Fiat Money: The Fuel of Government

October 15, 2009 in Book Reviews, Economics | Comments (49)

 

End the Fed

 

By Ron Paul

 

210 pp. Grand Central Publishing 2009

 

How many politicians are capable of writing a book, nay, a paragraph that would be worth reading?  Watching them on TV, they seem the most spineless, uninteresting group of people imaginable.  It seems obvious why.  In the same way diversity leads to a culture that appeals to the lowest common denominator, a popularity contest involving the general population favors the smallest men imaginable.  

 

An exception is Ron Paul, a man who lives a life of ideas and action, as the Founding Fathers did.  The congressman has spent a lifetime as a champion of liberty and his greatest enemy is the Federal Reserve.  Fresh off his 2008 presidential campaign he wrote End the Fed.

 

Our Government the Thief

 

According to Paul, the best case against the Fed is simply that it’s immoral.  When government prints a new dollar, the value of each one in circulation goes down.  The government shouldn’t be allowed to print money for the same reason you or I aren’t allowed to counterfeit.

 

If that’s not enough for you, there is the constitutional argument.  The Tenth Amendment to the Unites States Constitution says that whatever powers not explicitly granted to the Federal Government are left to the people or the states.  There is nothing in the Constitution about centralized banking.  And the states aren’t allowed to declare whatever they want as money either.  Article 1, Section 10: “No state shall…make anything but gold and silver coin a tender in payment of debts.”  The economic argument that centralized banking is needed to deal with the boom and bust cycle is like a tobacco company saying that their goal is to fight lung cancer.  It’s the Fed which mandates artificially low interest rates and creates imagined wealth in the first place, leading to the bust phase.  Unfortunately, Paul doesn’t explain this clearly enough and I think he may expect too much from the casual reader.  The author proceeds as if it’s common knowledge what the Fed is and what it does, or even how money works.  Had I not read Murray Rothbard’s The Case Against the Fed and What Has Government Done to Our Money? I would’ve been lost.  Both books along with those of others by Mises Institute scholars are recommended under suggested reading.

 

Paul points out that he’s not obsessed with his gold; he’s happy to let the market decide what commodity to use as a medium of exchange.  Let the government get out of the business completely.  Gold, from Ancient Egypt to the twentieth century, has emerged as the preferred commodity due to its durability, intrinsic value, difficulty to counterfeit and divisibility. 

 

The state has long understood how its power is threatened by gold.  Paul recalls him and his aide Lew Rockwell in 1980 meeting Federal Reserve Chairman Paul Volcker for breakfast.  When Volcker arrived, before acknowledging his two eating companions, he turned to his aide and asked, “What’s the price of gold?”  The higher it is, the less faith there is in the currency system.  It’s no wonder that Roosevelt confiscated all gold in 1933-1934 and the government for the next few decades would try to fix the price of the metal.  Nixon in 1971 took the US completely off the gold standard.  The commodity once again became legal to own in bullion form only later that decade thanks in large part to the Paul’s efforts in congress.  When government isn’t being evil, it’s incompetent.  A congressman on a committee dealing with financial matters once asked Paul whether the dollar was still backed up by gold.

 

Ronald Reagan once told the author, “Ron, no great nation that abandoned the gold standard has remained a great nation.”  Gee, if only he was in a position to do something about it!  More maddening is the case of former Federal Reserve Chairman Alan Greenspan (1987-2006).  Paul remembers reading a 1966 article by him in Ayn Rand’s newsletter The Objectivist called “Gold and Economic Freedom.”  Greenspan wrote,

 

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.  There is no safe store of value.  If there were, the government would have to make its holding illegal, as was done in the case of gold…

 

This is the shabby secret of the welfare statists’ tirades against gold.  Deficit spending is simply a scheme for the confiscation of wealth.  Gold stands in the way of this insidious process.  It stands as a protector of property rights.  If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.  

  

In 2004 Paul brought the article to Greenspan before a scheduled meeting and asked him to sign it.  Paul asked whether Greenspan would like to put a disclaimer on it.  “Astoundingly, he answered that he had just recently reread it and wouldn’t change a word of it.”  Paul struggles to reconcile this with Greenspan’s tenure as head of the Federal Reserve.  He concludes that the chairman was operating under the philosophy of pragmatism, detested by Greenspan’s old idol Ayn Rand.  The author provides long transcripts of exchanges he had both with Greenspan and current Chariman Bernard Bernanke.  The two men assured the congressman that the financial system was sound as Paul warned that our wealth was artificial and the day of reckoning would come.  

