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Tilting at Windmills

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November 12, 2007
By: Kevin Drum

ANOTHER THOUSAND EMAILS, PLEASE.....Well, since you asked, the reason I think Ron Paul is a crank is because he wants to repeal the 16th amendment, eliminate the personal income tax, abolish the minimum wage, deep six the Federal Reserve, and return the United States to some kind of weird quasi-gold standard. In addition, he's fond of referring to paper currency as "fiat money" — a term pregnant with conspiratorial meaning among goldbugs — and apparently believes that we invaded Iraq largely because they wanted to price their oil in euros. And these aren't just peculiar but harmless idiosyncracies. Paul is obsessed with "fiat money" and talks about it every chance he gets.

Now, your mileage may vary. Maybe you think Paul is onto something. But in my book, Paul's economic views are more than enough to earn him a spot in the crankery hall of fame.

Still, if I had to choose between Ron Paul and, say, Rudy Giuliani for president, would I vote for Paul? You bet. There are worse things than being a crank.

Kevin Drum 8:58 PM Permalink | Trackbacks | Comments (211)

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Comments

If I couldn't vote Democrat, I'd vote Paul, that's for sure.

What's the fiat money thing, anyhow? I never understood it. Could someone explain? In plain English, would help.

Posted by: Crissa on November 12, 2007 at 9:08 PM | PERMALINK

The current paper money is by definition "fiat money", i.e. it has no real backing other than the faith in credit of the US Government. Fiat money isn't bad, it's actually a better way to have the Federal Reserve run monetary supply versus the gold standard or any other schemes.

Posted by: Jmauro on November 12, 2007 at 9:11 PM | PERMALINK

> and apparently believes that we invaded Iraq
> largely because they wanted to price their oil in
> euros.

Largely? No. No one but Dick Cheney knows why we "largely" (so to speak) invaded Iraq.

Partially? Yes, I have to think so. I imagine that was also partially (not fully, not exclusively, not publicly) a warning to Chavez who has mentioned the same thing a few times.

Cranky

Posted by: Cranky Observer on November 12, 2007 at 9:11 PM | PERMALINK

Kevin, why do you always put "fiat money" and "fiat currency" in scare quotes when discussing Ron Paul. Do you not know what fiat money is?

http://en.wikipedia.org/wiki/Fiat_currency

And if you think the gold standard is weird, look who else thinks it's a good idea:

http://www.youtube.com/watch?v=caIgP3Mnb6g

Posted by: FZappa on November 12, 2007 at 9:18 PM | PERMALINK

Ron Paul is right on the war, and dead wrong on virtually everything else. I do agree with him, though, that Iraq's wanting to price oil in euros was a cause of the war. That, plus Bush's Oedipus complex.

Posted by: buddhistMonkey on November 12, 2007 at 9:20 PM | PERMALINK

Why did we invade Iraq? Why isn't our money fiat money, (this is what they taught me in school)?

Posted by: Boronx on November 12, 2007 at 9:20 PM | PERMALINK

Now - you've got it!!

Posted by: Mark-NC on November 12, 2007 at 9:21 PM | PERMALINK

jmauro:

"Fiat money isn't bad, it's actually a better way to have the Federal Reserve run monetary supply versus the gold standard or any other schemes."

That is a highly debatable statement. But it's of critical importance, which is why it's such a foolish disservice of Kevin to brush it off with useless "crank" and "weirdo" statements when it comes up.

It has not been proven that fiat money can work, and if you think it has please tell me when it has worked at any point in history.

And please don't say now. We've hat a fiat dollar since 1971 and we've racked up almost all of our $9 trillion in debt since then.

Posted by: FZappa on November 12, 2007 at 9:21 PM | PERMALINK

Paper money is fiat money by definition. Everyone agrees with that. What Paul wants to do is put the dollar back on the gold standard. Which is crazy, I'm told.

Posted by: gfw on November 12, 2007 at 9:22 PM | PERMALINK

Boronx --

Read this article to see why our money isn't really money; and why gold and silver are not the relics we are told.

"Why is gold money? Several years ago, at a dinner party in New York, I was discussing this very topic with a smart and senior portfolio manager at Salomon Brothers. At one point, he grabbed an empty beer bottle, held it up and asked me why gold was money, any more than that bottle. This pretty well captured the mainstream skepticism toward gold. So it seems like a pretty good starting point."

http://www.goldensextant.com/LLCPostings4.html

Posted by: FZappa on November 12, 2007 at 9:23 PM | PERMALINK

Still, if I had to choose between Ron Paul and, say, Rudy Giuliani for president, would I vote for Paul? You bet. There are worse things than being a crank.

How about the fact he's anti-semitic? James Kirchick of the liberal New Republic reports neo-Nazis are supporting him, and Ron Paul still has not given back money given to him by the Nazis. How can you justify that? Of course, I shouldn't be surprised liberals don't care about Paul's fervent backing by anti-Semites and Israel haters. This is one more reason why supporters of Israel like myself don't trust liberals or Ron Paul.

blogs.tnr.com/tnr/blogs/the_plank/archive/2007/11/12/ron-paul-s-nazi-supporters.aspx

"not only have neo-Nazis vocally expressed support for his campaign and form a crucial part of his online spam
brigades, but one of their leaders has donated money and the Texas Republican hasn't decided yet whether to return it."

Posted by: Al on November 12, 2007 at 9:25 PM | PERMALINK

Another Ron Paul post!? Kevin, do you have to meet some kind of reader comment quota these days?

As for Ron Paul, I can modify a favorite bumper sticker to summarize my opinion: Ron, Save Me From Your Followers!

Posted by: Bush Lover on November 12, 2007 at 9:26 PM | PERMALINK

FZappa: "It has not been proven that fiat money can work, and if you think it has please tell me when it has worked at any point in history."

It worked pretty well this morning, when I bought groceries at Ralph.

Posted by: Bruce Wilder on November 12, 2007 at 9:26 PM | PERMALINK

"Paper money is fiat money by definition. Everyone agrees with that."

No one who knows what they're talking about agrees with that, and you don't appear to be in that group. Paper money itself is not fiat money if there are assets (like gold and/or silver) backing it, i.e. if it is convertible to that asset upon demand. THAT'S what real money is.

"What Paul wants to do is put the dollar back on the gold standard. Which is crazy, I'm told."

This seems to sum up the anti-gold standard argument: "I don't understand it, so it must be crazy."

In addition to Alan Greenspan (see youtube I linked to at 9:18, even Ronald Reagan wanted to go back on the gold standard:

www.reason.com/blog/show/123377.html

Posted by: FZappa on November 12, 2007 at 9:28 PM | PERMALINK

the ideas of libertarians are basically the same thing as laissez-faire capitalism of the nineteenth century. It produced chaos, misery and inequality then, and produced the Progressive era as a response. Why would anyone expect a different result now?

Posted by: shoebeacon on November 12, 2007 at 9:32 PM | PERMALINK

Bruce Wilder:

"[Fiat money] worked pretty well this morning, when I bought groceries at Ralph's."

But those groceries cost more than they did last year, Bruce, about 10% more, right? That's because about 10% of the value of your fiat money has been stolen by the Federal Reserve and its member banks in the past year. That doesn't happen with a gold (or other hard assets-backed) standard.

Here's your fiat money over the past year, Bruce. Check out the 5-year chart for an even more ugly picture -- the dollar has lost 40% of its value osince 2001.

If this fiat money is "working" for you, then you must lots of money to burn.

http://quotes.ino.com/chart/?s=NYBOT_DX

Posted by: FZappa on November 12, 2007 at 9:32 PM | PERMALINK

Alan Greenspan AND Ronald Reagan wanted to back to the gold standard? Are these argument points you expect to convince liberals, or drive them away?

Posted by: JeffL on November 12, 2007 at 9:33 PM | PERMALINK

Ron Paul knew that invading Iraq was a bad idea from the word go, which is more than you can say of John Edwards or Hillary Clinton (or any of the other Republican candidates). Of course that's not a very high standard, since anyone with a lick of sense knew that.

And it's not as if these idiots were callow 16-year olds: they're tested, grown-up fools, weighed and found wanting. We know for sure that they have lousy judgment: today that's pretty much a _prerequisite_ for the Presidency.

You know what you have to do, laddies !


Posted by: gcochran on November 12, 2007 at 9:34 PM | PERMALINK

FZappa

Please don't drag Zappa into this. The guy had plenty of crazy policy preferences of his own but unlike Ron Paul he could at least play the guitar like a goddamn motherfucker.

Posted by: Freaks Unite on November 12, 2007 at 9:35 PM | PERMALINK

Over the long haul, Ron Paul may be right on more of his economic policy than you'd guess.

Fiat money is quite literally conjuring 'money out of thin air'. It fuels rapid, non-sustainable inflationary economic expansion, creating an economy with an underlying value basis of... absolutely nothing.

Human nature being what it is, fiat currency will inevitably be exploited to create pseudo-wealth far beyond a rational and sustainable level.

If something happens (as it sooner or later will) to implode the monetary system, there will be nothing left but ashes and cinders... as there is no tangible basis for the currency.

Of course, to adopt his policies will kicking the foundation out of our current world economic system... which certainly wouldn't be pretty in the short run.

Many of the democrats I know are saying if Hillary is the democratic candidate they will vote for Ron Paul.

Posted by: Buford on November 12, 2007 at 9:36 PM | PERMALINK

"the ideas of libertarians are basically the same thing as laissez-faire capitalism of the nineteenth century. It produced chaos, misery and inequality then, and produced the Progressive era as a response."

Another benefit of the gold standard is that it's much harder to start a war with one. Why? Because governments have to borrow to fight wars, and if you're on a gold standard you can't just print up (or digitally "print up" nowadays) all the money you need. This is what our government does now, and it's why it took from George Washington to Ronald Reagan to reach our first trillion in debt, and why we've added another $8 trillion since Reagan. Note that we went off the gold standard completely in 1971.

Count up the wars in the 20th century and the wars in the 19th. 19th was much more peaceful; if the corrupt bankers and corrupt government officials hadn't taken the world off the intl. gold standard in the 19-teens, WWI would've last a few weeks, as no government could have afford the pointless butchery that occurred.

Posted by: FZappa on November 12, 2007 at 9:38 PM | PERMALINK

This is standard crank stuff. And who coined the silly term "fiat money" anyway?

The gold standard is as arbitrary as the current system. Why should gold be accorded such status? Platinum is scarcer, copper more useful, and tacos more delicious.

All currency is a set of agreements among people and nations regarding the currently-assessed relative worth of whatever the country owes and produces. The same with "prices", which are also nothing more than a complex set of agreements about the relative worth of things. And really, so are wages and salaries.

So can we stop the crazy talk?

Posted by: jprichva on November 12, 2007 at 9:38 PM | PERMALINK

Many of the democrats I know are saying if Hillary is the democratic candidate they will vote for Ron Paul.

Riiiight. I'm sure they are.

Also, how do they plan on voting for him? As a write-in? He sure as hell isn't going to be on the ballot.

Posted by: Steve Balboni on November 12, 2007 at 9:42 PM | PERMALINK

"Alan Greenspan AND Ronald Reagan wanted to back to the gold standard? Are these argument points you expect to convince liberals, or drive them away?"

OK, let me give you a liberal argument for the gold standard, which Ron Paul brings up frequently: inflation is a tax that hurts the poor and middle class a lot harder than it hits the rich.

On a gold standard you have very, very little inflation; if the issuing body starts putting more dollars out there than is justified by the growth of the economy, people will redeem their dollars for gold and the printing press screeches to a halt.

With fiat money, lobbyists, bankers and politicians create endless money out of thin air (like Bernanke's $41 billion last week). That causes inflation, which reduces the value of every dollar out there. You and I don't feel it too badly, but the poor, middle class and elderly get hit hard.

Inflation is a transfer of wealth from the people to Wall Street, because they get to use the money before prices go up to reflect the increased money supply.

Posted by: FZappa on November 12, 2007 at 9:43 PM | PERMALINK

This is what our government does now, and it's why it took from George Washington to Ronald Reagan to reach our first trillion in debt, and why we've added another $8 trillion since Reagan.

If the Republican's could control their spending we wouldn't have this issue.

Posted by: Steve Balboni on November 12, 2007 at 9:44 PM | PERMALINK

jprichva:

"The gold standard is as arbitrary as the current system. Why should gold be accorded such status?"

jprichva, read the article I link to at 9:23. The quote I clipped and pasted here directly addresses why gold and silver are accorded the status of money.

"So can we stop the crazy talk?"

Ah, I never get tired of the refrain: someone hasn't taken the time to understand the gold standard, ergo it must be "crazy."

Posted by: FZappa on November 12, 2007 at 9:45 PM | PERMALINK

Damn Kevin, you hit the ball with the sweet part of the bat.

Paul is a crank. Congress and the the judiciary would stop his foolish ideas. But he would not be a wild man with the United States military. Rudy would be dangerous.

With Paul, we would have sort of a non-President. The Democrats, with a majority in both houses, would be able to run the country. The government would not be very efficient with a non-President, but Paul would not get us into horrible situations like the Iraq war.

The Presidency would be wasted on Paul, but neither would it be an instrument of destruction.

Posted by: little ole jim from red state on November 12, 2007 at 9:47 PM | PERMALINK

"If the Republican's could control their spending we wouldn't have this issue."

No politicians, at any time in any country, have been able to control their spending under fiat money. It simply doesn't work.

Again, to see why, please read the article I link to at 9:23.

Posted by: FZappa on November 12, 2007 at 9:47 PM | PERMALINK

So if you use Fiat money to buy an Italian car, I guess it is about Euros, huh?

Posted by: thersites on November 12, 2007 at 9:48 PM | PERMALINK

Switching to the gold standard is even dumber than Kevin allows. At least theoretically, a fixed-exchange rate regime like the gold standard can have some benefits via reduce risk and encouragement of international investment. But if the U.S. does it and no one else does you get none of the reduced risk and all of the loss of discretionary monetary policy.

It gets even better. I saw Paul in a video at google say he favored abolishing the income tax and replacing it with a uniform tariff.

So with Ron Paul you get all of the bad value judgements of libertarians (to hell with you) with none of the redeeming value of understanding how markets work. Maybe that's why Andrew Sullivan likes him?

Posted by: j on November 12, 2007 at 9:54 PM | PERMALINK

Why should gold be accorded such status? Platinum is scarcer, copper more useful, and tacos more delicious.

Unlike copper, gold doesn't tarnish. Gold is easier to divide than platinum, which is a useful property of money.

Posted by: Mo on November 12, 2007 at 9:56 PM | PERMALINK

"Switching to the gold standard is even dumber than Kevin allows. At least theoretically, a fixed-exchange rate regime like the gold standard can have some benefits via reduce risk and encouragement of international investment. But if the U.S. does it and no one else does you get none of the reduced risk and all of the loss of discretionary monetary policy."

If the U.S. does it everyone else would follow suit immediately, because they'd be stupid not to. There are zero, count 'em zero non-fiat national currencies in the world right now, and if there was even one, there'd be a rush to buy it. People want security with their money and backed currencies provide it.

Swiss franc went off gold in 2002. If it came back on I'd switch every cent I had into it, and so would anyone else who understands money and the condition of the international financial system at the moment.

Posted by: FZappa on November 12, 2007 at 9:58 PM | PERMALINK

We've hat a fiat dollar since 1971 and we've racked up almost all of our $9 trillion in debt since then.


Well yeah, but its only fiat debt.

Idiot.

Posted by: mattski on November 12, 2007 at 9:58 PM | PERMALINK

Cranky like a fox!

Posted by: luci on November 12, 2007 at 9:58 PM | PERMALINK

Interesting article on this subject over at Glen Greenwald's:

http://www.salon.com/opinion/greenwald/2007/11/12/paul/index.html

Cranky

Posted by: Cranky Observer on November 12, 2007 at 10:02 PM | PERMALINK

"Well yeah, but its only fiat debt."

Which means it can never be repaid, which is why the Federal Reserve (and every other central bank in the world) is basically a legalized system of eternal serfdom. If you don't get rid of it, your children and grandchildren will work for the Federal Reserve's benefit an ever-increasing number of weeks per year.

Note that the Federal Reserve is a private corporation of private banks.

This is why getting rid of the Fed is of the utmost important. Jefferson killed the first central bank, Jackson killed the second, but the third has stolen from this country since 1913. Ron Paul will be the man to kill it.

Learn more about the Fed here:

http://www.youtube.com/watch?v=iYZM58dulPE

Posted by: FZappa on November 12, 2007 at 10:02 PM | PERMALINK

Greenwald castigating Kevin Drum for his lazy "weirdo" and "fruitcake" statements re Ron Paul, from the article Cranky Observer links to at 10:02:

"This whole concept of singling out and labelling as "weirdos" and "fruitcakes" political figures because they espouse views that are held only by a small number of people is nothing more than an attempt to discredit someone without having to do the work to engage their arguments. It's actually a tactic right out of the seventh grade cafeteria. It's just a slothful mechanism for enforcing norms."

Posted by: FZappa on November 12, 2007 at 10:05 PM | PERMALINK
First, gold is money. It always has been. It’s the clear choice of free markets throughout recorded history.

That’s the brilliant opening of the argument in favor of gold as money in the article that FZappa keeps promoting. Forgive my sarcasm, but it’s stupid.

Gold is not money. Give me an ounce of gold to spend this minute, I go the the drug store and neither I nor the drug store staff have any idea what they should give me for the ounce or any part of the ounce. If FZappa is there, he also has no clue.

Currently, my friend, gold is not money. Comprende? It’s not the clear choice of fee markets throughout the world. You are incorrect.

Posted by: little ole jim from red state on November 12, 2007 at 10:05 PM | PERMALINK

If the U.S. does it everyone else would follow suit immediately, because they'd be stupid not to.

Hey, Einstein. Your entire premise (fiat money is stupid and the whole world uses it) is that the whole world is stupid.

