now the value of the USD/FRN floats against the value of gold in the "gold market". Lately, gold was quoted between $1,600/oz and $1,800/oz. But that is not how this quote should be read. The quote instead should read one (1) USD/FRN is worth between 1/1600 of oz of gold and 1/1800 of an oz of gold.
When you read the quote in that way, you realize that gold is the standard of value, and the USD/FRN is a vastly depreciated paper currency.
Without redeemability of RBD currency, there would be no Real Bills market, and without Real Bills there is no RBD currency. Actually, since RBD currency is created under state or national charter, and RBD currency is noninflationary, it can be fixed to gold. States can allow such currency to be legal tender, because it meets the requirements of both Section 8 and Section 10 of Article I of the U.S. Constitution. That's why RBD currency is officially redeemable by requitement of bank charter.
This is the important point, Gold is the standard of value. Just as when you measure a piece of cloth, you want to use a yardstick not a rubber band. It's the same with RBD currency. You want to measure its value against a specific amount of gold, and not against an amount of gold that varies from day to day. It means somebody is constantly inflating and deflating the RBD currency. IOW, the bankers are monkeying with the volume of RBD currency in circulation.
It's tough enough to keep them from cheating when the Congress sets a fixed ratio. If bank charters demonetize RBD, the bankers would have a field day. Look what they have done with the Fed central bank.
Just because bankers do business in big, marble buildings, and they are dressed to the hilt, it doesn't mean they are exempt from behaving according to human nature.
Bankers are as crooked as the next guy, maybe more so. When giving them authority to create "legal tender" in payment of debt, you better watch them like a hawk. Having a redemption requirement for the RBD currency they created against Real Bills, gives the RBD currency holder a check on the honesty of the bankers.
Reply from The Daily Bell
"Without a fixed ratio to gold, the value of the currency would be all over the place. While such currency is ok for consumption purpose, you cannot use it in accounting. Your asset valuation will never give you an accurate financial picture."
Again, the sophism that only government force can ensure the reliability of the private sector - in this case by harmonizing gold prices and thence accounting.
Posted by memehunter on 04/04/12 01:16 AM
Many thanks for these detailed explanations and for your historical overview.
Yes, I can see why you would favor Greenbacks working in tandem with RBD currency.
My only question to you would be, why do you insist on the currency being redeemable? The way I see it, as long as people can "buy" gold (i.e., exchange their Greenbacks or RBD currency for gold on the market), I do not see why a currency needs to be "officially" redeemable.
In fact, I am skeptical regarding the concept of an "officially" redeemable currency because it seems to me that the redeemability of such a currency depends entirely on the honesty of the currency issuer. The temptation to print too much currency compared to the gold "backing" it would always be there.
This is one of the points made by FOFOA, who foresees a separation between physical gold as a store of value and the non-redeemable paper currency used for exchange (this may look just like what we currently have, but FOFOA targets specifically "paper gold").
So, in your example, as long as people can exchange their currency for physical gold, I don't think that there is a need for the currency to be officially redeemable. On the contrary, if people notice that they need more currency to obtain the same amount of physical gold, it is a clear signal that the value of the currency is decreasing relative to gold - a signal which is masked (for a while at least) if the currency is redeemable at an officially set value.
Maybe I missed something in your argumentation, but I would be curious to see why you favor the concept of an officially redeemable currency over that of a currency which can always (not only "during limited periods of time") be exchanged for physical gold on the market, with a fluctuating rate of exchange reflecting the value of the currency relative to physical gold.
Posted by Agent Weebley on 04/03/12 11:58 PM
No worries . . . I cot it.
. . . but what is a sophist disturber?
Click to view link
Posted by Bischoff on 04/03/12 11:44 PM
CORRECTIONS: the word is crassly NOT grassly... .
Posted by Bischoff on 04/03/12 09:51 PM
The U.S. Greenback was an interest-free bill of credit issued by the Department of the Treasury to pay for the Union's costs of the Civil War.
Soldiers and suppliers to the U.S. governmentwere were paid with these bills of credit which were backed only by the good faith and credit of the U.S. government. The U.S. Greenback currency was a currency which did not "extinguish", nor was it redeemable for gold, as was the RBD currency. Therefore, U.S. Greenbacks were unsuitable to keep for one's savings. Investment trusts refused to accept them from clients for investments in gold bonds.
However, for most of the time, merchants readily accepted U.S. Greenbacks on par with RBD currency. Only when too many U.S. Greenbacks started to circulate, did the value of Greenbacks drop below par with the RBD currency. In those instances, the U.S. Congress declared limited periods of time open to exchange U.S. Greenbacks for gold. About 65% of all U.S. Greenbacks ever issued were in fact redeemed before 1933.
Why was the U.S. Greenback so successful... ??? By 1864, the Union's Civil War costs exceded the revenue which could be secured from the sale of U.S. government bonds. Secretary of the Treasury Chase switched the demand notes issued in 1862 into bills of credit by applying a red U.S. Treasury seal. The circulation of the Greenback currency did cause inflation, but Greenbacks were accepted at par for most of the time in lieu of having to pay an income tax.