 

The Federal Reserve and the Warfare State

 

The ability to print money gives the government unlimited power.  If you tax the people too much they rebel.  But if you declare your paper to be the only thing used as legal tender and allow yourself to print as much of it as you want, there’s no limit to what you can do.  The effects of inflation are as real as any tax.  It’s just that the people are slower to notice and connect their lower living standards to the actions of the government.  The scariest power that the Federal Reserve gives government is that to wage war.  

 

Under a regime of sound money government would have to pay for war, or anything else it did, by taxation.  Since war is costly, heads of state tried to avoid it.  If war did start, governments would try to settle as quickly as possible.  With the ability to print money, the state could finance ambitious projects and scapegoat others when it wrecked the economy.  As Paul puts it, “It is no coincidence that the century of total war coincided with the century of central banking.”  

 

The US Federal Reserve was founded in 1913 and allowed America to enter World War I four years later.  It has been estimated that only 21 percent of the war effort was funded through taxation.  56 percent of the spending came from Fed-backed borrowing and 23 percent of the money was created out of thin air.  Without centralized banking there would’ve been no World War I, Treaty of Versailles, Russian Revolution, Nazism or World War II.  

 

Lew Rockwell explained that centralized banking funded Russia’s efforts in the First World War.  It “turned a relatively benign monarchy into a war machine.  A country that had long been integrated into the worldwide division of labor and was under a gold standard became a killing machine.”  The inflation led to massive unrest and eventually, Communism. 

 

Today, the Federal Reserve funds the American empire as it has the wars in Iraq, Haiti, Korea, Vietnam, Afghanistan, Serbia, the Dominican Republic and Nicaragua,  and bases on every continent but Antarctica. If the American people had to make the connection between the taxes they pay and bases in Kazakhstan or women’s rights workshops in Iraq the beast may be reigned in.  This principle not only applies to wars, but everything else that the government spends its money on.  

 

The Current Mess

 

Paul does not shy away from blaming affirmative action lending and the Community Reinvestment Act for the problems we face. Yet the easy borrowing standards problem is simply a subset of a larger one: a government with unlimited power to inconspicuously steal from the citizen so it can spend on everything from a human rights empire to wasteful education programs for the hopeless.  

 

Without sound money, there is no protection of wealth and thus no freedom.  The things that the bureaucrats can get away with are directly linked to there being no check on the state’s power.  Ending the Fed should be the goal of anybody interested in restoring American freedom and prosperity.  I would’ve never believed that a cause so obscured by the media and requiring some knowledge of economics to understand could gain popular support.  But Paul recounts a telling experience he had at the University of Michigan while giving a campaign speech.

 

…it was a very friendly crowd, applauding my comments on government spending and on wars and on foreign policy.  But when I mentioned monetary policy, the kids started cheering.  Then a small group chanted, “End the Fed!  End the Fed!”  The whole crowd took up the call.  Many held up burning dollar bills, as if to say to the central bank, you have done enough damage to the American people, our future, and to the world: your time is up.  

 

People don’t understand monetary policy and therefore distrust those that make it. This is a healthy instinct and the public should be made to understand that their suspicion of the powerful is justified.

 

Ron Paul strikes me as a man almost too honest and sincere for this world, or at least this era.  The fact that he can have influence says that there is still something good about our system and society.  Whether he’s simply the relic of an old civilization in its last throes or the leader of a true revolution remains to be seen.  

Comments (49)

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  1. Comment by Steve Johnson — October 15, 2009 @ 6:12 pm

    “If the American people had to make the connection between the taxes they pay and bases in Kazakhstan or women’s rights workshops in Iraq the beast may be reigned in. This principle not only applies to wars, but everything else that the government spends its money on. ”

    I think this is getting the problem backwards.

    If the American people believed that bases in Kazakhstan and women’s rights workshops in Iraq were a problem, it would be easier to get rid of the Fed and have an honest currency.

    As it stands now if you told people this they would say “if you get rid of the Fed how would the government pay for ACORN and women’s rights workshops in Iraq?”. People are really and truly convinced that the giant ineffectual government we have now is necessary to prevent huge evils.

  2. Comment by Roy — October 15, 2009 @ 10:02 pm

    My only concern with going to a gold standard is the variability of the supply of gold. In the most extreme recent(ish) example, the 1890’s gold rush was highly inflationary due to the massive increase in the supply of gold, which under a gold standard equates to the money supply.