Here's a little fact you maybe might get around to swallowing before your time on earth expires: money, which is a medium of exchange and a store of value, is by its nature unstable.

Get used to it.

Posted by: mattski on November 12, 2007 at 10:05 PM | PERMALINK

FZappa (or any other gold stadard advocate) can you explain one thing: If we were to switch to using gold as money, wouldn't that be tantamount to handing over the entire wealth of the country to those who currently own the gold? (I assume that would include you?)

Posted by: JS on November 12, 2007 at 10:09 PM | PERMALINK

Forgive my sarcasm, but it’s stupid.

Not only that, it's retarded too.

Posted by: mattski on November 12, 2007 at 10:11 PM | PERMALINK

jprichva writes:

The gold standard is as arbitrary as the current system. Why should gold be accorded such status? Platinum is scarcer, copper more useful, and tacos more delicious.

Precisely. The middle class and the poor would also be hurt more in a recession on the gold standard too.

Posted by: Andy on November 12, 2007 at 10:13 PM | PERMALINK

Paper currency is fiat money.

I think Greenwald makes some excellent points re: Paul. Just because you disagree with him, doesn't mean he's crazy. For example, I had thought Paul's argument for the gold standard was simply insane, but there's actually a reasonable case for it, once I put aside my bias and looked at it. I don't agree with him on the issue, but I no longer think Paul is a nutjob for taking the position.

Incidentally, since one of the mantras we hear chanted repeatedly, even here, is "Why can't politicians be more 'authentic?'", I give you Ron Paul as exhibit B (Kucinich would be exhibit A). Paul obviously believes in his agenda, and can argue it reasonably well, but he's dismissed as a "crank." So much for "authenticity."

Posted by: Martin Gale on November 12, 2007 at 10:13 PM | PERMALINK

So if you use Fiat money to buy an Italian car, I guess it is about Euros, huh?
Posted by: thersites on November 12, 2007 at 9:48 PM
&&&&&&&&&&&&

Wow, OMG! Fiat made these really cool and reasonably affordable mid-engined thingies a long time ago:
http://en.wikipedia.org/wiki/Fiat_X1/9
Warning: Get used to driving through a lot of curves at moderate speeds before going real fast. If you are used to front-engined vehicles you may be in a for an unpleasant surprise.

Posted by: Doc at the Radar Station on November 12, 2007 at 10:14 PM | PERMALINK

"Ron Paul knew that invading Iraq was a bad idea from the word go"

I'm pretty sure he would have thought entering WWII in Europe was a bad idea. An idealogue is a lot like a stopped clock.

Posted by: B on November 12, 2007 at 10:14 PM | PERMALINK

jprichva, read the article I link to at 9:23. - FZappa

No. I will not read your article, because it is stupid. Similarly, I will not read articles plugging Intelligent Design, the Singularity, the Rapture, the thesis that Hillary Clinton killed Vince Foster, the Feminists Killed The Neanderthals theory, or the ravings of people who claim that Einstein was wrong. They are wastes of my time.

When people tell you in simple terms that the gold standard is every bit as arbitrary as government-issued fiat money, they are trying to distill down for your (and my) plebeian intellects the accumulated background knowledge of the entire field of modern economics. The appropriate response on the part of someone like you, or me, who does not have a Ph.D. in economics, is not "But what about my brilliant insight??? Ha! I have proven you, and all other economists, wrong!" No. The appropriate response is: "I see. But...I'm still confused; explain this to me." You know why? Because economists KNOW WHAT THE FUCK THEY'RE TALKING ABOUT. And you and me don't.

And, yes, gold is arbitrary. The economies of coastal Africa ran for centuries on a currency of cowrie shells. They were superior to gold, because they allowed for a certain degree of inflation, but came from sources outside of Africa; gold wasn't a good currency because it was mined in huge quantities by the Ashanti, which would have completely distorted the regional economies.

Posted by: brooksfoe on November 12, 2007 at 10:15 PM | PERMALINK

Little ole jim:

"Gold is not money. Give me an ounce of gold to spend this minute, I go the the drug store and neither I nor the drug store staff have any idea what they should give me for the ounce or any part of the ounce. If FZappa is there, he also has no clue.

Currently, my friend, gold is not money. Comprende? It’s not the clear choice of free markets throughout the world. You are incorrect."

Believe me, Jim, I know almost exactly how much an ounce of gold is worth at any time.

I think you need to read the entire article Jim, instead of making me type its points out to you. Briefly, the dollars you take to the drugstore can and are stolen from your wallet by your country's central bank over time. They do this b printing up as much money as they want to, which reduces the value of the dollars in your possession.

There was a time, Jim, in the not-too-distant past, when our coins had real silver in them and our dollars were backed by gold -- and your drugstore wouldn't take them if they weren't.

We're heading back to that time real soon. Is your portfolio ready for a valueless dollar?

Mine is.


Posted by: FZappa on November 12, 2007 at 10:17 PM | PERMALINK

gtg folks. Adios.

Posted by: FZappa on November 12, 2007 at 10:20 PM | PERMALINK

Martin Gale: I think Paul may be an authentic crank. I hope he is. I note you did not mention why you disagree with him regarding gold.

Paul found a reason to vote against the supplemental appropriation that would have contrained the President's war making power and ended the Iraq occupation. He voted with his fellow Republicans when it counted.

He's a crank, I hope. Because the most obvious alternative explanations for that vote is that he's a fraud or complete idiot.

Posted by: little ole jim from red state on November 12, 2007 at 10:21 PM | PERMALINK

RON PAUL IS THE MESSIAH!

Posted by: Goldmember on November 12, 2007 at 10:23 PM | PERMALINK

JS at 10:09 -- real quick -- a gold standard is not perfect, I favor (as does Paul) a modified form of the gold standard based on a basket of commodities.

But we simply cannot have fiat money. Always leads always to ruin. Every single time, since Roman emperors started removing the silver from their coins (as we did as well last century -- 100% silver became 90% silver became 40% silver became the worthless copper & nickel things we call quarters!)

Posted by: FZappa on November 12, 2007 at 10:24 PM | PERMALINK

What the gold standard fans seem most irritated by is that the rest of us are so naive about fiat money that the system actually works okay (not great, but neither did the gold standard). Reagan and Volcker were even able to choke off inflation by restricting the supply of fiat money. The must have really pissed off the gold bugs. Kind of like the anti-tax people who claim the income tax is illegal, and we are fools to pay it. Yet they end up in jail and we go about our lives, so who are the real fools?

I prefer to stick with Bryan on this one: “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”

Posted by: fafner1 on November 12, 2007 at 10:26 PM | PERMALINK
Believe me, Jim, I know almost exactly how much an ounce of gold is worth at any time.
Ah, but it’s your secret, isn’t it? Don’t want to put your reputation on the line and tell me how Miller Light you’d give me for an ounce of gold, right now? Probably take a little quick research and calculation?

Because, after all, gold is not money, is it?

Posted by: little ole jim from red state on November 12, 2007 at 10:27 PM | PERMALINK

I don't know from no Gold Standard, and don't have a useful opinion, but:

a) abolish minimum wage? terrible idea
b) abolish income tax? terrible idea

BTW give Kevin credit for this; at the start of his post, he links to the Greenwald article himself, so you don't need to link to it again.


Posted by: thersites on November 12, 2007 at 10:29 PM | PERMALINK

Paul is a crazy dude. I hope he gets as many votes as he can from those primary voters, but it scares me that the one federal institution that libertarian wants to get rid of the most is the one that does its job the best! (Federal Reserve, of course)

I still don't understand why we're talking about how bad our currency is when inflation has been lower in the past 15 years than any time since the 19th century. And that time of tight monetary policy didn't exactly get us the growth rates we've come to depend on ...

Posted by: Matt on November 12, 2007 at 10:31 PM | PERMALINK

Interestingly, I live in a country where gold IS used as currency: Vietnam. Gold is used to buy houses here, because of historical suspicion towards the value of paper money. (Everyone's savings were wiped out during a period of hyperinflation in the late 80s, I believe.) The result is basically a giant pain in the ass. Obviously you don't want to buy your gold too long before you trade it for your house, because fluctuations in the value of the gold could screw up your savings. So you save in dollars, mostly, and then buy a huge quantity of gold right before trading it for your house. The constant demand for sudden large amounts of gold means that the price of gold in Vietnam runs several dollars an ounce higher than the price outside Vietnam. And buyers and sellers have to keep a constant eye on trends in the gold market as an additional layer of uncertainty in the transaction. It's just a pointless superstition which will gradually disappear as the country's monetary policy, which has been exemplary for 15 years, reassures the populace that it's okay to use money to make large purchases.

Posted by: brooksfoe on November 12, 2007 at 10:32 PM | PERMALINK

One of my libertarian friends told me that he once asked Paul about his currency thing, given low inflation, and Paul's response was something along the lines of how he doesn't believe the official statistics.

Not that he doensn't believe in hedonic pricing or the Boskin Commission's findings, but that the government is literally lying to us. Jesus ...

Well at least he's not an egomaniac torturer.

Posted by: Matt on November 12, 2007 at 10:34 PM | PERMALINK

I just realized that I may have accidentally scoffed at the idea that the government lies to us. Wish that I actually felt that way ...

I remain skeptical that the economists at the BLS are lying about a statistic that is easily verifiable independently using publicly available data (which it has been).

Posted by: Matt on November 12, 2007 at 10:38 PM | PERMALINK

Gee, thanks Kevin, I think.

Hey you should appreciate the Paulians, they make your alexia.com ratings go up everytime you mention his name.

Just one question though, why are liberals so afraid of their own rhetoric? "Power to the People," is as much a part of Paul's lexicon as it was any New Leftist in the 1960s.

I take it that was all a phase of your youth right?

Posted by: Sean Scallon on November 12, 2007 at 10:40 PM | PERMALINK

repealing the 16th amendment wouldn't just eliminate the personal income tax. It would also eliminate the corporate income tax and the payroll tax. We're talking really crazy there. Also, if Paul really wants to repeal the 16th amendment he is being totally dishonest about his tax plans.

Fiat money is, well the kind of money we know about. Long ago, money was precious metal. Minting coins was just a way of certifying the weight a purity of the metal. Often the value of a coin was the value of the coin if melted down.
The first paper money could be exchanged for a fixed amount of precious metal (true in the USA until the 30s).

Fiat money is money which does not imply a right to demand a fixed amount of some good from the issuing state. It is valuable only because other people accept it. Fiat money can lose all value (it has from time to time).

Everyone uses fiat money these days. The world is much richer than it ever was. Ron Paul is a crank.

Posted by: Robert Waldmann on November 12, 2007 at 10:42 PM | PERMALINK

Ron Paul is a crank who seeks to make the lives of average Americans radically more insecure.

His Libertarianism is okay as an affectation of a clever adolescent, but it's a disaster as a scheme to run a real nation populated by real people.

Posted by: McCord on November 12, 2007 at 10:42 PM | PERMALINK

Marx's comments on the relationship between the commodity fetish and religion are very apt in this regard. The same people who have trouble understanding how one could be moral without believing in God become anxious over the idea that money doesn't "stand for" something. When you try to walk their approach one step further -- why is God moral, and who tells you what God believes? why is gold valuable, and who promises you that your paper money is redeemable in gold? -- they get even more upset.

The word "fetish" probably derives from the Portuguese, and seems to have been invented during the encounter of Portuguese traders with African economies where gold was of little value, while European cast copper bracelets were prized. It is in other words an emanation of the upsetting idea that exchange value is arbitrary. Gold standard backers are basically fetishists.

Posted by: brooksfoe on November 12, 2007 at 10:44 PM | PERMALINK

Fiat = We print a bunch of promissory notes, ship them off to China, and get back real goods!
Great scheme, for awhile, until we get fiscally reckless Presidents. Paul actually knows more about money than people think.

Now, we see that the dollar is dropping faster than the boxers of a stallwart Republican. Hyper inflation is right around the corner, which is the terminal stage of fiat.

I dont agree with abolitioning min wage, disparity is high enough.

I would think a flat tax would be a good thing.

Posted by: Ya Know.... on November 12, 2007 at 10:44 PM | PERMALINK

It's too bad FZappa bugged out, because I want him to explain this statement of his:

There are zero, count 'em zero non-fiat national currencies in the world right now, and if there was even one, there'd be a rush to buy it. People want security with their money and backed currencies provide it. Swiss franc went off gold in 2002.

As I recall, the US went off gold under Nixon. If Switzerland was the only country around in the early part of this decade with "real money", under FZappa's reasoning, everyone in the world would have been buying up Swiss francs and the every Swiss citizen and holder of francs would have become gazillionaires.

But didn't this happen. And not only that, Swiss went to "fiat money" and as far as I can tell, they seem to be doing as well as they were before.

So, it seems like the whole story is bull.

Except, maybe the US Feds blackmailed and bribed the Swiss into switching! And they would have gotten away with it if it hadn't been for those meddling Ron Paul kids!

Posted by: Jeff S. on November 12, 2007 at 10:45 PM | PERMALINK

How do gold standard proponents propose switching to the gold standard?

People don't own gold in relative proportion to their ownership of American dollars. Do we just say to the vast majority of people who own little to no gold, sorry, you're impoverished now?

This is a serious question, not snark.

Posted by: booger on November 12, 2007 at 10:45 PM | PERMALINK

Gggooollldddd! OK gold lovers, I spent 30 minutes reading various pro and con gold websites. Let's assume I bought the gold standard argument (I don't). How do we go back? My basic understanding suggests that this would be extremely disruptive to the US and the World--what are the potential repercussions? Who will be the winners and losers? And most importantly, what will it do to the value of my house and mortgage. If you don't have a GOOD, DEFINITIVE answer to the last question, then your policy argument is absolute, total BS.

Posted by: Bush Lover on November 12, 2007 at 10:47 PM | PERMALINK

The world is much richer than it ever was. Ron Paul is a crank. --Robert Waldemann

The world has more IOU's than it ever has.

Posted by: Ya Know.... on November 12, 2007 at 10:47 PM | PERMALINK

Yeah, I have no idea how they reconcile that. Obviously if you make the dollar redeemable in a certain portion of the gold owned by the US government, that would set the value of US government gold incredibly high. Which would make everybody with a gold earring a millionaire.

Posted by: brooksfoe on November 12, 2007 at 10:50 PM | PERMALINK

I'm pretty sure that Paul doesn't want to go to the Gold Standard. If I'm not mistaken (by no means assured), then he wants instead to eliminate the monopoly on currency that the Fed currently has. Get rid of national currency, and let private currencies arise and compete with each other. If one has too loose a monetary expansion (read: inflation tax), then there will be an exodus to a tight-wad currency dealer.

I don't think anyone has any idea how to get back to an asset-backed currency, but that could also be wildly mistaken.

Posted by: Matt on November 12, 2007 at 10:54 PM | PERMALINK

The world has more IOU's than it ever has.

Under the gold standard, a dollar is an IOU for a quantity of gold. Which has no value in itself, except inasmuch as it can be traded for the things produced in the world's economy. Which is exactly what you can do with a dollar, under fiat money. Gold is a redundant step.

That a piece of paper is theoretically backed by a tangible asset does not do anything to hinder the expansion of credit if people are determined to expand credit rapidly -- as the current situation with SIVs (theoretically backed by tangible assets in the form of real estate) shows.

Posted by: brooksfoe on November 12, 2007 at 10:54 PM | PERMALINK

FZappa: sorry but inflation just scares the crap out of the Fed because it threatens the holdings of the wealthy. That's why Greenspan, Bernanke, et al. obsess about wage increases and too many people working. Can't have that!

I, for one, would love to pay off my mortgage with inflated dollars. The trick is outrunning inflation. Duh.

The Paul faithful are anti-amnesty, conspiracy theorists. Man never walked on the moon. The Fed is just visible tip of the Illuminati banking wing draining our wealth via fiat money and straw men. The great irony is akin to What is the Matter With Kansas: many of the Paul followers are toast in a Ron Paul realized world. I know many and they tend to be low income techs, and very intelligent. But they are not doing well these days.

On the other hand, I really hope Paul has an effect on this election that is similar to that of Gene McCarthy back in the day. The great thing about Paul is that his only hope is actually saying what he thinks. Nutjob or not, he is doing this country a great service. I would like to think that a 3rd party Paul candidacy would do to the Republican nominee what Nader did to Gore. I hope...

Posted by: Bobby Murcer on November 12, 2007 at 10:57 PM | PERMALINK

Ron Paul and the gold bug want to protect against a theft of value through inflation. Paul's inflation is the insidious type caused by the Fed "printing money" by manipulating the money supply (and according to Paul, having listened to him lecture Bernanke last week, no longer disclosing M3).

Paul seems loath to admit, though, that the prime architect of inflationary money supply is his party's fearless leader. GwB has, in 7 oh so very long years more than doubled the Federal Debt. So if I take FZappa's point about the invidious Federal debt growing only since 1972 (although he's wrong about that, too) then why hasn't an idealogue like Paul repudiated the Republican Party and GwB?

Paul shouldn't leave the Republicans behind because he wants to run as a third party candidate, but because he must believe their policies, so antithetical to his beliefs, cannot stand.

Call me when Paul drops the Republican Party and forms the Gold Party. Will Fox still let him appear in the debates? if so, somebody should ask him to recount Spain's experience with the gold standard in the mid to late 16th century. Inflation? With gold? He might even want to talk about Gresham's Law.

Posted by: TJM on November 12, 2007 at 10:58 PM | PERMALINK

In other words, Ron Paul isn't a liberal. That doesn't make him a crackpot or a fruitcake. I think that was Greenwald's point. So attacking him for not being a liberal is kind of...pointless.

Posted by: Orson on November 12, 2007 at 10:59 PM | PERMALINK

Platinum is scarcer, copper more useful, and tacos more delicious.

Well I know what my choice is.

