I assume a gold standard implies a government controlled gold standard?
Does a forced monopoly on the money supply by the government offer something better than a free market money supply aka competing currencies?
I have been wondering about this myself. Obviously free banking is more libertarian, but is the gold standard better in some other way?
Just the opposite. A free market money is one chosen to be any commodity desired as money by the free economy. It is not controlled, regulated or created by the state. Historically this commodity has been gold. It doesn't have to be gold. Any "gold bug" would be happy with any commodity chosen to be money. It could be silver, copper, chicken teeth, moon dust, or whatever. It only has to be some commodity that the gov't can't counterfit out of thin air for their political purposes. A world free market money, as say gold, does not compete. It is a single common money used by all. All countries operate their currencies at a fixed exchange rate. Not a free floating exchange rate that allows them to compete.
A forced gov't monopoly on money, or the control of money supply, is only destructive to a free market economy.
Ok, assume a 100% gold standard and a 100% banking reserve. That means that neither gold nor money can not be inflated or deflated by any means. That does NOT mean government controlled. Gov't contol was not included in the statement, nor implied. In fact the basis of the desire for a gold standard is because the gov't could not control it as easily.
But of course they did by having the gov't control banking. This was accomplished in our history first by having a central bank ((which failed at least twice) and then by seting up the Federal Reserve along with the existing Treasury. Once gov't controls the banks it can change the rules. The Fed. did this by enabling Reserve banking laws, meaning that banks can have less than 100% Reserves. Today it varies and has been around 10%. So if you deposit, in a time deposit, $100, the bank can loan out $90 of your money.
But now that the money is controlled by the gov't, they can also artifically raise and lower the interest rate, and increase or decrease the supply of money. Since gov't by it's nature always wants more power, they always need more money. The paper money issued by the Treasury was then originally redeemable in gold. As the money supply increases without an equal increase in the amount of gold, then the percentage of gold backing the paper money must decrease. It was decreased many times until 1971 when gold was removed as the backing of paper money and as any standard at all. Our money became 100% fiat (by law) money backed by nothing (except faith and good will - the faith of the gov't that we will pay their debts and the good will of the people in doing it).
A free-market means that it is not controlled by any government. But we have tried to have a free-market while allowing gov't to control the money. Because the gov't controls the money it can practice interventionsim in the market. Of course it's intervention has been increasing over time also. Until 2 weeks ago when Greenspan said that we have now changed to a government-dependent market.
limitgov: I assume a gold standard implies a government controlled gold standard? Does a forced monopoly on the money supply by the government offer something better than a free market money supply aka competing currencies?
This is quite unclear in most Austrians, when most Austrians say they favour a gold standard, what they mean is that they favour provision of money by free market institutions, most often in the form of gold, which is what it was historically. Now, if a better medium of exchange were to appear more suited to the task than gold it would replace gold and it would most likely still be called the gold standard.
Competing free market currencies makes no sense because it defeats the purpose of a medium of exchange altogether, the holders of different free market currencies would still be in a state of barter with regards to one another, moreover, calculation still would not be entirely rational. Hayek was wrong on this.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
GilesStratton:Competing free market currencies makes no sense because it defeats the purpose of a medium of exchange altogether, the holders of different free market currencies would still be in a state of barter with regards to one another, moreover, calculation still would not be entirely rational.
Isn't that taking it too far? Okey, to some degree two competing monies is 'more bartering' than one money, but it won't make it hard to calculate prices. In many border regions today, people prefer using two currencies simultaneously. It's not confusing at all.
Gold and silver could well be used simultaneously, and has often been so as far as I understand. For example with silver coins dominating for smaller transactions. Nothing has ever, and will never, be universially accepted as money. There must always be several simultanous monies around, as far as I can imagine. When I went to school, it happened that prepaid bus tickets were used as money between pupils when short on cash in a break. And during conscription we bet beer cans in poker.
Different goods are best as a medium of exchange in different situations.
It's not fascism when the government does it.
“We must spend now as an investment for the future.” - President Obama
GilesStratton :Competing free market currencies makes no sense because it defeats the purpose of a medium of exchange altogether, the holders of different free market currencies would still be in a state of barter with regards to one another, moreover, calculation still would not be entirely rational. Hayek was wrong on this.