    That said, given what’s happened in the last few years; I’m leaning pretty hard towards supporting a gold standard as the “least worst option”.

  3. Comment by Richard Hoste — October 15, 2009 @ 10:07 pm

    As it stands now if you told people this they would say “if you get rid of the Fed how would the government pay for ACORN and women’s rights workshops in Iraq?”.

    The typical American doesn’t even know we have bases in Germany and Korea, much less ex-Soviet third world countries. Samuel Huntington showed in his book Who Are We? that there’s an elite/masses divide on questions like should America go to war with China if it attacks Taiwan.

    My only concern with going to a gold standard is the variability of the supply of gold. In the most extreme recent(ish) example, the 1890’s gold rush was highly inflationary due to the massive increase in the supply of gold, which under a gold standard equates to the money supply.

    Gold has been used as money for thousands of years. That means people have been finding and mining it for that long. No increase is going to make a large difference in the overall supply.

  4. Comment by Not Equal — October 15, 2009 @ 11:55 pm

    I like the idea of commodity money, but realistically, is it any more fiddle-proof than fiat money? I’m old enough to remember the Hunt brothers cornering the market on silver back in 1977. Much as I like the idea, it’s pretty clear governments or other parties can manipulate the value of commodities just as well as they can manipulate the value of fiat money. Ultimately all money is fiat money. I’m not convinced gold is any more resistant to manipulation than paper.

  5. Comment by barbara dolan — October 16, 2009 @ 12:05 am

    ” No increase is going to make a large difference in the overall supply.”

    Mr. Hoste, are you at all familiar with the concept of Peak Oil? (If not, here’s some suggested reading: Twilight in the Desert by Matt Simmons; The Oil Factor by Stephen Leeb; A Thousand Barrels a Second by Peter Tertzakian)

    Well, I listen to a program on financialsense.com every Saturday morning, hosted by a guy named Jim Puplava. He’s had on his program as guests before, people who make the case that we’re at Peak Gold production, also.
    After all, here we are, gold over $1,000 an ounce. Econ 101 says that there should be tremendous exploration — and, hence, discoveries of huge deposits — when the price of gold is far above the marginal cost of production, as it is.

    So where ARE those huge discoveries of 10 million + ozs. that economists say we ought to expect? None of note to be found. Today, an exciting discovery is one of 2 million ozs. This, even with the most efficient methods of gold exploration the world has ever known.

    IF the U.S. were to return to a gold standard, the idea that there would be giant discoveries to flood the money supply and cause massive inflation is unlikely — barring a breakthrough, like, say, alchemy to turn lead into gold. (Heh.)

    No, if the U.S. were ever to return to a gold standard, an oz. of gold would have to be worth many, many thousands of dollars. That is another way of saying, the amount of gold per person would be very small. But this is doable, nonetheless, because we could use a process of “digital gold” whereby transactions of tiny amounts, say a gram or two to buy toilet paper, could be transmitted electronically from the customer’s account to the merchant’s — but if you ever managed to save enough to get an oz. worth, say, you COULD go get your digital gold account redeemed into a lovely, shiny gold coin to hold in your pocket.

    http://www.wnd.com/index.php?fa=PAGE.view&pageId=91190
    U.S. dollar replaced by … digital gold?
    Electronic currency could be global money of future

  6. Comment by Not Equal — October 16, 2009 @ 12:20 am

    Well, there’s nothing that says the commodity has to be gold. You could even have competing currencies backed by any number of commodities. Still, as I said above, I’m not convinced that commodities offer much, if any, advantages to fiat currencies. There’s certainly been any number of cases of commodity prices being manipulated.

  7. Comment by David — October 16, 2009 @ 12:58 am

    If we return to a commodity-based money, we don’t have to deal exclusively in gold. Silver presents a medium which is better than gold for day-to-day purchases because of its lesser value. Gold is superior for storage of large amounts of value and for large purchases, while silver would probably be the money that people used most of the time for most purchases. That is not to say that there would be a fixed ratio between the two; their relative values should be set by the market, with prices posted in both metals. A silver dime at current silver prices is worth about $1.25. This is a small enough unit to be handy. Smaller units could be base metal coins, preferably copper and nickel, which would also give real value for value.