Posted by: No Hidden Path on November 12, 2007 at 11:10 PM | PERMALINK

Has Greenwald totally lost his marbles?

Do we have to pretend that the likes of Paul should be given a serious hearing in our polity?

This is lunatic. I hate to break it to you, Glenn, but if, in fact, Paul's policies across their breadth were to see the light of day in our country, we would be hoping desperately for a return to the relatively sane and sound policies of none other than George W Bush himself.

Was Bush out of line when he proposed that SS be partially privatized? Or when he vetoed S-chip? Or when he pushed for enormous tax cuts for the rich?

Does Greenwald have absolutely no grasp of the fact that what Paul is seeking is infinitely more extreme, more punishing to the middle class and poor, more damaging to our entire system of government as we know it than anything that Bush has or ever will think of proposing?

Is Greenwald a totally clueless fool?

Yes, on an issue here and there, Paul sounds reasonable; but even there, if those "reasonable" beliefs are cranked out by an ideology and theory of government that is in countless ways pernicious, why act as though Paul has something important to communicate to us all?

I'm sure Scientologists have on occasion something to say we might all agree makes sense -- must we then invite them in to instruct us on proper behavior?

What the hell is wrong with Greenwald for taking this bizarre stance?

Posted by: frankly0 on November 12, 2007 at 11:10 PM | PERMALINK

It's not that he's not a liberal, Orson. Duh. It's that he's a crackpot and a fruitcake.

The staggering failure of Republican conservatism over the past decade ought to lead people to become more liberal. The danger with a crackpot like Paul is that he presents an opportunity for a certain percentage of frustrated, libertarian-leaning conservatives, recognizing the total failure of their current policies and leadership, to defect not to liberalism (or a grudging centrism), which would be a sane and productive response, but to mad cloud-cuckoo-land. Rather like too many frustrated '70s liberals, instead of moving to the new vibrant center in the '80s and working for Gary Hart or Al Gore, ended up working for Leonora Fulani.

Posted by: brooksfoe on November 12, 2007 at 11:11 PM | PERMALINK

Ya Know....: Fiat = We print a bunch of promissory notes, ship them off to China, and get back real goods! Great scheme, for awhile, until we get fiscally reckless Presidents.

A sustained high trade deficit can ruin a country's economy even without fiscally reckless Presidents.

More to the point, a gold (or silver) standard doesn't prevent a country from running a large trade deficit or surplus. Think China and the Opium Wars or Maximillian in Mexico.

If China (PBoC) buys Treasury Securities, they're making a loan to the US government. They can make such loans whether or not the dollar is backed by gold.

Posted by: alex on November 12, 2007 at 11:14 PM | PERMALINK

So let's summarize the groupthink here: "Paul is batshit crazy about everything. Oh, except for the war".

hm, now isn't that convenient exception most peculiar?

Posted by: am on November 12, 2007 at 11:16 PM | PERMALINK

We had "fiat money" in the Civil War. We survived that. If Nixon hadn't taken us off the gold standard, we'd be broke 10 times over by now.

That said, while Ron Paul is a crank, he's not just a crank. He's also made a number of quasi-racist statements in the past.

Posted by: SocraticGadfly on November 12, 2007 at 11:19 PM | PERMALINK
So let's summarize the groupthink here: "Paul is batshit crazy about everything. Oh, except for the war".
hm, now isn't that convenient exception most peculiar?

From the Church of Scientology, which I gather we must now take with great seriousness:

CHURCH OF SCIENTOLOGY INTERNATIONAL POSITION ON THE WAR IN IRAQ
The Church of Scientology International joins with other religious institutions in America and abroad in cautioning the United States government to exercise reason and restraint in seeking to find a peaceful solution to overcoming international terrorism and creating peace in the Middle East.
L. Ron Hubbard wrote in May of 1950: “Wars never solve the need of wars...The quarrel of society with society, nation with nation, has many causes, all of them more or less irrational. There have been many times when one society was forced to crush another less sentient than itself. But with each clash, new traumas were born both in the international scene and with the societies themselves. There is no national problem in the world today which cannot be resolved by reason alone.”
We are not unmindful that there is evil in the world and that this evil must be restrained for the good of all peaceful nations on Earth. But we stand with our fellow churches in urging the President to work with other nations in removing that evil from the world by means of a just and rational approach.
Posted by: frankly0 on November 12, 2007 at 11:24 PM | PERMALINK

A sustained high trade deficit can ruin a country's economy even without fiscally reckless Presidents. -ALex
Thats true enough, but dont you think an MBA President would be a bit more responsible? Actually I think this Iraq oil adventure was a last ditch effort to save the dollar. Truly bad planning.


Posted by: Ya Know.... on November 12, 2007 at 11:27 PM | PERMALINK

Paul is a crank on economic issues and on issues related to the authority of the government. That said, he's a consistent and morally dedicated crank who sticks to his principles. Greenwald's column points out that Paul has been principled in his opposition to expansion of the government's surveillance powers and to the degrading of habeas corpus and other individual rights. That's a fair point to make. But while being honest and principled are good things, they're not everything. Paul's willingness to stand against the crowd on civil rights issues is accompanied by a willingness to stand against the settled consensus of the scientific, expert and professional communities in fields like economics. That's a deal-breaker. In that sense, he's part of the problem with today's Republican Party, not part of the solution.

Posted by: brooksfoe on November 12, 2007 at 11:27 PM | PERMALINK

Ron Paul is also a racist.

In his first stint as a Congressman, had strong connections to Patriot/survivalist groups, and indulged in some of the racist "urban war to come" type talk that some of those groups did.

An example? A 1992 screed on African-American "racial terrorism" in Los Angeles, in which Paul insists that "our country is being destroyed by a group of actual and potential terrorists -- and they can be identified by the color of their skin."

Read this Watching Those We Choose post for the details:

http://proctoringcongress.blogspot.com/2007/11/ron-paul-another-round-of-ssdw.html


Is Rudy still worse? Perhaps. But, it's a difference of degree at best and not kind.

Posted by: SocraticGadfly on November 12, 2007 at 11:30 PM | PERMALINK

I keep telling Kevin he is crazy for attacking the economic arguments without having anything substantiative.

My father was a gold bug in the 1980s, and so I have little patience for them. The only difference between gold and the Fed is who has the power to manipulate the currency.

With that said, the arguments that the Fed are driving us into the poor house are correct. If you look at the 1980s means of measuring inflation (which was changed in the 1990s because of claims that it was "overstating inflation") we are currently running at 10% inflation. In apples-to-apples comparison, our inflation now is exactly what it was measured as in 1982. This is killing the American consumer. What does the Fed do? Drop interest rates to protect the stock market therefore devaluing the dollar and hurting the consumer more.

And for all his craziness, Paul is the only one pointing out this honest truth to Bernanke. In that regard he is useful. The issue is that we do not need to do something as crazy as the gold standard to fix this. We just need another Fed chief like Volcker. Yes that was painful, but it is best for us in the long run.

Posted by: Walker on November 12, 2007 at 11:55 PM | PERMALINK

Greenwald is right, the word he used over and over is “principled”.

Ron Paul is a principled conservative. And yet it is the partisan tactics of Josh, Kevin, Matt and other bloggers to trash people they don't agree with or haven't really done the homework, and then provide ready excuses for congressionalDems when they fail to hold Bush accountable and even join Bush in dismantling the US Constitution.

And Greenwald touched upon the subject of Hillary Clinton and countless times she has supported the Bush administraions awful policies. Strange how the blogger fail to see what Hillary is really like.

Like for instance Bush pardon Libby, well the Clinton's pardon Marc Rich, and lets not forget that Clinton was the first one to try and start an pre-emptive war with Iraq, preach WMD, and tell us that Bush's 16 words were just a mistake.

It is nice to see that Greenwald isn't so parisan that he's crossed-eyed, the way so many of big name bloggers are these days.

Posted by: Me_again on November 12, 2007 at 11:59 PM | PERMALINK

With the election just around the corner...

It's time to get fooled again!
.

Posted by: Comandante Agi on November 13, 2007 at 12:00 AM | PERMALINK

Paul is batshit crazy about everything, including the war. The old saw that a stopped clock is right twice a day is, of course, utterly wrong: a stopped clock conveys no useful information at all, and therefore can't be said to be right about anything.

Paul may have come to the right conclusion about the desirability of preemptive war, but he does so for batshit insane reasons--i.e. he's a paranoid-conspiracy-theory based rabid and unreasoning isolationist. Like the stopped clock and time, Paul isn't in any meaningful sense right about Iraq. Paul's position on Iraq leads one to, of course, believe that he wouldn't make the mistakes that Bush has made in Iraq, but it should also make all people realize that Paul can't be trusted on foreign policy at all; any situation calling for either diplomacy or military action would almost certainly be turned into a complete disaster of Bushian Iraq proportions under a hypothetical President Paul.

All of Paul's policies are driven by conspiracy theory and the utter rejection of both empiricism and the need to account for human nature when trying to predict human behavior. He's an economically illiterate pseudolibertarian crank, lacking the depth and reasonableness of analysis found in a typical flat-earther or creationist.

Paul can come across as refreshing and likable because he speaks his mind and seems fairly honest unlike almost all politicians, but anyone who takes the time to see what he's actually being honest about should be much more scared than refreshed.

Posted by: RMJ on November 13, 2007 at 12:05 AM | PERMALINK

What the goldbugs persistently refuse to admit is that money creation becomes limited by gold production under their scheme, no matter what happens with the economy in general. Going back to the gold standard almost automatically guarantees a deflationary impetus, because transactions increase faster than money can be created. Demanding a return to the gold standard in the modern world without the prospect of major new gold discoveries is the stupidest, most brain-dead policy man has ever advocated. It guarantees another Great Depression, period. Ask Ron Paul how his policy avoids it and demand a rational response rather than the Ron Paul patter we usually get.

Posted by: PrahaPartizan on November 13, 2007 at 12:15 AM | PERMALINK

As far as I can tell, Paul has a consistent, principled set of stupid and wrong ideas. If someone is consistent but very wrong, does that make him a crank? Who knows. But at least we can agree that his ideas are stupid and very wrong, and if they are an example of (the dying gasp of) true conservatism, then that just goes to show how stupid and wrong conservatism is. I myself wouldn't say they are, though; he's a libertarian, not a conservative. As such, he shows not how stupid and wrong conservatism is, but how stupid and wrong libertarianism is.

And yes, I have some economics training. Whether you call it crank or not, the gold standard is stupid, though proving that to a fervent believer of AU-good/CHO-bad, can be as tricky as proving that flouridated water doesn't sap your precious bodily fluids.

Posted by: JD on November 13, 2007 at 12:25 AM | PERMALINK

The gold standard folks are funny. Earnest and funny.

Posted by: phleabo on November 13, 2007 at 12:28 AM | PERMALINK

Ron Paul is a well-documented affliate and supporter of racist, white supremacist organizations and lines up with a "states rights" mentality that still can't get over the result of the Civil War.

It's not incumbent upon those of us who can think straight to research Ron Paul's background on these matters--it's up to his supporters to figure it out for themselves.

The vast majority of them are political neophytes who aren't going to participate in normal politics and who don't want to think too deeply. They are scientologists without the charisma and they need a messiah to tell them why they're broke, why they're marginalized, and why they have such uncomfortable thoughts about the people who have darker skins than they do.

Posted by: Pale Rider on November 13, 2007 at 12:30 AM | PERMALINK

The vast majority of them are political neophytes... They are scientologists...

PR, I wonder if that's what they are. It seems that much of his support (and probably most of the contributions to his campaign) come from the "impending crash" financial "industry", the network of "gurus", publications, boiler-room operations, and websites that try to scare people about a perennially about-to-happen global financial bust and talk them into buying gold and silver as protection and investment. They have been around forever, and they are having a party right now because gold has hit $800/oz.

Consider this news item from freemarketnews.com: FMNN recently reported on hard-money advisor Peter Schiff asking everyone on his 60,000-plus e-mail list to donate $2300 to the campaign of GOP presidential candidate Ron Paul (R-Tex) - and now an FMNN feedbacker "Jhe" has written to advise other "hard-money" advisors to do the same.

Check out also this site hawking "Ron Paul Liberty Dollars" in copper, silver, and gold, including "Limited Editions". (Note the Ron Paul campaign ad on the left).

Ron Paul Liberty Dollars also sold at:
http://www.libertydollar.org/ld/ronpauldollar

So I think thet there is something else going on here than naive libertarianism, and that is what explains the huge campaign contributions -- they are trying to help their investment along. And I suspect that most of these "hard money" gold-hawking campaign contributors are war hawks as well.

Posted by: JS on November 13, 2007 at 1:28 AM | PERMALINK

Ron Paul is also a global warming denier.

This is further evidence that he is a crackpot though in this instance his crackpotism is fully in line with the other republican presidential candidates.

Posted by: jefff on November 13, 2007 at 1:34 AM | PERMALINK

Here's something else about gold:

Its value is set purely by human emotion, too. Its value is a "fiat" value no more and no less than paper money.

If you wanted a utilitarian "backing" for money, why not the Coal Standard? The Oil Standard? The Uranium Standard?

Hell, among precious metals and their real-world value, the Silver Standard and the Copper Standard make far more sense than the Gold Standard.

Posted by: SocraticGadfly on November 13, 2007 at 1:46 AM | PERMALINK

few days ago... http://globaleconomicanalysis.blogsp...bank-gold.html

Fox News: "So why do we need a central bank?"

Greenspan: "Well the question is a very interesting one. We have at this particular stage a fiat money which is essentially money printed by a government and it's usually the central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or currency board or something of that nature because unless you do that, all of history suggests that inflation will take hold with very deleterious effects on economic activity. ... There are numbers of us, myself included, who strongly believe that we did very well in the 1870-1914 period with an international gold standard".

Fox News: "We did well without the Federal Reserve. People forget that."

And from the Gold article posted above:
"Over the next five years, until they stopped the presses in 1780, Congress issued about $241 million face amount of irredeemable, non-convertible paper bills known as “Continentals.”11 The bills served their purpose, keeping the armies in the field, but how they functioned in practice is described in the following passage12:

A barber wallpapered his shop with Continentals. An old soldier, wounded in the leg, used a bundle of his pay as a bandage, and coined the word “shinplaster,” which was later used to describe any sort of money that could not be redeemed. A ship’s crew discharged in Boston, and paid off in now worthless currency, found a way of making suits out of the paper bills and paraded through the streets. “For two or three years we constantly saw and were informed of creditors running away from their debtors, and the debtors pursuing them in triumph, and paying them without mercy,” wrote [a contemporary observer]."

Posted by: Steve on November 13, 2007 at 1:46 AM | PERMALINK

Back to Kevin's bottom line statement: If I had just Ron Paul and Rudy Giuliani on my ballot, I wouldn't vote. I might take a crap in the voting booth and leave a hot steaming turd on top of the machine, but I wouldn't vote for either one of them.

Not voting's an option, Kevin.

Posted by: SocraticGadfly on November 13, 2007 at 2:00 AM | PERMALINK

You've all been raised with the notion that humans add the value of money by agreement. Well, what happens when the Chinese don't agree? They're actually starting to buy up a lot of gold for their treasury. With all the US pressure to unpeg to the Dollar, they'll probably move to gold and hasten their growth. When their treasury floods the market with $2 trillion USD in favor of gold, you'll see how fast paper falls.

Posted by: Steve on November 13, 2007 at 2:04 AM | PERMALINK

The main failure of gold standard loonies and other purveyors of moronic economic ideas is not to understand one of the most basic laws of economics: There is no such thing as actual value.

There is only agreed-upon value. So even a gold standard solves nothing, because the "value" of gold could float against other metals the way currencies float against each other right now. For that matter, gold could float against other commodities.

All matters of price, wage, salary, and currency are a set of agreements among interested parties, agreements which reflect societal values more than any notion of "intrinsic worth". Why do we pay CEOs obscene salaries and dedicated teachers so little? Who is really providing social value? Why was fish inexpensive when I was a tad, and beef expensive, and now the best fish costs twice as much as a steak? We make societal choices that are reflected in our entire wage/price/currency structure. And pegging the greenback to anything, gold or tacos or cowrie shells, doesn't change that.

Posted by: jprichva on November 13, 2007 at 2:14 AM | PERMALINK

Steve--

If the Chinese had $1 trillion dollars worth of gold in their reserves, and decided to dump them in favor of lichee nuts, you would also see how fast the price of gold falls. Anything that causes a glut on a market depresses price.

Posted by: jprichva on November 13, 2007 at 2:16 AM | PERMALINK

hey kevin, don't let glenn greenwald hear you, or you'll get a spanking in salon! just ask dave neiwert!

Posted by: skippy on November 13, 2007 at 2:28 AM | PERMALINK

Gold is rare enough to be absorbed into the market if $1 trillion were dumped. People would want it. Gold is valuable, period. Always has been, always will be. We can argue why, but it's never lost value. People wouldn't want the USD. It loses value every day.

Posted by: Steve on November 13, 2007 at 2:28 AM | PERMALINK

I thought Fiat money was the amount of cash it takes to buy a cute Italian car that breaks down all the time.

Fix it again, Tony!

Posted by: Grumpy Old Man on November 13, 2007 at 2:35 AM | PERMALINK

An interesting point about the gold standard:

The Great Depression happened while Germany, France, Britain and the United States were on the gold standard. Britain had only returned to the gold standard in the late 1920s.

Please note: gold is worth what it is worth. If I announce that gold is henceforth worth a trillion fooframs per ounce, and I order my National Bank to print a billion trillion fooframs in consequence, the foofram, oddly enough, would not buy you very much even though my economy was based on gold.

This Paul stuff is senile nonsense. The only amazing thing is that he hasn't come out for free silver yet.

(I seem to remember an Onion post in which Bush's first Secretary of the Treasury came out for an aluminum standard, which makes just as much sense.)