Since the population demanded more and more federal government services after the Civil War, the USDT decided to continue to issue U.S. Greenbacks for use as federal payroll. As the Greenbacks were accepted on par with RBD currency by merchants, the population in fact expressed their satisfaction with U.S. government hiring. When the Greenback fell below par with RBD currency, it was a signal to the federal government to cut employees.
I would certainly prefer to reissue the U.S. Greenback and the repeal the 16th Amendment. This way, the consumers could vote daily on the acceptability of the amount of expenditures by the federal government. I'd much prefer to pay a slightly higher price for consumption items than have to pay a federal income tax.
Also, use of Greenbacks is fair since it amounts to a per capita tax to pay for the common defense and the State Department, and any other services for which the public would be willing to accept higher consumer prices. These services would provide a per capita benefit. It would be very unlikely that the consumer would be ready to pay higher prices for goods just to benefit special interests.
The only problem with Greenbacks is that they do not "extinguish". Government employees who can not exchange their Greenbacks for RBD currency are therefore unable to save. The U.S. Congress would have to consider, as it has in the past, to provide for exchange of Greenbacks for gold during limited periods of time.
However, one has to keep in mind that such interest-free bills of credit currency can only work in tandem with redeemable RBD currency.
Posted by Bischoff on 04/03/12 05:11 PM
"Migchels has clearly explained that interest-free credit issued by the government is not an ideal solution, but at least it would get rid of interest."
I have explained to Migchels that interest-free bills of credit are an applicable type of currency, but only in tandem with RBD currency, which is also interest-free.
As a matter of fact interest-free bills of credit have been an extremely successful currency in the United States for over a hundred years. It circulated parallel to RBD currency which was used in North America for almost two hundred years.
Would you say that a hundered and two hundered year time frame is sufficient to prove a currency viable... ??? I would say so.
Here is the history. As far back as 1750, George Clymer and Benjamin Franklin, both signers of the U.S. Constitution, were principals in the Bank of Philadelphia. Without gold or silver mines in colonial America, the colonists were confined to the use of foreign gold and silver coins as currency. Due to lack of foreign coin, much trade was confined to barter.
Clymer and Franklin resorted to the Law Merchant (British and International Law which covered use of Bills of Exchange and Notes) to create a paper currency. With them, the creation of a paper currency rested on the idea that individuals worked to sustain themselves, and that businesses needed supplies to produce goods for the ultimate consumer. If suppliers could furnish materials to producers in return for a signature on a 90-day Real Bill which immediately could be discounted for cash, then material and labor costs were covered and the goods could be sold before the Real Bills matured. IOW, "social circulating capital" was used to finance consumption. When the products were consumed and the Real Bill was settled, the paper currency expired.
This method of currency creation of the Pennsylvania Pound by the Bank of Philadelphia was picked up by Adam Smith, who turned it into the "Real Bills Doctrine" of currency creation. This method of currency creation was in use from 1750 until 1933.
The interest-free bills of credit currency was the U.S. Greenback. It was first issued by the USDT in 1864 and was continously issued until 1971.
Why the U.S. Greenback currency was successful, I will cover in a separate reply.
Posted by memehunter on 04/03/12 02:57 PM
DB: If the dialectic is between Austrian economics and world ruled by elites, then Memehunter is offering interest-free greenbackerism as the "synthesis." You could make the argument therefore (we haven't) that this could be part of a larger manipulation ...
M: The dialectic exposed by Migchels and myself is between Austrianism and Communism, or more generally between extreme individualism and extreme collectivism. In the end, both systems serve the interests of the transnational plutarchy that currently rules the world. Migchels has clearly explained that interest-free credit issued by the government is not an ideal solution, but at least it would get rid of interest.
Similarly, I have explained on the DB several times that a free market for currencies including interest-free currencies (and physical gold as a store of value) would seem to me like an ideal solution. I still don't see how one can defend interest-bearing debt-based currencies, whether made of gold, paper, or tally sticks, and whether public or private.
Migchels and I have mentioned virtually every segment or ideology of the elites in our articles (Zionism, Jesuits, Freemasonry, Illuminati, Money Power, elite banking families, Satanism, Globalism, Communism, Keynesianism, Austrianism), so the argument that Migchels, Makow, or myself are elite shills is not really logically tenable. Abu seems to feel that I don't criticize government harshly enough. Well, I've explained very clearly my position about government: change the driver first (the current driver is Money Power in most countries), and then we can talk about reforms and "minarchy".
Posted by Bischoff on 04/03/12 02:55 PM
"Maybe Bischoff is right about you [Weebley]... "
You still question my assessment of Weebeley's contributions... ???
He is what is grassly called a "s..t disturber"
There... .I said it.
Posted by Bischoff on 04/03/12 02:49 PM
Of course. You are right. It's still a free country, isn't it... ???