  8. Comment by barbara dolan — October 16, 2009 @ 1:11 am

    “Well, there’s nothing that says the commodity has to be gold”

    What is money? Money is a medium of exchange AND a store of wealth. It must be fungible, i.e, that one dollar or oz. of gold is just like another, and it must be rare. If it’s not rare, then people won’t value it. No society known has ever used leaves, for example. They’re too easily gotten.
    Precious metals have been used as money as far back as human history is known. Cavalierly tossing away the collected wisdom of 5000 years regarding money is about as wise, imo, as tossing the collected wisdom of 1000s of years regarding race, as P.C. has insisted we should. We’re seeing now how well THAT’s turning out.

    Could, theoretically, fiat money (”paper dollars,” Federal Reserve Notes) work? Sure, if the gov’t were not corrupt and did not print money at their whim. But all gov’t’s are, by their very nature, incapable of resisting the temptation to devalue the currency instead of upending the peasant to collect his coins.
    This urge to devalue is why a dollar IS the medium of exchange in U.S. but is NOT a store of wealth. The purchasing power of a paper dollar has been devalued by 95% since the Federal Reserve system came into being in 1913.

    Why does a backed-up-by-something-real-and-tangible currency work? Because the gov’t CANNOT just create a real thing out of thin air at will. “Stuff” must be created by real human effort, dug out of the ground, made, formed refined, etc., all at great cost in human blood, sweat and tears. Which is why the peasants get cranky when the tax collectors show up, upend him and shake til the coins fall out that he worked so hard for.

    It is the very fact that precious metals are hard to get (and beautiful, and useful in their own right) that makes them desirable. A commodity like lead simply doesn’t have that “cachet,” that ability to inspire lust to get some, that is so able to motivate humans to do work they hate.

    The one thing a politician fears is the peasants grabbing their torches and pitchforks and storming the hill. That’s why a politician LOVES a fiat money. It’s a hidden tax. So a dollar earned and saved in 1913 has been taxed 95 cents, now. All fiat currencies fail. The only reason the unbacked U.S. dollar has lasted this long is it is the currency that oil is transacted in, which is de facto an oil backing. There is talk now about oil trading in euros — and therefore the dollar may just be losing its de facto oil backing — which is the impetus for gold crossing $1000 this month.

  9. Comment by Les — October 16, 2009 @ 1:38 am

    If we had a true gold coin standard, how would the commodity be manipulated with everyone holding the gold? It seems to me that it would be distributed through out the economy. Obviously, those with the most wealth would have more.

    It is interesting to me that the new largest producer of gold is the Chinese and their government is encouraging their citizens to purchase both gold and silver for wealth protection. As a matter of fact the Chinese government has been quietly accumulating gold for the last several years. You can now purchase gold and silver through banks, the post office and many gold coin stores. That doesn’t sound like manipulation.

  10. Comment by frank white — October 16, 2009 @ 1:47 am

    what confuses me is that most comments say that the u.s. government is printing ,creating the money,when in fact it is the central bank system ,the federal reserve that creates all money,why is the government confused with the true culprit????please send an explanation,thank you

  11. Comment by jack — October 16, 2009 @ 1:50 am

    The Federal Reserve is appointed and supervised by the government. They are not some kind of separate rogue entity.

  12. Comment by Mo — October 16, 2009 @ 4:17 am

    Comment by frank white

    “what confuses me is that most comments say that the u.s. government is printing ,creating the money,when in fact it is the central bank system ,the federal reserve that creates all money,why is the government confused with the true culprit????please send an explanation,thank you”

    For starters; most of us (if not all of us) agree that government (any government, at any level) should never spend any more money than it has in its treasury.

    That said; it’s my opinion that government doesn’t actually print the money, but the federal reserve (Central Bank)has no problem printing money for an exponentially growing customer-government that won’t be accountable to its employers (us).

    The U.S. Government is $65,000,000,000,000.00 (65 trillion dollars)in the red right now, all do to overspending, and some due to the federal reserve’s manipulation of the U.S. monetary policy. Fiscal accountability doesn’t make a good foundation for unfettered government control policies.

    The government couldn’t afford to instigate and implement unconstitutional wars of offensive aggression without a healthy war chest. The contractors of the various killing mechanisms would have to produce something they could actually sell to the freepersons that they may want to use to facilitate life and prosperity, instead of the weapons of mass destruction.

    The government couldn’t afford to illegally control public indoctrination camps (oops, I meant to say schools).

    The government wouldn’t be able to control the Duopoly Party two-headed snake system that most folks refer to as the Two Party System, by means of the FEC and other means, like the Police State Barriers that get put in place to squash healthy peaceful political dissent. Then there’s also the arresting of third party candidates when they attempt to participate in presidential debates.