Posted by: MFB on November 13, 2007 at 2:35 AM | PERMALINK

So, the argument for fiat money is that monetized debt is better than monetized market capitol?

Posted by: Steve on November 13, 2007 at 2:42 AM | PERMALINK

"So even a gold standard solves nothing, because the "value" of gold could float against other metals the way currencies float against each other right now. For that matter, gold could float against other commodities."

the value of gold floating against other metals and commodities (or even the rotting remains of fiat currencies) is what would be termed 'prices'. who asserted that a gold standard would solve the problem of pricing? of course prices would fluctuate, but they would do so with an order of magnitude less interference from the government.

but I agree with Paul's current position, which is to repeal legal tender laws and tax code that restrain the acceptance of alternatives to fiat currency. gold is just one of those alternatives.

Posted by: Kyle on November 13, 2007 at 3:27 AM | PERMALINK


Another benefit of the gold standard is that it's much harder to start a war with one.

But any time a government actually wants to start a war, it can just as easily remove itself from the gold standard as well. Who's going to enforce a country from going off the standard to start a war? And the country that gets invaded will likewise do the same. So the gold standard is no protection against wars. Fiat money doesn't start wars.. people do.

Posted by: Andy on November 13, 2007 at 3:34 AM | PERMALINK

I don't think that the US invaded Iraq specifically to keep the currency of trade in dollars rather than Euros. I think the US invaded Iraq in an odd math, for the purpose of permanently securing the supply chain in oil.

Its odd math as the term "permanent" when applied to fossil fuels is a misnomer. Fossil fuels are finite, and whether by permanent, the proponents mean 60 years or 40, its still a disconnect.

Also, that negotiation and contract were not considered secure. But, that suggests that the entry into the war was stimulated by a desire to pay back the specific large energy donors to Bush/Cheney's campaign in the way that the Bush/Cheney administration understood what that meant. (Remember Cheney's close-door energy briefings with large oil and mineral investers?)

It IS however a large threat to one of the sources of value of the dollar, that it currently serves as medium of exchange for large markets. I have no objective basis to assess what portion of the value of the dollar is supported by that function, but I would expect at least 10%.

A quick shift from external causes engages downward spirals of reciprocal bases of value. For example, there is positive-feedback loop oriented currency trading/speculation.

So, Euros would be useful not only for European Union trade, and export and import functions to the somewhat contained European markets. They would come to be more useful to the additional purposes, and dollars would be less useful.

Euros are not ready to serve as a fully global currency though, and would probably end up in an environment of even greater currency volatility as there isn't sufficient Euros in global circulation, nor the means to regulate them as a global money supply.

In contrast to the Paul/goldish thesis that a gold standard would ensure currency stability, I would expect that if anything, attempting to move to the gold standard would REDUCE the relevance of the dollar in the world economy.

And, then CAUSE the devaluation of the dollar much further and more rapidly, relative to other currencies and commodities.

Posted by: Richard Witty on November 13, 2007 at 3:39 AM | PERMALINK

So I think thet there is something else going on here than naive libertarianism, and that is what explains the huge campaign contributions -- they are trying to help their investment along. And I suspect that most of these "hard money" gold-hawking campaign contributors are war hawks as well.

Actually, I think it's worse than that. I think these nuts actually want to crash the world economy and make everybody start over again. Hardcore libertarians believe that civilization is a lie, the social contract is illegitimate, and that the Hobbsean war of all against all is the proper state of humanity.

Posted by: dr sardonicus on November 13, 2007 at 4:45 AM | PERMALINK

Paul is a flake, to be sure. But the thing about pricing oil in Euros instead of US$ has been around for a while.

It should be obvious that GWBush's interest in getting rid of Saddam was because Saddam tried to kill his daddy in 1993. That's been verified for years. The other co-conspirators may have had other motives, but that was GWBush's.

Posted by: raj on November 13, 2007 at 5:46 AM | PERMALINK

I might take a crap in the voting booth and leave a hot steaming turd on top of the machine, but I wouldn't vote for either one of them.

I just hope you're not one who's early in to the polls there, SG...

Posted by: snicker-snack on November 13, 2007 at 5:49 AM | PERMALINK

Ron Paul knew that invading Iraq was a bad idea from the word go, which is more than you can say of John Edwards or Hillary Clinton (or any of the other Republican candidates).

He also "knew" the Civil Rights Act was "a bad idea from the word go."

What's your point? An all-encompassing, crackpot theory of economics and politics is bound to lead to some good decisions occasionally, just by accident. Even a stopped clock is right twice a day.

Genuine liberals who were really serious about nominating an anti-war candidate would be drafting Russ Feingold or trying to get Gore to run again.

People who instead signed onto this Ron Paul obviously consider his right-wing baggage a feature rather than a bug. If they're against desegragation, the Civil Rights act, public schools, Social Security and the graduated income tax, let them say so. But protesting that Paul is the "only" choice for anti-war voters is bullsh*t.

Posted by: moron on November 13, 2007 at 6:45 AM | PERMALINK

Well, being British I can report that my country did go back on gold, in 1925, and it was a total unmitigated disaster that fucked the economy so badly it didn't really recover until WW2.

Posted by: Alex on November 13, 2007 at 7:03 AM | PERMALINK

Iran has set up a bourse to trade oil in Euro's. Actually, it appears that they will accept other currencies as well such as Japanese Yen. See:

http://en.wikipedia.org/wiki/Iranian_Oil_Bourse

Given that the world's oil economy is based in dollars, moving to other currencies is very disruptive.

Posted by: Mark on November 13, 2007 at 7:39 AM | PERMALINK

Iran has set up a bourse to trade oil in Euro's. Actually, it appears that they will accept other currencies as well such as Japanese Yen.

And despite all the bollocks spouted about it; absolutely NOTHING happened.

Posted by: Alex on November 13, 2007 at 8:05 AM | PERMALINK

Granted, the bourse is not operating yet, as mentinoed in the Wiklipedia link, but Iran is accepting oil poayments in currencies (euros, yen) other than dollars.

Posted by: Mark on November 13, 2007 at 8:17 AM | PERMALINK

And....?

ISTR civilisation was meant to tumble as soon as the first euro went in the till.

Posted by: Alex on November 13, 2007 at 8:23 AM | PERMALINK

Kevin does need to do a little reading on the subjects he writes about. The term "fiat money" is simply a proper economic term for the type of money we have - non backed debt notes. It's hardly a term that Ron Paul made up.

What is amazing in all of this is that Dr. Paul's actual position on the matter of currency in this campaign is hardly brought up in all of this. Although he is opposed to the concept of a fiat currency for many reasons, he also realizes that getting rid of the Federal Reserve could not be accomplished immediately without congressional support. Plus, there would need to be a transition. So, Ron Paul wants to lift the laws that make the fed note a monopoly, and allow for the open use of a competing currency or currencies that have either precious metal backing or coinage which is actually made of precious metals. That way, you could freely choose what you want to trade in and save in and take payment in.

Fiat money always carries the risk that it could be valued as worthless as it actually is. It's value in the marketplace has no theoretical bottom. Nothing of inherent value carries that risk. I could invest in farmland or rare cars. The value of both of these would fluctuate over time, but they would never fall to zero. However, it would be hard to buy a house with farmland, or buy groceries with rare cars. Therefore, there is a need for a medium of exchange - money. But that does not mean the medium of exchange should be valueless. Rather, it should logically be something that is both divisible and of inherent worth. And in a free society what that medium of exchange of trade is should be left for people to freely choose.

If you think the fed fiat currency managers are the greatest thing since sliced bread, under Ron Paul's plan, you can trade and save in Fed Reserve notes as long as it contunes to exist in a competitive monetary envoronment. But if you think that there is more benefit to holding or trading in precious metal backed currency or gold itself - you can do that. What's wrong with that?

Competition and market choice. What a concept! Dr. Paul is right - we need to have a choice in what we use as currency and not be forced to take and trade in a currency that is tied directly to debt instead of wealth, with nothing of value backing it.

What is really at issue here is whether the federal reserve note should be forced upon us as a monopoly currency, despite the fact that it is inherently worth nothing whatsoever. (Except whatever BTU's it might give off in the winter if we had to burn it for fuel. They are not actually worth the paper they are printed on as we cannot write on them as they are full of printing already!)

Why not let the American people freely decide if they want to trade in a inherently worthless currency offered by a private banking cartel, or a currency that is backed by something of inherent value?

Posted by: Greg M on November 13, 2007 at 8:30 AM | PERMALINK

With today's economy maybe we should standardize our currency to barrels of oil or boxcars of coal. Or maybe on some sliding scale dependent upon the aptitude and desperation of one's workforce and one's proximity to efficient markets.

Posted by: B on November 13, 2007 at 8:33 AM | PERMALINK

With today's economy maybe we should standardize our currency to barrels of oil or boxcars of coal. Or maybe on some sliding scale dependent upon the aptitude and desperation of one's workforce and one's proximity to efficient markets.

That is an absolutely horrible idea, however well-intentioned: possibly the only form of tight-money crackpotism more damaging than gold-buggery.

All an "oil standard" or "coal standard" would accomplish would be to guarantee that any successful attempts by the global economy to increase energy efficiency would be punished immediately by a deep worldwide Depression.

Posted by: moron on November 13, 2007 at 8:44 AM | PERMALINK

Actually, historically the gold standard was no defense against currency manipulation, inflation, or any other ill.

Fort Knox holds huge masses of gold exactly so that the US Government could manipulate currency prices, back when the US was on the gold standard.

Spanish gold mines caused massive inflation throughout the 1500s. Increases in jewelry demand for gold caused deflation (which is considered far worse than inflation by economists).

A currency backed by barrels of oil -- or better yet, kilowatts of electricity generation -- might make sense. Gold simply doesn't have enough *inherent* value to be significantly better than fiat currency. (What's it good for? Jewelry and electronic circuit boards. Period.)

Meanwhile, fiat currencies can work very well if backed by trustworthy organizations. The Ithaca Hour is a real, effective currency -- and it has value because and only because local organizations in Ithaca accept it (you're supposed to accept or pay one for each hour of average-skilled labor). *That's where money comes from*, from people *trusting* each other to respect its value.

In economics, things like short-term Treasury bills are considered money as well, because they have the characteristics of money.

"Backing" with other inherently worthless items like gold has little to do with money; *trust* has a great deal to do with it. That's why returning to the 'gold standard' is completely cranky. The gold standard really wasn't as "hard" as everyone thought it was; it was largely a subsidy for gold mining companies.

What would NOT be cranky would be a Constitutional amendment restricting government borrowing and issuance of money: something to force better control of the money supply, so it couldn't be inflated or manipulated so easily. A gold standard wouldn't do that.

Posted by: Nathanael Nerode on November 13, 2007 at 8:52 AM | PERMALINK

Incidentally, those who disparage fiat money -- look at local currency projects, like Ithaca Hours. They're small, but startlingly effective. The crucial point is not whether the money is "backed", but whether there's a core of people who accept its value, and whether its issuer is trusted.

The US Government has been straining people's trust severely in recent years. Foreigners are now longer accepting the value of the currency at the same level as before. That's bad. However, with the US Government's immense gold reserves, it could do nearly as much inflation and overspending with a gold-backed currency -- and it probably would, as it did in the past. The problem is not in the currency, but elsewhere.

Posted by: Nathanael Nerode on November 13, 2007 at 9:00 AM | PERMALINK

Being a crank? How about being fucking nuts? OK, maybe a slightly less dangerous nut than Rudy, but fucking nuts nonetheless. Read David Niewart, who has quite a bit of background on Mr. Paul and his ties to white seperatist and posse comitatis groups. It's one thing to support libertarian principals, but Paul is an extremist libertarian, believing that the US government should have no power whatsoever. Hell, in his view, states shouldn't have legislative power, only municipalities and counties. It is the wild, wild west at its apex.

It is frightening that this guy has gone as far as he has.

Posted by: MeLoseBrain? on November 13, 2007 at 9:10 AM | PERMALINK

He calls it a 'fiat currency' because it frackin' is a 'fiat currency'.

You don't have be a deranged libertarian crank to understand the concept:

Richard W. Fisher, Chairman and CEO of the Federal Reserve Bank of Dallas, on June 14, 2006:

“Faith is certainly the basis of your confidence in the Federal Reserve. I have spoken in previous speeches of our “faith-based currency,” a term I use only slightly tongue in cheek. The dollar—like the euro, the yen, the British pound and other currencies—is what economists call a fiat currency. It is backed only by the federal government’s power to raise the revenues needed to meet its obligations and by the rectitude of the U.S. central bank. If the market were to lose faith in either assumption, the dollar would be debased.”

'We let small people like mortgage borrowers who don't know what they're doing get wiped out, because that's the market. We talk about "creative destruction" when small employees get whacked to pay for their bosses' errors. But when it comes to the big guys who run the show but don't know what they're doing? They suffer embarrassment and bad press and loss of the company plane -- but they still get to laugh all the way to the bank.' - Alan Sloane

Posted by: MsNThrope on November 13, 2007 at 9:12 AM | PERMALINK

...and apparently believes that we invaded Iraq largely because they wanted to price their oil in euros.

Well, considering that the very first action Dumbya took upon the fall of Baghdad was to change the Iraqi pricing structure back to US dollars, Paul has a valid point there.

Posted by: MeLoseBrain? on November 13, 2007 at 9:12 AM | PERMALINK

How about the fact he's anti-semitic?

Yes, in Al's view, only mainstream GOP candidates are allowed to be bigots. Reagan never gave back the money donated to him by neo-nazi's either, Al.

Posted by: MeLoseBrain? on November 13, 2007 at 9:16 AM | PERMALINK

With Paul, we would have sort of a non-President. The Democrats, with a majority in both houses, would be able to run the country.

I have to disagree with this entirely. As President, Paul would still wield veto power, and he would be sure to veto anything and everything that exerted even minimal federal power. Unless dems had a veto-proof majority, Ron Paul would make the gridlock Congress of the 90's seem like a commune.

Posted by: MeLoseBrain? on November 13, 2007 at 9:24 AM | PERMALINK

But if the U.S. does it and no one else does you get none of the reduced risk and all of the loss of discretionary monetary policy.

I have no dog in this hunt - gold-backed currency has merit, but I think we're too far down the road to make the change without severe hardship - but as a gold-backed currency, the US dollar would be the world's most stable, and would invite significant foreign investment.

Posted by: MeLoseBrain? on November 13, 2007 at 9:28 AM | PERMALINK

On the gold standard being insane, zappa's main argument seems to be that this is an open question.

I don't see how you can argue you with that. As he points out, Switzerland just went off gold in 2002, the US has only been off gold since 1972--when Nixon and the Fed wanted to inflate the economy, something the gold standard would not have permitted.

Before then--that is, through the entire period beginning with the industrial revolution, the world was on gold.

Off gold, the world has been betting on the soundness of the dollar. That bet has worked out pretty well for 50 years or so, but it's not clear that this will still hold true going forward.

IAC, it's hard because advocates of a return to gold are very much in the minority, and sound like nutty cranks.

That doesn't mean, though, that these issues shouldn't be debated. Ron Paul has more support than McCain--and is getting less access to the media. That is a problem--especially because one of his main issues is the damage being done to the US by the Military-Industrial complex.

It is very hard to sustain an argument for an enormous standing army in the US in the present international situation. It is very hard to justify spending so much of our resources on defense when there is no enemy to defend against.

The widespread assumption (see the NYT editorial page today) that the US needs to maintain this level of military force is not a permissible subject for debate. So, sure, let Ron Paul defend his loony positions on the gold standard, as long as his arguments about the size of the military and its role in US foreign policy also gets debated.

Posted by: jayackroyd on November 13, 2007 at 9:34 AM | PERMALINK

I still don't understand why we're talking about how bad our currency is when inflation has been lower in the past 15 years than any time since the 19th century.

Keeping inflation low is easy to do when you can simply remove volatile commodities from the equation. Calculating inflation without including energy costs is like pricing a steer without factoring the price of a pound of beef.

Posted by: MeLoseBrain? on November 13, 2007 at 9:39 AM | PERMALINK

I can see how some think that Ron Paul as President would be a logical consequence.

Too bad they can't see it.

Posted by: Bob M on November 13, 2007 at 9:40 AM | PERMALINK

Error #1: "Fiat Money" has no conspiratorial meaning. It is valid and meaningful economic terminology that is very often used by esteemed economists including Alan Greenspan.

Error #2: Ron Paul does not want a "weird quasi-gold standard." Go look at what he has actually said and written on this point before you mis-speak and look foolish again.

One Final Point: Paul's economic views are nothing new. They are about the same as Nobel Prize Winner Friedrich von Hayek. Take a look at Austrian Economics--it makes sense.

Posted by: Wayne on November 13, 2007 at 9:49 AM | PERMALINK

...but [gold]'s never lost value.

Really? Never?? There are a lot of misinformed statements on this thread, but this may take first prize. You mean if I buy gold at $800 an oz., I am guaranteed a positive return? Why doesn't everyone invest in gold then?

Gold, as any commodity, fluctuates in value, and has over the course of history. The value of gold is only slightly less arbitrary than the value of "fiat" money.

Posted by: MeLoseBrain? on November 13, 2007 at 10:03 AM | PERMALINK

MeLoseBrain: The point is that the value of gold is determined ON THE MARKET. Whereas, the value of fiat currency is artificially manipulated by the federal gov.

Posted by: Wayne on November 13, 2007 at 10:06 AM | PERMALINK

I asked my twin 7-year-old boys which they'd rather have:

- A stack of 10 paper bills, each one saying "This piece of paper is worth $100"

- A one-ounce gold coin

They looked at me with big smiles, like, "What a ridiculous question!" Then they shot back, "We want the gold!!"

Come on people -- even my 7-year-old boys know that gold is real money, and fiat paper isn't.