I beg to disagree. First, we originally had competing currencies.
"The United States dollar (sign: $; code: USD) is the unit of currency of the United States and is defined by the Coinage Act of 1792 to be between 371 and 416 grains (27.0 g) of silver (depending on purity). . . . additionally, the term eagle was used in the Coinage Act of 1792 for the denomination of ten dollars, and subsequently was used in naming gold coins to be between 247 and 270 grains (17 g) of gold (again depending on purity). . . . . The first dollar coins issued by the United States Mint were of the same size and composition as the Spanish dollar and even after the American Revolutionary War the Spanish and U.S. silver dollars circulated side by side in the United States. . . . The coinage of various English colonies also circulated. The lion dollar was popular in the Dutch New Netherland Colony (New York), but the lion dollar also circulated throughout the English colonies during the seventeenth and early eighteenth centuries. Examples circulating in the colonies were usually worn so that the design was not fully distinguishable, thus they were sometimes referred to as "dog dollars". The value of gold or silver contained in the dollar was then converted into relative value in the economy for the buying and selling of goods. This allowed the value of things to remain fairly constant over time, except for the influx and outflux of gold and silver in the nation's economy." Wikipedia
Second, the U.S. Constitution, Article 1, Section 8 “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;” and U.S. Constitution, Article 1, Section 8 “No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.” limit the powers of the Federal and State governments. - http://www.usconstitution.net However, the U.S. Constitution nowhere limits the power of the individual or private group (corporation) to coin or print money. Not only have we used foreign coins in our history, we also have private mints, such as Franklin, which mint coins. The U.S. Federal Government has the power to set weights and standards of gold and silver for coins. Anyone else can follow these same weights and standards and also coin money. They could also print paper redeemable in their coin. They can probably do it more efficiently and cheaper than the U.S. mint and the U.S. Treasury. In fact, during our civil war many southern states and counties printed money. As long as an individual is familiar with the coins or currency he is given there is no problem. If not, he can weigh them and/or test them very easily. For example, a letter of credit or other monies from the Rothchild bank was deemed as good or better than the same from the Bank of England in the 17th century. Consider how much silver our quarters issued this year contain, an example of inflation of currency. Further, our law state that U.S. monies are legal tender and therefore MUST be accepted as payment of debts. It does not say that no other monies may be accepted. I maintain that as long as a standard of weigths and measures are maintained and known, competing currencies are economically good.
U.S. Constitution, Article 1, Section 8 “No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”
limit the powers of the Federal and State governments. - http://www.usconstitution.net
However, the U.S. Constitution nowhere limits the power of the individual or private group (corporation) to coin or print money. Not only have we used foreign coins in our history, we also have private mints, such as Franklin, which mint coins.
The U.S. Federal Government has the power to set weights and standards of gold and silver for coins. Anyone else can follow these same weights and standards and also coin money. They could also print paper redeemable in their coin. They can probably do it more efficiently and cheaper than the U.S. mint and the U.S. Treasury. In fact, during our civil war many southern states and counties printed money.
As long as an individual is familiar with the coins or currency he is given there is no problem. If not, he can weigh them and/or test them very easily. For example, a letter of credit or other monies from the Rothchild bank was deemed as good or better than the same from the Bank of England in the 17th century. Consider how much silver our quarters issued this year contain, an example of inflation of currency.
Further, our law state that U.S. monies are legal tender and therefore MUST be accepted as payment of debts. It does not say that no other monies may be accepted.
I maintain that as long as a standard of weigths and measures are maintained and known, competing currencies are economically good.
This seems relevant here:
Why Fractional Reserve Banking Is more Libertarian than the Gold Standard by Jeffrey Rogers Hummel
LibertarianAnarchy.com - Government is immoral, unnecessary, and doesn't work!
Yes, that was an interesting lecture. Probably the first nail for me.
There was follow up by Caplan.
1. Highly developed financial systems with widespread fractional reserve banking have reduced government seigniorage, even at double-digit inflation rates, to a trivial source of revenue... 2. Globalization and international competition have approximated Hayek's world of competing private banks issuing fiat money...> 3. Central banks are freer to respond sensibly to this growing international competition and market discipline because of their political independence.