    The government just wouldn’t be able to provide the necessary control mechanisms that government needs so it can grow unchallenged and protect us from ourselves, from cradle to grave; at the drop of a building (I mean hat).

    The beast (government) needs the money for all of its unconstitutional projects. The federal reserve is always ready at the drop of a building, or any other reason, to print those cotton fiat notes as fast as it can, to ensure the beast never looses its strength or size. The fed also likes its bottom line-the fact that our great grandchildren will be footing the bill for the interest incurred today.

    So they’re both culprits.

  13. Comment by terrymac — October 16, 2009 @ 6:51 am

    I wouldn’t worry so much about massive gold finds — even when they do occur ( unlikely ), they’d be one-time events. Central Banking continuously reduces the value of currency to the marginal cost of production, which is near zero. End result: Zimbabwe. Markets revert to barter.

    Yes, we need to educate the public; the “benefits” of massive government are often negative, and in any case far exceed the costs of continuous inflation. An economy based upon honest money would be more stable and far more productive than one based upon faith-based currency. We’d see a lot less going into blowing things up and killing people, and a lot more going into things which we value – health, education, and so forth. A genuinely free-market economy would produce those and other goods more effectively than the government.

  14. Comment by Travlyr — October 16, 2009 @ 7:28 am

    Read the book: End The Fed. Study and learn. Fiat money is pretend money… electronic money. Who actually believes that you can make a computer entry to make more money? You can’t make a computer entry to make more grain.

  15. Comment by sth_txs — October 16, 2009 @ 7:38 am

    “My only concern with going to a gold standard is the variability of the supply of gold. In the most extreme recent(ish) example, the 1890’s gold rush was highly inflationary due to the massive increase in the supply of gold, which under a gold standard equates to the money supply.”

    No one pointed out that Ron Paul would like to see the market determine what is money. That means it could be silver, gold, palladium, maybe even platinum. The market would also regulate how much money should be in ciruculation; this is no different than anything else we buy whether it is a good or service.

    It is true that the California gold discovery raised prices, but if you look at the long term over the 1800’s the price of a loaf of bread and many other consumer items declined. The purchasing power of money increased up until the founding of the Federal Reserve.

    The Liberty Dollar was recently seized on trumped up charges of fraud, so it is clear that the government does not want competition.

  16. Comment by Brad W — October 16, 2009 @ 9:02 am

    It must be noted that in a free market based monetary system such as envisioned by Ron Paul ALL Legal Tender Laws must be repealed. It is true that other types of money might be adopted, even Federal Reserve notes, should market participants freely choose to accept them in payment, but only a fool would contract for payment any currency that can be produced at a cost of only ink and paper. The popular ignorance of Economics in this society is truly breathtaking. Explanations of money, banking, analysis of fiat money systems, their eventual failure, the role of gold and silver as money, the role of central banking in the credit or boom/bust cycle are all elegantly elucidated in the writings of Ludwig von Mises and Murray Rothbard as well as a host of more recent “Austrian school” economists. This body of knowledge has been around for almost one hundred years, yet few of our elite opinion makers seem aware of the arguments. Pick up a copy of Thomas Woods’ recent book “Meltdown” if you would like a different view of our recent problems. At least learn enough to understand the arguments for sound money and banking. If one does become one would be unlikely to make the following comment: “Ultimately all money is fiat money. I’m not convinced gold is any more resistant to manipulation than paper. “

  17. Comment by HAPPY — October 16, 2009 @ 9:17 am

    ABOLISH THE FEDERAL RESERVE SYSTEM!!!!!

  18. Comment by John and Dagny Galt — October 16, 2009 @ 9:55 am

    Dear Brothers and Sisters, Sons and Daughters of Liberty,

    There are only two types of human beings.

    One type just wants everyone to leave everyone else alone and these humans are students and advocates of the Philosophically Mature Non-Aggression Principle.

    The other type refuses to leave others alone and these humans are the Mobocracy Looter Minions with their hords of bureaucrats, jackboots, and mercenaries that perpetuate the perpetration of the loot and booty gravy-train. Rob-peter-to-buy-paul’s-vote bread and circuses of the doomed Amerikan Empire.

    You are either the one…or the other.

    The John Galt Solution of Starving The Monkeys is the only solution. Stop funding and forging your own chains and shackles. What are you leaving for your children and grandchildren and prodigy!?!