Posted by: Seraphim on November 13, 2007 at 10:11 AM | PERMALINK

Gold and Economic Freedom
by Alan

http://www.usagold.com/gildedopinion/greenspan.html

Posted by: Wayne on November 13, 2007 at 10:12 AM | PERMALINK

MeLoseBrain: The point is that the value of gold is determined ON THE MARKET. Whereas, the value of fiat currency is artificially manipulated by the federal gov.

I don't disagree with that, Wayne, but people seem to be under the same misperception about the value of gold that many were about the stock market 10 years ago - that it could never lose value. That is an absurd statement.

Posted by: MeLoseBrain? on November 13, 2007 at 10:18 AM | PERMALINK

So if we are on the gold standard, and an asteroid containing 27,000,000,000 metric tons of gold comes flying out of space to a reasonably soft landing in, say, Venezuela (or perhaps Myanmar), what happens to our money and our economy?

Cranky

Posted by: Cranky Observer on November 13, 2007 at 10:20 AM | PERMALINK

Nathaniel: You're absolutely right about Spain. The country officially went bankrupt at least twice in the first century after its New World gold discoveries.

People like Steve, and Seraphim's kids, are brainwashed just because gold is shiny and has that golden color. As I mentioned before, compared to coal, oil or uranium, or silver or copper among traditional precious metals, it has very little intrinsic value, if that's what you think makes it a good currency basis.

Wayne and others are full of nonsense that the "market" doesn't determine the price of the dollar. It absolutely does.

MeLoseBrain? No, NO. Going on the gold standard today would invite a run on our money; exactly why Nixon got us off it.

Posted by: SocraticGadfly on November 13, 2007 at 10:26 AM | PERMALINK

We will never return to commodity backed money by choice. As many have noted, getting from here to there is too complicated, and the present system has too many self-interested parties to give it up- to do so requires the relinguishing of a very profitable business operation, and the giving up of great political power.

However, we will return to commodity money eventually. Every money in history that was not backed by hard assets has failed. It is only a matter of time before the present monetary regime also fails, and gold and silver always return to fill the role. If you are lucky, it won't happen in your lifetimes (this will be a civilization shaking event), but it will happen.

Posted by: Yancey Ward on November 13, 2007 at 10:29 AM | PERMALINK

I've often thought that going back to the Gold Standard would be the monetary equivalent of Peak Oil. The world's economy and population has been supported for the last 70-80 years by cheap money and cheap oil. Yes, this is unsustainable, but getting rid of fiat money and linking it to gold would suck a huge amount of currency out of the system and make today's credit crunch look like a garden party.

Posted by: Speed on November 13, 2007 at 10:30 AM | PERMALINK

Boy Kevino, perhaps you should save the R Paul posts for slow blog days (Friday? Saturday?) On a normal day all this will do is get you pounded by frothing rabies-infected Paulinoids. They smell the slightest criticism of Paul from miles away with a sensitivity that makes sharks envious for and equivalent blood sensitivity.

Paul critique = heavy bombardment of rage and spit.

Posted by: Praedor Atrebates on November 13, 2007 at 10:32 AM | PERMALINK

How did the Great Depression happen again? We were on the Gold Standard back then...

I thought that sort of crap was impossible with the volative gold element as a backing for money.

Gold is a commodity, people, like oil, like soy beans. It has no magical value, only market value. It is as subject to crash and burn as it is for inflation and burn.

No magic bullets people. Sorry.

Posted by: Praedor Atrebates on November 13, 2007 at 10:34 AM | PERMALINK
In addition, he's fond of referring to paper currency as "fiat money"

Actually, what he is referring to as "fiat money" is fiat money, not just paper currency; it includes fiat money that is not paper currency (US coins, etc.)

The term is a correct, accurate, and precise term for what he is describing. That the policy prescriptions in which he uses the term may be crazy has no bearing on the propriety of the term itself.

and apparently believes that we invaded Iraq largely because they wanted to price their oil in euros.

Its not an entirely untenable position that at least one faction in the administration supported the war for that reason, though the neo-con drive for war with Iraq predates any known consideration of that policy by Iraq, AFAIK.

And these aren't just peculiar but harmless idiosyncracies.

If you want to convince anyone not predisposed to agree with you, you might want to consider presenting an argument rather than just the conclusion.

Paul is obsessed with "fiat money" and talks about it every chance he gets.

Sure, and I agree that he is wrong to do so. OTOH, if you are going to spend a blog post putting forward your idea of what is wrong with Ron Paul, shouldn't you provide some reason to believe that it is wrong, rather than merely stating your conclusion that he is wrong in his central message?

till, if I had to choose between Ron Paul and, say, Rudy Giuliani for president, would I vote for Paul? You bet. There are worse things than being a crank.

This seems to suggest that, insofar as Giuliani has substantive policy positions, they are less "crankish" than those of Ron Paul. On that point I am unconvined.

Posted by: cmdicely on November 13, 2007 at 10:41 AM | PERMALINK

crazy ron paul. he actually opposed our glorious adventure in mesopotamia. he says nice things about hagel and kucinich. what a fruitcake!

Posted by: benjoya on November 13, 2007 at 10:44 AM | PERMALINK

For you people who think that fiat money (aka cranking up the printing press) is a sustainable system, go back and study Weimar Germany. Or any number of South American banana republics.

Posted by: Speed on November 13, 2007 at 10:56 AM | PERMALINK

'They are about the same as Nobel Prize Winner Friedrich von Hayek.'

Yeah. the guy who predicted that Atlee's social-democratic government would lead to Soviet-style dictatorship. That worked out well, didn't it?

'Take a look at Austrian Economics--it makes sense.'

No thanks. I was taught my first economics class by an Austrian, and I knew he was a whackjob then.

I just don't think the people. Be it Zappa who thinks inflation's running at 10% for groceries (try 4%), or the others, these are folks whose familiarity with economics is confined to reading von Mises institute. They can't get their heads around why deflation reinforces itself and causes downturns to be more wrenching. Nor do most of them seem to understand you can either control money supply or interest rates: you can't do both. If you thought the U.S. and U.K. experiments with sado-monetarism in the early 1980's were bad, just wait until you see what going back on the gold standard will do.

Here's an exercise: try finding GDP being mentioned in Paul's 260-page long minority report on the Gold Standard. You can't. For these folks, GDP growth is secondary to their fetish for the value of the currency.

Posted by: Sock Puppet of the Great Satan on November 13, 2007 at 10:57 AM | PERMALINK

Praedor Atrebates,

The Great Depression is the direct result of the centralizing of money within the Federal Reserve System. Roosevelt removed the right of exchange of FRNs for gold because the bank had inflated beyond its actual backing- this is what created the enormous boom (credit inflation) of the 1920s and the subsequent collapse (credit crunch). However, the difference in 1930 vs previous panics was that the entire economy was now tied to the same inflating/deflating currency rather than those of individual imprudent/corrupt banks of the past.

Look, a gold standard, or other commodity money, is not a complete solution for the problem of inflation- banks from the beginning of time have fallen prey to the allure of the effortless profits of inflation, even when on a gold standard, but we have now created a situation where the collapse of a single paper currency will bring down the entire world economy.

Posted by: Yancey Ward on November 13, 2007 at 11:02 AM | PERMALINK

No one in Texas is capable of understanding monetary policy, especially a drug mafia puppet like Ron Paul.

Posted by: Brojo on November 13, 2007 at 11:07 AM | PERMALINK

Count up the wars in the 20th century and the wars in the 19th. 19th was much more peaceful

Well, I did a count of wars in the 19th century and 20th century as listed by wikipedia (I know, I know), and my copy and paste calculating method pegs the 19th century as having 387 wars and the 20th as having 372.

I'd say, based on my sketchy source material and my rough calculating, it's about a draw. Kinda shoots down that whole "if we were all on gold, we'd love peace, harmony, and understanding notion there, FZappa.

Posted by: The Critic on November 13, 2007 at 11:12 AM | PERMALINK

And I thought Ron Paul was crazy because of the way his eyes bounce around in his head when he talks...

Posted by: schwag of tulsa on November 13, 2007 at 11:23 AM | PERMALINK

Until 1971 the gold standard pegged gold at $35 per ounce. The US went off the gold standard due to a growing trade deficit and severe recessions. The gold standard had problems and thus it was ditched.

So, what's the peg? I would assume it would be pegged at the current market value of gold, not 35 bucks. Thus endeth gold speculation, I would think. It seems to me that floating the value of gold after that makes no sense. And how do we find and stockpile enough gold to equal the current value reflected in the economies of the world at that peg? I think we are way short.

If gold floats that is not the same system as pre-'71.

Posted by: Nat on November 13, 2007 at 11:23 AM | PERMALINK
So, what's the peg? I would assume it would be pegged at the current market value of gold, not 35 bucks. Thus endeth gold speculation, I would think. It seems to me that floating the value of gold after that makes no sense. And how do we find and stockpile enough gold to equal the current value reflected in the economies of the world at that peg? I think we are way short.

Silly. Fiat Gold is the answer! Tin, aluminum, platinum, brass...all can be a stand-in for the missing gold.

Posted by: Praedor Atrebates on November 13, 2007 at 11:26 AM | PERMALINK

Wikipedia has a good article on the Gold Standard:

http://en.wikipedia.org/wiki/Gold_standard

Posted by: TRR on November 13, 2007 at 11:27 AM | PERMALINK

Also Nat...if one is simply going to peg money to the then current value of gold and freeze, why need gold at all? You can simply set the value of the currency at X and hold it there. Same thing as having a chunk of mineral sitting there with its own arbitrary value.

Skip the mining and storage part and just say "one dollar equals 450 (dimensionless number)". ta-da.

Posted by: Praedor Atrebates on November 13, 2007 at 11:31 AM | PERMALINK

The Paulites seem confused by arguments here against Sir Ron's quest for a gold standard. They equate opposition to Paul with acceptance of current Fed policy which, unfortunately, is driven by the spend but don't tax approach to government of GwB. Take the Iraq war spending out of the budget and the Fed is dealing with surpluses instead of deficits.

There wouldn't be the devaluation risk we now face, the oil prices that affect consumer pocketbooks, etc.

If you want to argue for the gold standard, fine, but stop acting like the people here are somehow in favor of either the decline of the US $ or Chairman Ben.

Posted by: TJM on November 13, 2007 at 11:57 AM | PERMALINK

Anyone advocating the Gold Standard needs to look at the history of the Great Depression.

It started in the U.s., then spread to the rest of the industrialized world. But interestingly, the nations like Spain which quickly abandoned the Gold Standard had only mild problems compared to the nations which worked hard to try to maintain the value of their currency and also maintain its value in Gold.

It is that process of trying to keep the currency in circulation redeemable in Gold that caused the expansion of the Depression to other nations.

There are a lot of ways that so-called fiat money can be mismanaged. There are also a lot of ways gold-backed currency can be mismanaged, with the difference that when the economy gets into trouble and the currency is maintained as gold-backed, there are a lot fewer ways to minimize the problems of recession/depression.

Do you really want your economy run by a man whose only apparent education is as a body mechanic? Ron Paul is an Obstetrician, not an economist. It's like taking financial advice from a diesel mechanic.

Posted by: Rick B on November 13, 2007 at 12:02 PM | PERMALINK
For you people who think that fiat money (aka cranking up the printing press) is a sustainable system, go back and study Weimar Germany.

Money systems often fail due to efforts to monetize debt (in fiat money systems, this is just printing more money; in pure specie systems, it is through debasement of the currency, in specie-backed systems, its exactly the same as in fiat-money systems -- printing more money, even though it is notionally exchangeable for specie, without adequate backing.)

The existence of strong, independent central banks is designed as a guarantee against that kind of policy. Absent this divide between fiscal and monetary policy, all money systems are prone to failue by manipulation to meet the needs of fiscal policy.

Of course, a failure of the economic system beyond the monetary system itself, or of the government, will kill a currency other than a pure specie currency (that includes a specie-backed currency, since people will lack faith in convertibility) in any case.

And, of course, a specie or specie-backed system exposes your monetary system to vulnerability to fluctuations in market supply or demand for the commodity the currency is composed of (or backed by), whereas a fiat currency is not so exposed.

Posted by: cmdicely on November 13, 2007 at 12:30 PM | PERMALINK
Also Nat...if one is simply going to peg money to the then current value of gold and freeze, why need gold at all?

Because otherwise, no matter what the government says the value must be, the value will float; the only way to effectively peg the value of a globally-traded currency to that of another commodity is to make the currency freely exchangable for a set quantity of the otehr commodity, and having the perceived capacity and willingness to honor that commitment. Which means, in the case of the gold standard, having sufficient gold reserves (what "sufficient" means can be hard to determine, but its more than none and potentially as much as the value of the outstanding currency.)

Posted by: cmdicely on November 13, 2007 at 12:33 PM | PERMALINK

Getting real with Ron Paul

International organizations
"Paul opposes political organizations and arrangements that he believes override U.S. sovereignty, such as the International Criminal Court, the United Nations, the North American Union, the Law of the Sea Treaty, the World Trade Organization (WTO), the North Atlantic Treaty Organization, and the Security and Prosperity Partnership of North America. He supports withdrawing funds from and ending participation in such organizations."

State representation
Paul would like to restore State representation in Congress. During a speech in New Hampshire in February 2007 Paul called for a repeal of the seventeenth amendment,[172] which allows for direct election of U.S. Senators. Instead Paul would have members of state legislatures vote for U.S. Senators as they had done under Article One, Section 3. Direct popular representation would be retained in the U.S. House of Representatives. Paul believes that increased representation of State interests at the federal level encourages greater sharing of power between state and Federal government,[173] and that greater state participation serves as a check against a powerful federal government.

Paul wrote of his opposition to the Civil Rights Act of 1964
[bigot]
In 2006, Paul joined 32 other members of Congress in opposing the renewal of the 1965 Voting Rights Act
[bigot]
Paul believes that juries deserve the status of tribunals, and that jurors have the right to judge the law as well as the facts of the case.
Paul argued that the purpose of the Second Amendment is to place a check on government tyranny, not to merely grant hunting rights or allow self-defense. When asked whether individuals should be allowed to own machine guns, Paul responded, "Whether it's an automatic weapon or not is, I think, irrelevant."

Minimization of market interference
Paul opposes virtually all federal interference with the market process.[85] He also endorses defederalization of the health care system.
Paul was one of only three members of Congress that voted against the Sarbanes-Oxley Act: it "imposes costly new regulations on the financial services industry [that] are damaging American capital markets by providing an incentive for small US firms and foreign firms to deregister from US stock exchanges."

In an interview on The Daily Show with Jon Stewart, Paul said he favors ending the United States Post Office legal monopoly on first class mail delivery by legalizing private competition."

Another benefit of the gold standard is that it's much harder to start a war with one…..FZappa at 9:38 PM
You disprove you thesis on that point alone. The gold standard was in force for WWI and WWII. The gold standard was used to crush the poor.
….Inflation is a transfer of wealth from the people to Wall Street, …. FZappa at 9:43 PM
Inflation enables debtors to pay off bills and mortgages easier. That is why it is the big bugaboo of Wall Street and banks. That is why it was enemy # 1 with Greenspan and those who put the interests of Wall Street over Main Street. Your understanding is bassackwards, pally.
….we have now created a situation where the collapse of a single paper currency will bring down the entire world economy Yancey Ward at 11:02 AM
Interesting thesis, but it hasn't occurred. However in fact, the US was on the gold standard and the Great Depression occurred. It rapidly spread worldwide. Your theory is bull.
Come on people -- even my 7-year-old boys know that gold is real money, and fiat paper isn't. Seraphim at 10:11 AM
Market today: "gold was down $34.80 at one point today, then rose to settle at $807.70 on the New York Merca..." Your boys aren't too bright. Posted by: Mike on November 13, 2007 at 12:38 PM | PERMALINK

All you Goldbugs don't even know what money is.

Most of the money that runs our economy is magnetic "0's" and "1's" inside a bank computer. It is not based on gold or anything else, and will not be even under a so-called "Gold" standard.

The bank issues money based on assets it owns, usually loans that it has made to someone else. and since we have a fractional reserve system, The bank can lend out about $20 for every one dollar it holds in loans.

Twenty for one assumes there is a 5% reserve requirement enforced by the Federal Reserve. I'm not sure what the actual reserve requirement is now. The fed changed the available money supply by changing the reserve requirement.

Note that there is no currency at all. No gold, no fiat money, nothing. Just bank loans. If you have $10,000 in savings in your bank, the bank can use that asset with a 5% reserve requirement to loan out up to $200,000.

Banks were doing this fractional reserve thing since banks were invented, before government controlled the supply of money and currency. All the bank ever has to do is have enough money on hand to pay the savers what is demanded on any given day, and they have always had ways of slowing down payment under normal conditions. At present, if savers want more cash than the bank has on hand, the federal reserve will supply it, keeping bank runs from occurring.

So eliminate fractional reserves, right? But Dr. Paul is going to eliminate the federal reserve and all regulatory agencies. See Orcinus where Dave has listed many of the wackier bills that Ron Paul has authored over the years. It's a long list, but look towards the bottom where he proposes eliminating the federal reserve.

The fed enforces the fractional reserve percentage banks use to create money. Of course, Dr. Paul has also proposed rescinding the power of the banks to create money, but without any regulatory agencies, banks will do what they damned well please.

Dr. Paul's economic package would take the American economy back to the total lack of structure that gave us the two-decade long Depression beginning in 1873, a series of severe recessions, and then the Great Depression that began in 1929. Note that the Gold standard existed throughout that time, both in America and Europe.

That's the Libertarian dream. Wildly fluctuating economies. And when economies fluctuate wildly, only the very rich can protect themselves and achieve some stability. The New Deal was instituted to head off Revolution, and it did. It did it by creating a stable middle class.

Ron Paul wants to eliminate the middle class and create a wildly fluctuating economy again. Though, as a simply body mechanic, I rather doubt that he has enough education to understand that.