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
that hummel lecture is not good.
against the predictors of hard money, and those against FRB (Roth and Block)
he spins the 'option clause' notion, of maybe you're demand dep will turn out to have really been a time deposit. this is slight of hand. because this is not frb.
the 'option clause' can logically be formulated with as a "time deposit account, that we might occasionally give you the option of using as though it were a demand account, until we stop' of course, keeping reserves fractional to those obligations on time deposit and loaning out th rest, is NOT fractional reseve banking since, fractional reserve banking
wikipedia: Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits immediately upon demand
Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits immediately upon demand
now, you could say that the definition is too narrow, but that is just conceding that there is not a one single 'fractional reserve banking' that us laymen economists might talk about but two. frb over dds and frb over tds. Hummul has made explicit reference to the fact that Roth and Block are perfectly comfortable with the principle of 'frb over td' and would refer to this in the terminology as 'loan banking'. (in contrast to 'bailment banking')
the notion that there frb is not fraud since it is proven to not be fraud by the fact that depositors who use demand deposit accounts know that banks lend out money and only keep reserves on hand is a nonsense. it just goes to show that people can be confused, people can hold contradictory ideas if they arent challenged to recognise the contradictions. anyone that has spent sometime thinking about statism should be familiar with this concept. what you statists believe that the state is the only defence against coercion? its coercion by definition. well statists believe it so what.......here is some evidence that some people might need convincing that squarecircles are possible http://www.dougshaver.com/philos/squarecircle.pdf it may be prudent to this conversation to email the author to ask whether the article was motivated by encountering people who stated beliefs to the contrary, i.e. that square circles are possible. we can add in extra layers of complexity to make it more likely people will 'err' , i.e. 'can we 'square' a circle' find a square the exact area of a given circle. this is mathematically impossible although it can be approximated. the fact that it can be approximated likely means many people in history have mistakenly believed that the operation would be possible. if they ever engaged in a contractual transaction with someone who promised to deliver , or teach the the method to doing it, they would have been defrauded.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Barter is not efficient because it relies on a double coincidence on wants (therefore limited the division of labour) and because rational calculation is not possible under barter.
At the other end of the spectrum of a single commodity currency is the situation in which every commodity is used as a currency, that is barter. Humans, more accurately, entreprenuers, abandoned barter for the aforementioned reasons. Now, since then there has been a tendency towards a single commodity being used as currency, since it enables the most rational calculation of goods. Under numerous competing currencies any calculation in money would be less rational (in fact, in Mises exposition of the calculation debate he said that a sound currency was required for economic calculation) and a double coincidence of wants would be needed it terms of the different currencies being used.
I can't say that gold and silver would not coexist, silver may well prevail for practical reasons, this cannot be determined by praxeology. However, the argument that because silver and gold existed side by side historically means nothing other than that the market did not get (and most likely, never will) get to the point where a single currency prevails.
if there was going to be a truly free market in money i would happily put my money where my mouth is and bet a wager on the dominance/popularity of private commodity money over private fiat money...
Competitive currencies it is certainly better than simple gold standard (even if we talk about private coinage).In case of free money, market will define, what is better.Probably some currencies will have gold backing. And if it will be better for people and the enterprises - such currencies will have advantage.But the gold standard does not guarantee stability of currency, we can expect constant (but stable) deflation. We cannot speak a lot about harm of a deflation as we have no essential experience, but it is possible to assume, that the stable currency is better than rising one.Also we have to remember about alchemy, today we already know that it is technically possible to synthesize gold. With science development, value (rarity) of gold (or any other material, used as money) will fall.There is no doubt the system of competing currencies will give more qualitative money. The assumption that the circulation of two or more currencies in region creates serious difficulties is no more than a myth.I am from Ukraine. Our people traditionally do not trust national currency (grivna). For this reason on not-FMCG goods (is more exact, on all that cost more than $100) we are guided basically by the prices in USD (or, for a few last years, also in EUR).In Ukraine really exists the system of parallel currencies. And only state restriction slow down its further development. Almost everyone got used to consider the salary and the prices both in grivnas, and in dollars. Considering more and more deep penetration of electronics, there are no technical problems for the free circulation of several currencies in one territory. And if will be - the market will choose one of them.Its majesty Free Market will tell who is right. It is the main principle
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