    The Mobocracy Looter Minions must be allowed to consume everything around them, then each other, and finally themselves. There is no other way. Ayn Rand wrote about it over fifty years ago and it rings as soundly today as it did then.

    Get your copy of Starving The Monkeys by Tom Baugh today, before the book is banned and the author is hunted down and Vince Fostered!

    Sincerely,
    John and Dagny Galt
    Atlas Shrugged, Owner’s Manual For The Universe!(tm)

    http://www.starvingthemonkeys.com/

    http://voluntaryist.com/fundamentals/introduction.php

    .

  19. Comment by sabril — October 16, 2009 @ 9:58 am

    I’m not an economist, but it seems to me that there is no law in the US saying that you cannot use gold as a medium of exchange. Ditto for silver or platinum.

    So if you are worried about the government taxing you by printing money, just convert your dollars to gold; keep the gold in a safe deposit box; and enjoy.

    It seems to me that the Ron Paul types might have a more legitimate gripe if it were illegal to save gold or to use gold as a medium of exchange.

  20. Comment by Not Equal — October 16, 2009 @ 10:15 am

    @Brad W

    I’m very, very much familiar with Ludwig von Mises and Murray Rothbard, thankyouverymuch. My point here, is that whether your money is paper or commodity, it only has the value people agree that it has. Further, that value is not, in either case, intrinsic. A flood of gold on the market can inflate gold as a currency every bit as much as a flood of paper can inflate FRN’s. That is exactly what happened in Europe when the Spaniards conquered the Aztecs in the New World and shipped massive quantities of gold back to Spain.

    http://www.sjsu.edu/faculty/watkins/spgold.htm

    Also, as I pointed out earlier, the value of commodities can be manipulated, and that is exactly what happened with silver in the 1970’s:

    http://www.buyandhold.com/bh/en/education/history/2000/hunt_bros.html

    The fact that I don’t accept everything Ron Paul and the Austrians have to say about economics as gospel does not necessarily indicate I’m ignorant of economics. It is hardly an exact science, and there are plenty of other schools of economic thought.

  21. Comment by Thursday — October 16, 2009 @ 10:54 am

    Megan McArdle makes the argument against gold here.

  22. Comment by zack — October 16, 2009 @ 11:07 am

    practically any commodity backed currency is better than what we have now—money created out of thin air, taxes taken at gunpoint to pay the interest. now add the problem of congress having no control over money supply, with control in the hands of an unelected banking official, and the picture is ripe for corruption. think about it: fed prints worthless paper which is loaned to the government, we pay taxes earned with our sweat on this worthless paper debt. then they inflate at will to sock it to us again. there has to be a better way to do business.

  23. Comment by dan — October 16, 2009 @ 11:18 am

    I go to work everyday, bust my ass welding steel, and these bankster frauds print money out of thin air thus directly undercutting my labor. Without sound money, we don’t own the value of our labor. I refuse to give these bankster frauds the product of my aching back and burned out eyes. This crap has to change, and will. Working men and women built this country, and it is not going to be taken away by crooks and money scientists. Wake up, people.

  24. Comment by Rick Pipkin — October 16, 2009 @ 11:23 am

    The issue under discussion will never receive the attention it deserves until it can be put into language and real life day to day examples the average men and women on the street can understand. They will give no attention to empire building, perpetual wars, bailouts, and the immoral fed, unitl they are made to see how these issues affect their incomes/spending power or lack there of. The discussion boils down to basic marketing, “what’s in it for me”? Currently they do not get the connection.

  25. Comment by ET — October 16, 2009 @ 12:01 pm

    @sabril – “but it seems to me that there is no law in the US saying that you cannot use gold as a medium of exchange.”

    1. Look at your dollars, they even state they are legal tender. So, even if you have a contract that states payment in gold or something else, only dollars will be used in the end – say if you end up in court.

    2. The company that was selling the ron paul dollar was raided and accused of who knows what. It is dangerous to try to use metals for exchange. The government doesn’t want this to become widespread.

    3. When you make a transaction in gold, you have to pay taxes on it. If the gold holds it value against the dollar, then you owe capital gains taxes. In many states you have to pay a sales tax on transfers between gold and dollars. It depends on the quantity of the metal, I believe.

    4. When you ask for change for a $20 and get 4 $5 in return, you don’t pay taxes, but you do with other things. Thus, anything that would be considered a money would have to have these transaction taxes eliminated.

    Ron Paul is calling for an end to the legal tender laws and taxes on gold (or whatever becomes money by the market). But with all the tax laws, it’s difficult to see how the market could decide what would become a money that was exempt from taxation, especially sales taxes.