That's why I call him a fruitcake. When Dr. Paul first left Congress, Tom DeLay took over his seat. When Dr. Paul came back, he won election in the district next to that of Tom DeLay. Both districts are south of Houston and strongly support the insane 2000 Texas Republican Party Platform which Kevin has occasionally written about.

Posted by: Rick B on November 13, 2007 at 12:48 PM | PERMALINK
Roosevelt removed the right of exchange of FRNs for gold because the bank had inflated beyond its actual backing

No, he did so because the demand for exchanges was in danger of inflating beyond the actual backing; specie-backed currencies (as opposed to pure-specie currencies where there is no backing, and gold [or whatever] is itself exchanged instead of notes that are exchangeable for gold, etc.), historically, have usually been inflated beyond their backing, that's a major motivation for the use of specie-backed paper rather than specie itself, and one which isn't problematic until reserves become inadequate to meet exchange demands. (Which can either be because of expanding ratio of notes to reserves or declining faith in the system.)

Look, a gold standard, or other commodity money, is not a complete solution for the problem of inflation

In fact, it opens up vast new avenues for inflation (or deflation) external to the controlling authority through changes in the supply function of the backing commodity, which is a major vulnerability unique to commodity-pegged currencies.

we have now created a situation where the collapse of a single paper currency will bring down the entire world economy.

That currency switching to a commodity standard -- which makes it no more secure against collapse -- does nothing to improve that. What protects against that is institutions diversifying in such a way as to minimize the risk from a single currency collapse. Which many institutions are attempting to do, reducing the role of the US dollar.

Posted by: cmdicely on November 13, 2007 at 12:48 PM | PERMALINK

"Come on people -- even my 7-year-old boys know that gold is real money, and fiat paper isn't."
Posted by: Seraphim on November 13, 2007 at 10:11 AM

Cute. Try the same experiment with "a stack of hundred-dollar bills" and see if you get the same answer.

Posted by: thersites on November 13, 2007 at 1:38 PM | PERMALINK

Where Bush and Cheney ought to be going, I understand the Cigarette Standard is still in place.

Posted by: thersites on November 13, 2007 at 1:39 PM | PERMALINK
However, we will return to commodity money eventually.

Unlikely. Even if we return to money backed by a commodity (or basket of commodities), it is unlikely that we would use commodity money, rather than representative money, widely.

It is quite possible (I'd say probable) that eventually we will, for some period of time, try out a representative rather than fiat money for some period of time.


Every money in history that was not backed by hard assets has failed.

The US dollar is not backed by any particular commodity. The US dollar has not failed. Ergo, your claim is false.

If you merely mean "every money in history that was not backed by hard assets and does not remain in current use has failed", well, that's true, but no less true of every money in history that was backed byhard assets and does not remain in current use. In fact, a much greater proportion of the commodity-backed currencies that have every existed have failed than have fiat currencies.

Note that this has been pointed out in previous threads where you've this dishonest, misleading claim has been trotted out.

It is only a matter of time before the present monetary regime also fails, and gold and silver always return to fill the role.

While some monetary systems remain in use (and thus have not failed), the historical indication seem to be that monetary systems—fiat, representative, or commodity—do not meet the needs of the societies which use them forever, and tend to be replaced, or the governments that sponsor them fail and the currency is consequently retired. So, its likely that at some point the current fiat US dollar will be replaced, either because the US currency switches to a different model or because the US itself ceases to exist as a currency-issuing entity (and perhaps altogether).

This isn't indicative of a particular problem with fiat currency. The statement would be equally true, and supported by the same body of evidence, if the US presently used a representative (e.g., gold-backed) or commodity (e.g., gold coin) money.

If you are lucky, it won't happen in your lifetimes (this will be a civilization shaking event), but it will happen.

Possibly, but more likely not. You seem to presume that the US currency will retain its central role in the economy of the whole of human civilization until the time it is replaced. That's remotely possible, but most of the things that would lead to it being replaced as the US currency would lead first to it receding in its role in international exchange.

Posted by: cmdicely on November 13, 2007 at 1:54 PM | PERMALINK

>>It's not that he's not a liberal, Orson. Duh. It's that he's a crackpot and a fruitcake.

Ok. Please name some conservatives who aren't "crackpots" and "fruitcakes" in your book. I'm sure you regard all non-liberals as crackpots. That's the point. Just like for most of today's GOP anyone who doesn't support creeping fascism is a crackpot and a fruitcake.

I disagree with Ron Paul on plenty of issues, but he is the only one in this race on either side who actually has a spine and some integrity.

Posted by: Orson on November 13, 2007 at 1:59 PM | PERMALINK

Where Bush and Cheney ought to be going, I understand the Cigarette Standard is still in place.

A carton of Marlboro's to the first inmate who makes Cheney cry.

Posted by: Brojo on November 13, 2007 at 2:18 PM | PERMALINK

Ugg -- "weird," "conspiratorial," "crank."

Kevin, you are dangerously approaching Joe Klein in the seriousness of your pronouncements.

Posted by: Todd and in Charge on November 13, 2007 at 2:36 PM | PERMALINK
Another benefit of the gold standard is that it's much harder to start a war with one.

Governments managed to start wars quite frequently through most of history, with commodity-backed moeny and actual commodity money; doesn't seem to be much evidence that it does anything to impair warmaking.

Posted by: cmdicely on November 13, 2007 at 2:59 PM | PERMALINK

Wow, cmdicely, that was a true pedantic masterpiece in two parts. You are truly the highest functioning austistic I have ever encountered.

(1) Yes, Roosevelt had to remove the convertibility because the Fed couldn't redeem the notes. What precipitates the desire for exchange is irrelevant to my point which was that people began to recognize the actual lack of value in the currency itself- which the bank had undermined from the very beginning of the Federal Reserve. It is this recognition of overvaluation that always triggers a bank run.

(2) So what if there are external supply issues with a commodity or commodity-backed money? This situation is hardly worse than a situation where the actual supply is controlled by people who can benefit themselves and their political allies- which they have always done. These "new avenues" you describe are no argument against a commodity- back money, especially one based on a metal like gold.

(3) On point (3), I probably should have been a bit clearer, especially since so many here have really mucked up the issue completely. I don't favor a government run commodity money standard- you are quite correct that this would have the same systemic risk of failure. What I favor is repeal of all legal tender laws and a free money system so that no individual failure or groups of failures can bring down the entire monetary/economic system-worldwide or just within the borders of the United States.

(4) Fine, the US dollar exists today, so technically it disproves my assertion, but I will stand by the meaning I intended- it's failure is guaranteed by history. Commodity-backed monies do not "fail" in the same way as you are trying to dishonestly, or ignorantly, imply- they are abandoned or corrupted by those who seek profits from inflation- from a form of fraud- in other words, they are converted into fiat currencies; and commodity and commodity-backed money always return when the fiat fail. I don't doubt that a future commodity-backed money will also be abandoned or corrupted by those in control of it, but please stop your ignorant attempts to equate the failures of the two.

Posted by: Yancey Ward on November 13, 2007 at 3:36 PM | PERMALINK

YW, here is what I don't get:

First, it is probably just a personal prejudice that I simply don't understand folks who are passionate about an abstraction like "money". I can see being passionate about an abstraction like "beauty", if it's expressed in a person or a painting, or even in "courage", if only as an ideal. But folks who argue about the nature of money seem a bit alienated to me -- and ain't that in itself a serious flaw for the Paulbearers?

If you're not showing me how I can reliably get richer or avoid getting poorer, I dunno why I should care about legalizing other forms of money, which sounds vaguely like PayPal has moved to Nigeria and started sending me email.

Second (and more to the point), the whole point of "money" is as a means of exchanging wealth. Arguments over the gold standard or fiat money and similar crap sorta miss the point: we are collectively wealthier today than we were 50 or 100 years ago. That increased wealth is more efficiently exchanged with an increased amount of "money". Right?

If we did NOT increase the amount of "money" as the amount of wealth increases, the value of the "money" would go up relative to the larger amount of wealth being exchanged -- which means folks would invest in "money" rather than in stuff that actually CREATES wealth, which money doesn't.

So your whole economic philosophy, such as it is, is based on a particularly odd flaw: the idea that being alienated is in itself an engine of superior economic energy, for which you can cite no evidence cuz there ain't any.

Right?

Posted by: theAmericanist on November 13, 2007 at 4:11 PM | PERMALINK

Richard W. Fisher, Chairman and CEO of the Federal Reserve Bank of Dallas, on June 14, 2006:

“Faith is certainly the basis of your confidence in the Federal Reserve. I have spoken in previous speeches of our “faith-based currency,” a term I use only slightly tongue in cheek. The dollar—like the euro, the yen, the British pound and other currencies—is what economists call a fiat currency. It is backed only by the federal government’s power to raise the revenues needed to meet its obligations and by the rectitude of the U.S. central bank. If the market were to lose faith in either assumption, the dollar would be debased.”

Posted by: HeliBen on November 13, 2007 at 4:34 PM | PERMALINK
Yes, Roosevelt had to remove the convertibility because the Fed couldn't redeem the notes.

There is an important difference between that and your claim that it was because the notes had been inflated beyond the reserves.

What precipitates the desire for exchange is irrelevant to my point which was that people began to recognize the actual lack of value in the currency itself

It wasn't irrelevant to what you claimed. That you now claim a point that is, at best, tangential to your original claim (and wrong, too), is hardly something I could have been expected to respond based on before it occurred.

At any rate, your new point is wrong. It is not because they began to recognize the lack of value—that mistakenly suggests that there is such a thing as inherent, non-subjective value that had always been lacking and that people "noticed" precipitating the run. What occurred was that the demand for exchange was exactly identical to the money losing its value. Value of a currency, whether a fiat currency (as the US dollar is now), or commodity-backed representative currency (as the US dollar was at the time), or an actual commodity currency is subjective, and it is based on belief.

People don't "recognize" the value, or lack thereof, of a currency—its not an external, objective fact. People perceive the value, or lack thereof, of a currency, and the perception creates (or, perhaps more accurately, is) the reality of the value, or lack thereof.

It is this recognition of overvaluation that always triggers a bank run.

Only in a sense so general as to be meaningless; a run on a representative currency can be triggered because by anything that raises doubt of future convertibility. That can be a perceived future inadequacy of reserves to meet conversion demands (which isn't the same thing as the reserves simply being less than the value of outstanding notes, which is a normal situation in a representative currency and one many note holders expect [probably most noteholders when weighted by quantities of notes held].)

But it can also be based on political or physical threats to the security of the institution holding the reserves. For instance, the perception that convertibility might be suspended itself would accelerate demand for conversion.

So what if there are external supply issues with a commodity or commodity-backed money?

So, it provides a source of collapse which has provoked more failures of commodity-/representative-mony based economies than there have been fiat money economies.

This situation is hardly worse than a situation where the actual supply is controlled by people who can benefit themselves and their political allies- which they have always done.

I'd say that the history of the dislocations they have caused would suggest that, its much worse than the problems in a modern fiat system, and, unlike the vulnerabilities of a fiat system, not amenable to management by structural controls.

These "new avenues" you describe are no argument against a commodity- back money, especially one based on a metal like gold.

They are clearly arguments against a commodity-backed money. It is, of course, abstractly possible that countervailing arguments in favor of such a money could outweigh them, but that's a different question.

I don't favor a government run commodity money standard- you are quite correct that this would have the same systemic risk of failure.

The systemic risk of failure-through-mismanagement of any non-commodity money system (and this emphatically includes representational,
commodity-backed money systems) is exactly the same no matter what institution(s) is/are issuing notes.

(Its worth noting that our current money system is a regulated but not entirely government-run fiat money system: money is created by extension of credit, and while federal, state, and other governments regulate the extension of credit to a certain extent, it is mostly done by private parties.)

What I favor is repeal of all legal tender laws and a free money system so that no individual failure or groups of failures can bring down the entire monetary/economic system-worldwide or just within the borders of the United States.

But the policies you prescribe wouldn't have the effect you describe. At best, they have exactly the same effect as having a diversity of government-controlled fiat currencies (that is, they diversify the diversifiable risk involved in any one currency), and is subject to the same problem (the more widely a particular currency is perceived as strong, the more demand will exist for it and the more peopel will use it, making it more widely perceived as strong, until one currency becomes dominant) which can produce a monoculture when currencies are generally government-managed fiat currencies.

Further, legal tender laws don't generally substantively impair the utility of alternative media of exchange, they simply facilitate formal dispute resolution (and, by doing so, encourage informal settlement before resort to formal process). Abandoning legal tender laws just increases the number of questions of fact that must be answered in any legal dispute over transactions, and makes the decision of the appropriate order once a verdict is reached more difficult; with legal tender laws, a tender of payment in legal currency is always a tender of payment (one might question whether such a tender occurred, but not whether, having occurred, it was a valid tender of payment), and, except in the conditions where specific performance is warranted, civil harms are settled by awards in legal tender.

Fine, the US dollar exists today, so technically it disproves my assertion, but I will stand by the meaning I intended- it's failure is guaranteed by history.

You can "stand by" it all you want, but it remains historically indefensible. A greater proportion of the government-managed fiat money systems managed primarily through independent central banks by that have ever been implemented exist continue to survive today than of any other kind of money systems. By historical evidence, those types of systems, then, are the least likely to fail.

At best, you could claim that the history of such systems is inadequate to judge where they stand compared to other systems. What you cannot defensibly state is that history shows them to be less durable than other systems.

Commodity-backed monies do not "fail" in the same way

Yes, they do.

hey are abandoned or corrupted by those who seek profits from inflation

When pure commodity-money systems fail, it is because either:
1) The institution providing the money or regulating the system itself collapses,
2) The institution providing the money or managing the system abandons it for another system, or
3) The institution providing the money debases the currency until faith in it collapses.

When a commodity-backed (representative) money system fails, it is because either:
1) The institution providing the money or regulating the system itself collapses,
2) The institution providing the money or managing the system abandons it for another system, or
3) The institution providing the money issues notes in ever-increasing ratios to reserves until faith in the system collapses.

When a fiat money system fails, it is because either:
1) The institution providing the money or regulating the system itself collapses,
2) The institution providing the money or managing the system abandons it for another system, or
3) The institution controlling the supply of money allows the creation of money at a pace so that rapidly increasing price levels demolish faith in the money as a store of value.

(Actually, #3 in each case isn't an immediate cause of the collapse of the money system, but instead directly causes either #1 or #2, which can each also be caused by independent causes; nevertheless, its important here for illustrative purposes.)

I don't doubt that a future commodity-backed money will also be abandoned or corrupted by those in control of it, but please stop your ignorant attempts to equate the failures of the two.

You have yet to provide a meaningful differentiation between the failures of the two. Calling mismanagement of one leading to failure "corruption", while not applying that label to mismanagement of the other leading to failure in exactly the same manner, does not provide such a differentiation. It is not ignorant to note that the exact same process affecting two different types of money in the exact same way remains the same process regardless of the underlying type of money.

The systems collapse in exactly the same ways.

and commodity and commodity-backed money always return when the fiat fail.

In most cases I can think of in the last 35 years or so, failed fiat currencies—as well as representative currencies that were not performing well—have been replaced not with commodity or representative currency, but with new fiat currencies. Occasionally, these "new" fiat currencies resemble representative currency, except that the backing commodity is another fiat currency. So, again, your categorical statement is inconsistent with the facts.

Posted by: cmdicely on November 13, 2007 at 4:41 PM | PERMALINK

So, Ron Paul wants to lift the laws that make the fed note a monopoly, and allow for the open use of a competing currency or currencies that have either precious metal backing or coinage which is actually made of precious metals. That way, you could freely choose what you want to trade in and save in and take payment in.

We already have this. It's called the securities market, and it includes stocks, bonds, various forms of commercial paper, etc. All backed by some claim of right against the issuer, enforceable in court.

Anyone who is concerned about American currency being valueless can purchase any of these instruments. INCLUDING ONES BACKED BY GOLD. The question is whether it benefits society to also have a form of government issued, fiat currency circulating, with its supply controlled by a central bank designed to be relatively independent from political branches.

I would say the answer is certainly yes, and the reason is because there are benefits to influencing the money supply. You can control inflation, and you can also inflate the currency to mitigate or escape recessions.

In contrast, non-fiat money (including all of the forms of securities now available) is always subject to: (1) the risk of default by the issuer, and (2) the fluctuating value of the underlying asset, which may or may not fluctuate in a way that is helpful to mitigating the business cycle.

It's fine, of course, to have non-fiat money available to those who want it, as it is now-- anyone can purchase securities. But get rid of fiat money and you get rid of the central bank's ability to mitigate the business cycle. And that's just awful-- it could even lead to another Great Depression.

Posted by: Dilan Esper on November 13, 2007 at 5:27 PM | PERMALINK

lol, this has to be one of the dumbest blogs from the original post, down to the comments.

1st and foremost, Ron Paul only points out the gold standard to show how much value the dollar has lost because the currency has been handled by a private bank, which has been a complete monopoly on handling our money.

What Ron Paul really is looking to do is to legalize other forms of money, so that people will have the choice of using money which gains value overtime(like gold), instead of paper money which is printed out of thin air.

It is simply because if given a choice between a dollar that gains value and 1 that loses value, people would logically choose the one that gains value, and that in itself would destroy the fed. He points out the gold standard because that is an example of a currency which gains in value over time. Other metals such as silver, copper and platinum can and would also be used.

Kennedy tried to do something similar in the 60's, just months before he was murdered. Only he started having the treasury print up money seperate from the fed. And as the government printed it, it was interest free. All that money has been bought back up and no longer exists in circulation.

But don't let a little thing like research and facts get in the way of smearing the only presidental candidate who represents the individuals of this country, rather than corporations and special interest groups.

Posted by: badmedia on November 13, 2007 at 5:28 PM | PERMALINK

So the argument is that instead of stealing value from inflation... We steal value by hoarding some resource?

Why not an oil backed dollar? Or wheat?

Having a metal 'backed' dollar never stopped the government from racking up a debt, it didn't stop banks from issuing more credit than warranted, it didn't stop currencies from crashing.

At no point in the last hundred years has the US had enough gold to back every dollar in circulation.

Come up with some reason why gold, why is that better than credit, how it's different than credit?

That's why people don't understand the fascination with gold, and don't understand the complaints against the "fiat money."

Posted by: Crissa on November 13, 2007 at 5:38 PM | PERMALINK

It occurs to me that no one answered Crissa's question up top: "What's the fiat money thing, anyhow? I never understood it. Could someone explain? In plain English..."

Lord knows, Dice can't do it. So as a mitzvah: Saying a system of dollars or deutschmarks or something is "fiat money" basically just means the stuff has value cuz a government SAYS it has value -- it's a 'fiat', the way it's a fiat which side of the road to drive on. (No, I'm not going to stoop to the pun.) Somebody has to set up the Rule for which side of the road we drive on, so everybody is confident that everybody else will be following the same Rule.

The thing is, what a dollar buys, what it is WORTH, can vary. So that's where the argument over "fiat money", or the gold standard, and lots of other stuff starts.

Gold has a value in itself -- why? In the end, it's because people will pay a pretty high price to get it, and that's that. It can be very beautiful stuff, used for jewelry and whatnot, and it can be very useful for other things (it can get pounded unbelieveably thin), but in the end: it is valuable mostly because people will pay for it. So "the gold standard" implies that money based on gold can be directly translated into value.

Paper money doesn't have a value in itself -- it's just fancy paper, after all. A hundred dollar bill probably has less than 20 cents worth of stuff in it. It's only worth whatever a hundred dollars will buy you because it is backed by "the full faith and credit of the US government", which says it is worth $100... by fiat.

The argument goes that by printing paper money and saying it is worth X, governments are doing something they should not do, any more than governments should run all factories and farms. There is always the risk that a government that can print money will try to be popular by printing LOTS of money, and giving it away.

Trouble is, if a goverment just prints money and gives it away, it's worth less -- and this is the important part -- IF THE INCREASED AMOUNT OF MONEY IS BUYING THE SAME AMOUNT OF WEALTH. The last part is NOT about "fiat money", but it is more important.

One problem with the gold standard and its various cousins, is that the gold supply (or anything else you fix wealth TO) doesn't increase that fast. So if gold cost $35 an ounce when the US economy was producing $500 billion a year, what will it be worth when the economy is producing $10 trillion a year? If it is worth $700 an ounce, then it has simply kept pace with the growth in the economy -- in wealth, measured in dollars. But what if it is only worth $350 an ounce, increased by 10 when the economy has grown by 20?

The folks bitching about "fiat money" basically mean that the other HALF OF OUR ECONOMY is fake. But it's not.

The gold standard simply isn't flexible enough to move not just with the growth in wealth, but in the way wealth changes, as it grows: what was a personal computer worth in the early 1970s, when we finally left the gold standard? The PC hadn't been invented yet.

When people bitch about "fiat money", they often mean two different related, but distinct things: first, the idea that a government can say a piece of paper is worth $100, and second, that a system like the Federal Reserve Banks can control how much money there is in the economy.

The Fed does that by just raising or lowering the interest rate that it charges itself and its member banks, which are like the main valves for the flow of money (as credit) throughout the economy. Since the Fed doesn't have "gold" that it buys or sells, it just raises or lowers the price of money itself (and THAT, only indirectly), people bitch that what it does, is "fiat money".

But all that misses the point: if the amount of "money" in the system increases faster than the amount of wealth in the system, the money is worth less, cuz there's more of it than there is stuff to buy. If the "money" increases more slowly than wealth, then the money is worth MORE, measured in what you can buy with it.

And if the amount of "money" doesn't grow at all, which is basically what the gold standard guys want, then it makes more sense to hold gold than to invest in stuff that literally MAKES money -- and not "fiat money", but the stuff that actually creates jobs and earns.

Most folks conclude from the evidence that "fiat money" (if you really wanna be that nerdy), that is, government-issued currency, is a more efficient way to help ordinary people build better lives than "the gold standard". But that's not so much cuz of "fiat money", as it is that the Fed and American leadership in the world, which is mostly but not entirely economic, has done pretty well for 60 years or so, most likely BECAUSE, not in spite of, abandoning the gold standard in favor of paper money backed by "the full faith and credit" of our government AND with its supply controlled -- sort of -- by the Fed, whose role in (sometimes lowering, but often raising) interest rates was famously described as "taking the punchbowl away when the party gets started". THAT'S "fiat money".

Clear enough, Crissa?

Posted by: theAmericanist on November 13, 2007 at 5:57 PM | PERMALINK
What Ron Paul really is looking to do is to legalize other forms of money

Many other media of exchange are legal. They may be somewhat more difficult to account for in tax records, you have to exchange them to get government money to pay debts to the government, because the government doesn't like to use them (and its hard to imagine this changing even if legal tender laws were repealed), and the courts generally won't issue judgements in anything but government money.

It is simply because if given a choice between a dollar that gains value and 1 that loses value, people would logically choose the one that gains value, and that in itself would destroy the fed.

Nothing stops people from exchanging dollars for commodities that may increase in value against the dollar (or decrease! Gold prices may tend to increase in the long term, but they certainly are not monotically increasing) now. Indeed, there are very active markets in which people do just that every day.


Posted by: cmdicely on November 13, 2007 at 6:06 PM | PERMALINK

Back in the '80s, I had a Fiat and it didn't cost a lot of money, so what's the problem with fiat money?

And why can't all the gold-standard, flat-earth, butterchurn types write more concisely? They have all the sparkling prose and brevity of Lindon LaRouche.

Maybe because on the intertubes, as opposed to...say, in normal human conversations, people don't start to nervously clear their throats and edge away. You guys (and I'll bet you're all guys) need to get out more.

Posted by: jrw on November 13, 2007 at 6:48 PM | PERMALINK

The Fed does that by just raising or lowering the interest rate that it charges itself and its member banks, which are like the main valves for the flow of money (as credit) throughout the economy. Since the Fed doesn't have "gold" that it buys or sells, it just raises or lowers the price of money itself (and THAT, only indirectly), people bitch that what it does, is "fiat money".

The rest of your post is sound, but you do make what the Fed does sound a little more hocus-pocus than it is.

The Fed does not only raise or lower the price it charges itself (and other banks) for money. It also does two things to change the size of the money supply that are not simply paper transactions:

1. The Fed actually buys and sells securities on the open market. By doing this, the Fed can change the size of the money supply by pumping money into the economy or taking it back out and holding it.

2. The Fed controls bank reserve ratios, as noted above. The Fed can change the amount of money that a bank must hold for every $1 on deposit, and that directly changes the size of the money supply.

Posted by: Dilan Esper on November 13, 2007 at 7:07 PM | PERMALINK

lol, this has to be one of the dumbest blogs from the original post, down to the comments.

But don't let a little thing like research and facts get in the way of smearing the only presidental(sic)candidate who represents the individuals of this country

By: badmedia; no, actually badfaith would be better. You're a typical Paulite, you hear the argument but you don't listen. No surprise there.

The Americanist, if poor Crissa actually takes the time to read your prolix attempt to square the circle of "fiat" money, she'll no longer be uninformed, but she will be misinformed.

When you say something like Gold has a value in itself. In the end, it's because people will pay a pretty high price to get it, and that's that. you lose all semblance of credibility. You've asserted that gold has an intrinsic value and your proof is that's that.

There have been some good chuckles in these comments but that one's a full guffaw.

Posted by: TJM on November 13, 2007 at 7:30 PM | PERMALINK

Okay, so let's GET philosophical: what's value?

If I'm hungry, a cheeseburger has value, cuz I can eat it, and I really, really want to eat something. If I'm starving, a tofuburger has value, too. (But I'd have to be REALLY hungry to pay for a tofuburger.)

Likewise, if I'm freezing cold, a coat has value, cuz it can keep me warm.

Gold has value -- intrinsically, if you like -- cuz it's useful. It's not AS useful as some other stuff (you can't eat it), but its usefulness is much more closely related to its value than the price of the paper is to paper money.

This is where I think folks lose themselves in jargon and cant, out of the delusion that scoffing at "cuz people will pay a high price for it... that's that" is less clear (or valid) than 'squaring the circle of fiat money'.

What makes a hundred dollar bill worth $100, is that the US government SAYS so.

What makes an ounce of gold worth $400 (or whatever it's going for at the moment), is simply that this is the market price for it.

The market price for $100, if you like, is determined by what it will buy (in goods and services), or in other currencies -- which brings you back to the rest of the stuff I was talking about. Prolix, sure -- but I note that you scoffed, rather than clarified.

It gets difficult to TALK about this sorta thing, cuz folks immediately challenge your terms -- but as a rule, that's only useful if you do it to clarify rather than to obscure, which is what I think you're doing, TJM.

The paper in a hundred dollar bill, the holograms and engraving, have no value beyond what the US government says the thing is worth.

If you wanted to make jewelry out of an ounce of gold, or turn it into gold leaf, you might actually make it worth MORE than $400: gold is a raw material in a way that the paper in a hundred dollar bill is not.

Granted, that doesn't reveal much about markets -- but it DOES explain what makes paper "fiat money" in a way that gold is not.

Posted by: theAmericanist on November 13, 2007 at 9:14 PM | PERMALINK

Hey Kevin,

You didnt ask, but the reason I think you are an ignorant douche is that you continue to see value in an individual income tax that largely only pays for our massive and largely unnecessary defense spending, you see a reason for continuuing the minimum wage rather than finding ways to increase worker productivity, dont want to repeal the 16th amendment, and you have NO IDEA why paper money is the path to behind the scenes manipulation and hijacking of the economy.

Paul is obsessed with fiat money because he is one of the few people outside the Fed who actually understands it. You could do yourself a favor by shutting up and listening, or perhaps, you could do some independent research, instead of prattling on about what you dont understand.

But if I had to choose between you as a commentor and say, Bill O'Reilly, would I vote for you? You bet. A douche is probably better than a turd sammich.

Posted by: Malum Prohibitum on November 13, 2007 at 9:40 PM | PERMALINK

Why not a gold standard? Because it has been demonstrated that the gold standard is too inelastic to handle the economic variations that occur in an industrial world enconomy (see: Depression, Great).

Posted by: Doug on November 13, 2007 at 9:50 PM | PERMALINK

Fiat money is a con job. Accepting the con--or even embracing it--doesn't make it any less of a con.

Invariably, countries have resorted to fiat money to fund military adventures. The Vietnam war was what undid our commitment to at least relatively sound money.

Some of you should read your Hayek. Or your Keynes. Or your Lenin. All three very different men understood what fiat money was all about.

Posted by: moodmovesmarkets on November 13, 2007 at 10:03 PM | PERMALINK

Still waiting to hear what happens to the gold standard economy when Hugo Chavez is drilling for oil and unintentionally uncovers a mountain of gold twice the size of the existing supply.

Its not as if this is a hypothetical question: diamonds are thought by many to have intrinsic value, but it is widely suspected that Russia has enough high-quality Siberian diamonds mined during the Soviet era sitting in warehouses to reduce the price of natural diamonds to below that of cubic zirconia anytime they so desire.

Cranky

Posted by: Cranky Observer on November 13, 2007 at 10:17 PM | PERMALINK

Any student of American History knows that financial swings were WAY more severe up until the Great Depression. Before then the US had a depression about every third decade, and we haven't had one since. The US abandoned the gold standard in 1933. How about that. It seems to me that gold standard bugs have a pretty tough empirical hurdle there.

My main beef with libertarians is that they are too fond of the beautiful theory.

Still commenters (and Kevin) are right when they say Paul is the least objectionable Republican. He is an isolationist in a typical libertarian over-pure way, and compared to his Republican competition that isn't so bad.

Crank, yes, but a relatively harmless crank.

Posted by: tomtom on November 13, 2007 at 10:24 PM | PERMALINK

moodmovesmarkets: Some of you should read ... your Keynes.

My second favorite line of his was decrying the absurdity of basing a currency on "silly dead metal".

Posted by: alex on November 13, 2007 at 10:58 PM | PERMALINK

I know what faith and interest backed currency - as that's what we have - but it seems not worse than being arbitrarily attached to gold or wheat or rice or oil. In fact, it seems better, since it is an arbitrary valuation of arbitrary values!

There's no chance in our fed backed money for us to 'run out' of money for which to buy things. If every dollar has to be backed by gold (or whatever) in a bank, that gold (or whatever) isn't actually worth anything, it's sitting in a damn bank doing nothing.

We couldn't have gone to the moon with a gold standard - there wouldn't have been enough dollars to go between the various contractors, workers, programmers, engineers, welders, workers... Astronauts. None of them make gold, they need money.

Work has value. And that's basically the value of the currency - what we value the 'work' of the nation. It doesn't care if it's interest gained, pulling weeds, programming, or mining gold. It's still value, and it all goes into the value of a dollar.

My question wasn't a purely definitional one - it was about the controversy about it. Why it's supposedly worse for everyone to have value instead of merely those people with stuff. Or gold, in this case.

Gold is inherently worthless. You can't eat it, you can't create energy from it, it doesn't build houses, we could have computers without it. Some day we'll be able to make gold from lead by moving around protons and neutrons, and where will the gold standard be then?

Much like the diamond industry - sue to keep man-made gems from entering their market, I'm sure.

Posted by: Crissa on November 13, 2007 at 11:42 PM | PERMALINK

What is WITH these goldbug idiots anyway? What, is arguing about laetrile just so 1970s?

Posted by: jprichva on November 13, 2007 at 11:48 PM | PERMALINK

to the anti-golders:

Nobody with any sense will tell you that there aren't ANY problems with gold. There were plenty of problems. People in small societies cornered the market, goldsmiths shaved coins, fractional reserve banking meant that there was more issued gold than actual gold, the value of gold could fluctuate relative to other goods depending on supply, and of course when the amount of money is determined by a hard limit, you can suffer from situations where the flow slows down and it can limit growth.

The point really is that those problems affected everyone, not just a few people. Gold was very egalitarian, because, in effect, it was barter.

Fiat money on the other hand, has serious potential for abuse, particularly in the system we have, where a privately held bank controls the money supply and sets interest rates. First of all, this privately held bank literally creates money from thin air, and makes profits in the terms of interest by lending... you guessed it... NOTHING! The only security (leaving out the fractional deposit security requirements which are also determined by the private bank) which is entered in the books is the promise to pay, and perhaps a repossessory interest in the borrower. Because this money is created with a promise to pay, the borrower (and remember without borrowing, there is no money) MUST CREATE GROWTH, WHETHER IT HAS REAL VALUE OR NOT! For you lefties who are fans of sustainable growth models, this should be a big deal breaker for you. Fiat money systems require exponential economic growth to continue the cycle.

Also, since the private central bank controls interest rates, they charge our government interest on the money they 'borrow', which again is nothing, when the government was the one with the authority to issue the money in the first place.

Think of it as the largest Halliburton Scam of all time... A no bid contract, with obscene profits, under which the contractor has the ability to steal from the customers, simply by pumping out more product at zero cost, which devalues the money already in circulation.

Its quite the ponzi scheme.

Posted by: malum prohibitum on November 14, 2007 at 1:12 AM | PERMALINK

Sustainable growth requires arbitrary monies.

A representational currency can't do that.

Besides, if there's gold in the bank - it's doing the same thing that you claim that fiat money is doing: Nothing.

So... What?

Posted by: Crissa on November 14, 2007 at 1:26 AM | PERMALINK

Fiat money on the other hand, has serious potential for abuse, particularly in the system we have, where a privately held bank controls the money supply and sets interest rates. First of all, this privately held bank literally creates money from thin air, and makes profits in the terms of interest by lending... you guessed it... NOTHING!

That's not true, and it gets to the beauty of the Federal Reserve. That's right, beauty-- something that someone who is less dogmatic about their money actually being "worth" something would be able to see.

You see, the Federal Reserve is not private. It is a government agency. But it is independent of the political branches. And that combination is perfect, because in order to stabilize the business cycle, the Federal Reserve does, as you say, have to control the money supply, which it does in part through operations (lending at interest, purchasing and selling securities) that could result in a substantial profit to the bank. (Again, I should note that the Fed also controls money supply through the reserve requirements, and the Fed doesn't make any money directly by doing that.)

So here's where the bank's independence comes in-- the bank, while part of the government, is also independent enough that political branches cannot force it to try and raise money through its operations to pay for the government. Rather, it targets the money supply and, by all accounts, doesn't give a crap whether it makes money or loses money in its open market operations and lending.

That's a perfect structure for regulating the business cycle.

And I guess the question I would ask the goldbugs is: do you care about regulating the business cycle? I get all the arguments about wanting a currency that is backed by something, worrying about a currency collapse if people lose confidence in the dollar, etc. I don't buy those arguments, but I think I can see what they are coming from?

But why would we want to give up regulating the business cycle in favor of a system where the value of an arbitrary commodity determines the money supply, resulting in contraction when we might want expansion and expansion when we might want contraction? Is it simply that you don't think the Federal Reserve is constitutional, or is it that you don't trust the government to regulate the business cycle, or is it that you simply don't care one way or the other about the business cycle and if the gold standard causes a recession or two, so be it?

Posted by: Dilan Esper on November 14, 2007 at 2:14 AM | PERMALINK

Okay, Cranky: let's go GET those Siberian diamonds. Soviet-era warehouses? We're talking iron bars and easily hackable "security" systems. A couple cases of vodka and some Krugerrands... You up for it?

Posted by: theAmericanist on November 14, 2007 at 8:02 AM | PERMALINK

I have another question for the gold bugs:

So you are in favor of the vast environmental degradation of modern gold mining where it takes 30 tons of rock to produce a single ounce of gold by means of pouring concentrations of POISON onto the mountains of tailings?