    That said, if it were possible to level the playing field for dollars and other moneys, then I could easily see how one might have a gold debit card where computers and networks would be developed to aid in instant conversion at the site of a transaction. This kind of occurs with credit cards when you buy overseas. One would not have to actually carry any metals if they didn’t wish to.

  26. Comment by sg — October 16, 2009 @ 1:32 pm

    Money is just a medium of exchange. You use it to keep track of the value of what you produce. If you don’t produce anything, it doesn’t matter what medium of exchange you use. Farmers produce food. That has value. Builders build buildings. Maids keep them clean. These are all valuable goods and services. This is the reason sending food to wretched holes is so ineffective, they don’t use it to become productive and produce goods and services of value. The same amount of food given or sold to Chinese actually turns into products and services. Same problem with welfare. Welfare recipients use it to make more welfare recipients, not to produce valuable goods and services. They only consume, not produce. You can’t build or even maintain a society with non working folks. The problem isn’t just the fiat currency. It is the non productive people.

  27. Comment by Richard Storey — October 16, 2009 @ 1:39 pm

    Excellent insights. For additional excellent insights I recommend the media section of mises.org. Look up the lectures of Thomas DiLorenzo and Hans-Hermann Hoppe. Hoppe offers excellent insights into the people that rise to the highest levels of government, and DiLorenzo renders well the system of mercantilism in the North which gave birth to our modern, corrupt system.

  28. Comment by Hector — October 16, 2009 @ 1:39 pm

    “In the same way diversity leads to a culture that appeals to the lowest common denominator”

    WTF is that supposed to mean?

  29. Comment by Dr. Acula — October 16, 2009 @ 1:58 pm

    “the unbacked U.S. dollar has lasted this long [because] it is the currency that oil is transacted in, which is de facto an oil backing” – I don’t agree. It doesn’t matter whether oil is valued in dollards or pesos. Global currency trading is easy, just like converting inches to centimeters. If I choose I can sell my oil for dollards and then immediately convert to some other currency. The subjective value of US dollards is propped up by legal tender and tax collection laws.

    “It is dangerous to try to use metals for exchange. The government doesn’t want this to become widespread.” – Yet strangely, you can legally travel through the border and back with over $10,000 worth of gold bars or non-US gold wafers. You cannot bring $10,000 worth of monetary instruments like cash. In this way, the government is actually encouraging use of gold. It’s rather odd.

  30. Comment by Dr. Acula — October 16, 2009 @ 2:10 pm

    “what confuses me is that most comments say that the u.s. government is printing ,creating the money,when in fact it is the central bank system ,the federal reserve that creates all money” – Since 1913, US Congress has delegated the power and responsibility to create money to the Federal Reserve.

    I don’t understand how States enforce legal tender status of paper money in light of Article 1, Section 10 (which requires gold or silver). Can anyone comment? Is this just another case of the Constitution being treated like a nut rag?

  31. Comment by sabril — October 16, 2009 @ 3:06 pm

    “1. Look at your dollars, they even state they are legal tender. So, even if you have a contract that states payment in gold or something else, only dollars will be used in the end – say if you end up in court.”

    I disagree with this. If you and me are a landlord and tenant, we are free to sign a contract stating that the monthly rent will be equal to the closing price of one ounce of gold on the NYMEX exchange on the first day of each month. It seems to me a court would probably enforce such a contract.

    “2. The company that was selling the ron paul dollar was raided and accused of who knows what. It is dangerous to try to use metals for exchange. The government doesn’t want this to become widespread”

    I think that’s a bit paranoid. It seems to me it’s easy enough to use gold as a medium of exchange simply by using gold-denominated contracts. There are even commodities exchanges where gold (and gold derivatives) are traded on a daily basis. The government doesn’t seem to be interfering with such trading.

    “3. When you make a transaction in gold, you have to pay taxes on it.”

    That’s true. The same is true when you make a transaction in dollars. The only difference is that the tax on dollars is not as obvious — that’s the whole point of the blog post.

    “When you ask for change for a $20 and get 4 $5 in return, you don’t pay taxes, but you do with other things.”

    Actually I don’t think that’s true under the 30-day wash rule. Do you have a cite for your claim?