These methods are currently turning vast swatches of formerly pristine wetlands and tropical rainforests into toxic wastelands.

Got arsenic?

'A belief in a supernatural source of evil is not necessary; men alone are quite capable of every wickedness.' - Joseph Conrad

Posted by: MsNThrope on November 14, 2007 at 8:31 AM | PERMALINK

Still waiting to hear what happens to the gold standard economy when Hugo Chavez is drilling for oil and unintentionally uncovers a mountain of gold twice the size of the existing supply.

In legalese, that question has been asked and answered. Spain, 16th century. But, but..... it's gold related currency issued by each bank that wants to have....good grief.

Posted by: TJM on November 14, 2007 at 9:09 AM | PERMALINK

What makes a hundred dollar bill worth $100, is that the US government SAYS so.

Except as the monopolistic printer and issuer of currency, what the government says that bill is worth doesn't mean squat. The extent to which a person (legal or actual) with whom you are exchanging that bill for something, whether that something is time or goods, is willing to accept that bill says what the bill is worth. The currency is a medium of exchange within a system, in this case, the US economy. Try buying a cup of coffee in England with that $100 bill and tell them the US government says it's worth $100.

The value of the bill in in what or how much the bill can be exchanged for. It has no intrinsic or inherent value in and of itself. Neither does gold, oil, tin or anything else. It (fiat currency, gold, oil, tin you name "it") greases the skids of commerce or trade.

Where Paul goes off track is by asserting that anybody who holds gold can issue currency in an amount represented by that quantity of gold. He can't specify what the exchange value will be because he thinks the market will value it. Somebody, whether it's the government or the "bank", will have to state a value but nobody will know what that value actually is until an exchange takes place.

Money is also a store of value but that's another chapter.

Posted by: TJM on November 14, 2007 at 9:42 AM | PERMALINK

While I'm here, this article from Bloomberg today is on point.

American Gangster's Wad of Euros Signals Losing U.S. Confidence

Whoever wins the White House next year will confront two unpopular choices: Accept the fall in U.S. clout and the rise of new rivals, or rein in record public and consumer debt that the rest of the world no longer wants to bankroll.

Posted by: TJM on November 14, 2007 at 9:58 AM | PERMALINK

TJM is reifying and obnubilating unnecessarily.

It's a practical question requiring clarity -- not TJM's strong suit.

If Crissa still cares (and I think she understands it anyway), "fiat money" simply means that the US government says this piece of paper is a hundred dollar bill, so it's worth 100 bucks.

What $100 BUYS is a whole different question. If the US government prints $100 bills faster than the economy grows, the "money" buys less. If they print 'em slower than the economy grows, the "money" buys more (fewer dollars, more goods and services). Historically, inflation kills nations -- but DEflation kills economies.

What I don't understand about the Paulbearers is where their pessimism comes from: the US has done remarkably well under the Fed, particularly since WW2.

Predictions that things MUST get much worse, any day now, may be insightful, they may even come true -- but they're NOT based on the performance of our economy since WW2, despite all this 'fiat money', and the impressive shocks of a stalemate in one war (Korea), losing another (Vietnam), and a long stretch of inflation without much growth (early 70s). We've had huge deficits (Reagan, now Bush), AND a balanced budget (briefly, under Clinton); the political branches have changed hands over and over, with all kinds of different fiscal and budget policies -- and yet we haven't had anything more serious than the early 70s, thank God.

Compare THAT to any comparable period (1845-1907?), and methinks the Fed looks pretty good.

So where's the pessimism come from?

Posted by: theAmericanist on November 14, 2007 at 10:31 AM | PERMALINK
Except as the monopolistic printer and issuer of currency, what the government says that bill is worth doesn't mean squat. The extent to which a person (legal or actual) with whom you are exchanging that bill for something, whether that something is time or goods, is willing to accept that bill says what the bill is worth.

The second part is true, the first is false. You will note that all sorts of legally mandates fees, fines, and penalties collected by the government are set in particular quantities of US dollars. The governments role in establishing the value of money is not just as a monopolistic printer and issuer of currency, but as a major participant in exchanges, one that mandates payment in the currency and backs up its mandates, ultimately, with the threat of force.

Posted by: cmdicely on November 14, 2007 at 1:18 PM | PERMALINK

(snicker) Dice's stooopidity masquerading as sophistry never ceases to amaze me: now he figures that cuz governments print money they exist outside of market forces.

He just expresses it so densely he figures nobody will call him on it: yeah, like the way the DoD pays for paper clips with dollars means anything but that they buy a lot of paper clips with a lot of dollars.

Natch, this means the DoD can negotiate a lower unit price, but last I looked, gov't contracts generally mean the contractor gets rich, not forced into bankruptcy.

Or perhaps Dice was musing about how the US government forces contractors to accept sub-market prices at gunpoint?

Dayum, even for him....

Posted by: theAmericanist on November 14, 2007 at 1:24 PM | PERMALINK

The second part is true, the first is false. You will note that all sorts of legally mandates fees, fines, and penalties collected by the government are set in particular quantities of US dollars. The governments role in establishing the value of money is not just as a monopolistic printer and issuer of currency, but as a major participant in exchanges, one that mandates payment in the currency and backs up its mandates, ultimately, with the threat of force.

That's silly. Yes, the government expects payment in dollars. But that just means that when you have to pay the government something, you need to exchange whatever medium you use to store your wealth for dollars. Indeed, most people do this when they write a check to the government. Rather than hiding our money in our mattresses, we keep it in a bank account, and then we make written demand on our bank (in the form of our check) to pay the government in dollars.

But, you see, you can also do this while keeping your wealth in any relatively liquid securities, including those that are backed by gold. If you want, you can buy gold from a commodities broker, and obtain check-writing privileges. Then, when you want to pay the government some money, the broker will sell enough gold to buy the dollars necessary to pay the government, and then transfer those dollars to the government. Nothing stops you from doing this.

This whole notion that it is impossible for people to back their wealth with gold is completely wrong. What must be bothering the gold bugs is that the rest of us see nothing wrong with fiat money and are willing to use it. Of course, in fact, that belief is an economic good, because it is belief in a currency's value that makes the exchange system work.

Posted by: Dilan Esper on November 14, 2007 at 2:13 PM | PERMALINK
now he figures that cuz governments print money they exist outside of market forces.

Actually, I never said anything like that.

What amazes me about you isn't that you never come up with a decent counterargument, its that you consistently respond with abuse to your own fantasies, rather than responding to things that I've actually said.

Posted by: cmdicely on November 14, 2007 at 2:17 PM | PERMALINK
That's silly.

How so?

Yes, the government expects payment in dollars. But that just means that when you have to pay the government something, you need to exchange whatever medium you use to store your wealth for dollars.

Exactly so, and I meant nothing more than that: that what the government says a bill is worth is important because the government has a role beyond that of printer and issuer of currency, but as a particularly important participant in exchanges of dollars.

Indeed, most people do this when they write a check to the government. Rather than hiding our money in our mattresses, we keep it in a bank account, and then we make written demand on our bank (in the form of our check) to pay the government in dollars.

But, you see, you can also do this while keeping your wealth in any relatively liquid securities, including those that are backed by gold.

Exactly so.

This whole notion that it is impossible for people to back their wealth with gold is completely wrong.

Again, exactly so. I've said as much, upthread.

Posted by: cmdicely on November 14, 2007 at 2:25 PM | PERMALINK

Dice, you constantly prove the axiom that folks who don't think clearly cannot write plainly -- nor even understand what THEY wrote.

You wrote: "The governments role in establishing the value of money is not just as a monopolistic printer and issuer of currency, but as a major participant in exchanges, one that mandates payment in the currency and backs up its mandates, ultimately, with the threat of force."

Which means (to the extent it means anything): "cuz governments print money they exist outside of market forces. "

Posted by: theAmericanist on November 14, 2007 at 5:26 PM | PERMALINK
Dice, you constantly prove the axiom that folks who don't think clearly cannot write plainly -- nor even understand what THEY wrote.

Strangely, while other people occasionally misinterpret what I write, no one else does so as consistently as do you. The rational conclusion is that the problem that you experience is not one with my writing, but with your reading, especially given that your problem is not limited to my writing, but frequently manifests with mispresentations of other people's writing on this blog, as well.

You wrote: "The governments role in establishing the value of money is not just as a monopolistic printer and issuer of currency, but as a major participant in exchanges, one that mandates payment in the currency and backs up its mandates, ultimately, with the threat of force."

Correct.

Which means (to the extent it means anything): "cuz governments print money they exist outside of market forces. "

No, it doesn't mean that at all. For instance, you identify the key premise as "cuz governments print money". The lesser error with that is a failure to recognize the context of the discussion: it is not about "governments" in general or abstract, but the U.S. government in particular. The greater error is reversing the dismissal of the goverment's printing role as the source of the effect being described into a focus on that role as the source. What was actually written about government printing is: "The governments role in establishing the value of money is not just as a monopolistic printer and issuer of currency, but as a major participant in exchanges [...]". (The reference to the role as "monopolistic printer and issuer of currency" was a reference to the role the poster to which I was responding had characterized as the exclusive source of the governments influence in valuation, a position my post rejected.) Apparently, you don't understand what "not" and "but" mean.

An reasonable shorter paraphrase of my original post on the issue is: "What the government says a bill is worth is important because the government has a role beyond that of printer and issuer of currency, as a particularly important participant in exchanges of dollars."

Its almost precisely the opposite of your characterization: it is pointing to the importance of the action of the government in the market for dollars in influencing the value of the dollar, not its immunity to market forces, and it is based on the government's actions besides printing money, not on the fact that government prints money.

It does not say that the government is immune to market forces, and it doesn't say anything results from government's role in printing money, indeed, it dismisses that role as, if not actually secondary, outside the focus of the analysis it presents. Again, the problem is that you can't read fairly straightforward English sentences.

Posted by: cmdicely on November 14, 2007 at 6:51 PM | PERMALINK

This guy thinks THIS is a "fairly straightforward English sentence"?

"The greater error is reversing the dismissal of the goverment's printing role as the source of the effect being described into a focus on that role as the source. "

No wonder you can't think.

Posted by: theAmericanist on November 14, 2007 at 8:56 PM | PERMALINK

What I've never understood about the gold-standard people is why they want our economy to undergo ruinous inflation the next time there's a gold strike in the Ukraine or South Africa, where most of the world's gold is located. Are those stable governments? Do we want them controlling the fate of our economy?

and why we've added another $8 trillion since Reagan

When Clinton balanced the budget, ran a surplus, and thereby reduced that debt, he put us back on the gold standard to do so?

Now, we see that the dollar is dropping faster than the boxers of a stallwart Republican. Hyper inflation is right around the corner, which is the terminal stage of fiat.

It is dropping relative to the Euro. Which is backed by...?

Come on people -- even my 7-year-old boys know that gold is real money, and fiat paper isn't.

Evidently my six-year-old is smarter than your 7-year-olds. I showed him a stack of pieces of paper that say they're worth $20 and my gold ring, and asked him which one he'd rather have. His eyes got big and he pointed to the real money. $20 is eighty video games down at the skating rink, while my ring is ... just a pretty ring. Gold is something Dungeons and Dragons characters want, so he explained to me. Real people use money.

Posted by: eyelessgame on November 14, 2007 at 10:06 PM | PERMALINK

The thing happening here is pretty obvious - libertarians want everything privatized, hence they want money privatized. It's not the gold standard per se, it's that they cannot abide the devil (government) actually having worth in the eyes of the people.

It's religion. "Government is bad." Everything follows from that dogma, gold standard to abolishing public schools to dismantling the Army.

Posted by: eyelessgame on November 14, 2007 at 10:10 PM | PERMALINK

All this talk about the gold standard. If you lived back in the Roman times you could buy a quality tunic a pair of sandals and a belt for a quarter of an ounce of gold. Fast forward to today and you can buy a suit pair of shoes and belt with a quarter ounce of gold. Gold holds its value. Fiat currency has no intrinsic value. It's funny money and losing its value every day.

Federal Reserve is a private corporation.

Never been audited.

Pays no taxes????

Unconstitutional.

3rd National Bank, the other two failed.

As Henry Ford stated (to paraphrase) "If the American public really knew how the banking industry really works there would be a riot by tommorrow morning."

Posted by: Paul G on November 15, 2007 at 10:30 AM | PERMALINK

Fiat currency has no intrinsic value. It's funny money and losing its value every day.

True (in some minor sense-- inflation isn't very high these days), but again, if you don't like fiat money, as noted above, you can purchase gold backed securities. You guys still haven't told me why the lack of a gold standard prevents those who feel the way you do about fiat money from opting out of the system. What seems to bother you is that the REST of us don't have any problem with fiat money-- thereby averting a currency crisis. But why's that any business of yours?

Federal Reserve is a private corporation.

Never been audited.

Pays no taxes????

Unconstitutional.

3rd National Bank, the other two failed.

Even if we assume this is valid, it has nothing to do with the gold standard. But taken on its merits, it is wrong. Why do you guys insist that the Fed is a private corporation? It isn't. It's a governmental agency. It is run by a board of governors appointed by the government. It was created by and is subject to the laws made by Congress.

It looks like a lot of people who are into this gold standard crap are just repeating a lie over and over again. Let's say it again. The Fed is a governmental agency. (That's also why it pays no taxes.)

Now it is true it isn't audited. Why? Because it is an independent agency, and that independence is crucial to it being able to do its job, because the independence protects it from politicians who might want to manipulate the money supply or use open market operations to fund government expenditures.

And as for the first 2 banks of the United States, neither of them failed by the way; their charters expired.

Finally, is the Fed unconstitutional? If you are a firm believer in the unitary executive theory, you can make the argument that it is. But the Supreme Court upheld the Second Bank of the United States under the necessary and proper clause, (and held it could be immmune from taxation) and there seems to be no move to revisit that decision.

And there are many people who think the unitary executive theory is unmitigated BS, that Congress can create agencies with different rules of tenure, and that it can insulate agencies from Presidential control and corrupting influences.

My point, though, isn't to resolve this issue. It is simply to note that if you don't believe the Fed is constitutional, that's fine, but you should recognize that (1) a decision upholding your view isn't coming any time soon, and (2) even if the Fed is unconstitutional, that doesn't mean it doesn't do its job well.

As I noted above, the structure of the Fed works great at insulating the agency from political influence, which in turn protects the soundness of the money supply. Why would this tick off the goldbugs?

The only answer would seem to be that you guys WANT the currency to fail and are pissed off that the Fed does such a job at protecting the illusion of fiat money. But you should remember, that illusion also protects our jobs, our savings, and our economy. It may outrage you, but destroying the independence of the Fed will harm a lot of people-- and will destroy a crucial tool to regulate the business cycle. I guess the welfare of those people just don't matter to you guys.

Posted by: Dilan Esper on November 15, 2007 at 4:01 PM | PERMALINK

FEDERAL RESERVE ACT

SECTION 7—Division of Earnings

Dividends and Surplus Fund of Reserve Banks

(a)(1)(A) After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders of the bank shall be entitled to receive an annual dividend of 6 percent on paid-in capital stock.

(B) The entitlement to dividends under subparagraph (A) shall be cumulative.

(2) That portion of net earnings of each Federal reserve bank which remains after dividend claims under subparagraph (1)(A) have been fully met shall be deposited in the surplus fund of the bank.

(b) Transfer for fiscal year 2000.

(1) The Federal reserve banks shall transfer from the surplus funds of such banks to the Board of Governors of the Federal Reserve System for transfer to the Secretary of the Treasury for deposit in the general fund of the Treasury, a total amount of $3,752,000,000 in fiscal year 2000.

(2) Of the total amount required to be paid by the Federal reserve banks under paragraph (1) for fiscal year 2000, the Board shall determine the amount each such bank shall pay in such fiscal year.

(3) During fiscal year 2000, no Federal reserve bank may replenish such bank's surplus fund by the amount of any transfer by such bank under paragraph (1).

[12 USC 289. As amended by acts of March 3, 1919 (40 Stat. 1314); June 16, 1933 (48 Stat. 163); Aug. 10, 1993 (107 Stat. 337); Sept. 23, 1994 (108 Stat. 2291); and Nov. 29, 1999 (113 Stat. 1501A-304), which added this subsection (b) but failed to redesignate existing subsection (b) (12 USC 290).]

Use of Earnings Transferred to the Treasury

(b) The net earnings derived by the United States from Federal reserve banks shall, in the discretion of the Secretary, be used to supplement the gold reserve held against outstanding United States notes, or shall be applied to the reduction of the outstanding bonded indebtedness of the United States under regulations to be prescribed by the Secretary of the Treasury. Should a Federal reserve bank be dissolved or go into liquidation, any surplus remaining, after the payment of all debts, dividend requirements as hereinbefore provided, and the par value of the stock, shall be paid to and become the property of the United States and shall be similarly applied.

[12 USC 290. Part of original Federal Reserve Act; not amended. Designated subsection (b) by act of Aug. 10, 1993 (107 Stat. 337).]

Exemption from Taxation

(c) Federal reserve banks, including the capital stock and surplus therein, and the income derived therefrom shall be exempt from Federal, State, and local taxation, except taxes upon real estate.

[12 USC 531. Part of original Federal Reserve Act; but in effect amended by 31 USC 3124(a), which reads as follows:

“(a) Stocks and obligations of the United States Government are exempt from taxation by a State or political subdivision of a State. The exemption applies to each form of taxation that would require the obligation, the interest on the obligation, or both, to be considered in computing a tax, except—

(1) a nondiscriminatory franchise tax or another nonproperty tax instead of a franchise tax, imposed on a corporation; and

(2) an estate or inheritance tax.”

Designated subsection (c) by act of Aug. 10, 1993 (107 Stat. 338).]


Posted by: Malum Prohibitum on November 17, 2007 at 11:32 AM | PERMALINK




 

 

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