  32. Comment by Dfens — October 16, 2009 @ 4:08 pm

    What a bunch of b.s. The US Constitution does not say we need to use gold and silver as our only metal for coinage. Article 1, section 10 has nothing to do with the federal government at all. It is about the rights the states have given up to have a federal government, you idiot! And if it did, in fact, say that, then Ron Paul would be doubly full of crap for saying he’s, “happy to let the market decide what commodity to use as a medium of exchange.” Either the US Constitution says, “use gold and silver” or it doesn’t, moRon! You don’t get to have it both ways, “oh yeah, it does, but it really means use whatever commodity you want.” What the hell is that kind of meally mouth garbage? Did you get that from some European Constitution?

  33. Comment by Brad W — October 16, 2009 @ 5:14 pm

    Interesting comments, some rather heated. As to the enforcement of gold contracts, FDR made it illegal for U.S. citizens to own gold, requiring those law abiding citizens to turn their gold coins in to their friendly govt for the princely sum of 20 Federal Reserve dollars. It also made gold clauses non-enforceable, which was upheld by the Supreme court. After confiscating gold at the point of a gun the same benevolent govt then raised the “official price” of gold to $35/ounce thereby stealing $15/ounce from every citizen who, under threat of coercion, complied with the gold forfeiture law of 1933. Do you think our present govt incapable of similar shenanigans? As far as the Hunt brothers “cornering the market” in silver in the 1980’s, I was aware that the price of silver soared at that time and that there were reports of a conspiracy to manipulate the market, but I am also aware that the price plummeted along with the price of gold as the effects of less Fed counterfeiting under the influence of Paul Volker. Yes, there can be inflation under a gold coin standard, a gold asteroid could be found, but the act of wresting gold out of the ground, refining it and getting it to market will be observed by entrepreneurs in the market and planned for. With government sanctioned counterfeiting as happens with Central Banks and fractional reserve banking the addition of extra dollars occurs hidden from the market. If counterfeiting is illegal for an individual, because it steals from all other holders of the currency by robbing holders of purchasing power, how is it logically consistent that it is not only OK for the govt to do but absolutely necessary for economic well-being??? One last note: The Federal Reserve is the creature of the Federal government pure and simple.

  34. Comment by barbara dolan — October 16, 2009 @ 7:09 pm

    “I don’t agree. It doesn’t matter whether oil is valued in dollards or pesos”

    Sure, it does. Oil is traded in dollars. Therefore to get your oil, you have to exchange your pesos for dollars, then pay for the oil. This creates a demand for dollars that would not exist otherwise.

    “If you and me are a landlord and tenant, we are free to sign a contract stating that the monthly rent will be equal to the closing price of one ounce of gold on the NYMEX exchange on the first day of each month. It seems to me a court would probably enforce such a contract.”
    Wrong. Legal tender laws say, Legal tender for ALL debts, public and private. So if you, the cheated landlord, want the gov’t to collect for you from the deadbeat tenant, the only thing the gov’t will collect and give you is dollars. If you don’t want them, tough. It’s dollars or nada.

  35. Comment by philip McCormack — October 16, 2009 @ 8:23 pm

    The marginal utility of gold is approx 80/1. That is 80 times what could be mined in 1 year, that’s what makes gold the choice for a monetary metal. The finds in 1890 instead of being converted to gold coins at the mint were hijacked on the way by the banks so that with the gold in there was used to create a greater % of paper money for credit which they did. Lastly gold enables the working man/woman to not only save with safety but it controls government spending and stops the banks buying government bonds which at this time is monstrous.
    Read: professorfekete.com wonderful English and economics that even I can understand!

  36. Comment by philip McCormack — October 16, 2009 @ 8:36 pm

    I forgot one thing. The government has removed the right to trial by jury, (forget the OJ case). Remember that is how the people got rid of the liquor laws by bringing in not guilty verdicts. As Lysander Spooner stated consensual crime is absurdity. Love to everyone.
    Philip

  37. Comment by Veritas — October 17, 2009 @ 5:55 am

    RH:”When government prints a new dollar, the value of each one in circulation goes down.”

    You miss the point — the FED is not actually part of the government; the FED is a private entity [they say it is 'quasi-independent,' but it is in reality fully private] that charges our government interest on the ‘money’ (which they print out of nothing) it supplies to our government. It’s a private centralized banking cartel. The FED … it’s not federal, and it has no reserves.

  38. Comment by Veritas — October 17, 2009 @ 5:57 am

    And I want to ask — is Ron Paul a Freemason?

  39. Comment by sabril — October 17, 2009 @ 9:15 am

    “As to the enforcement of gold contracts, FDR made it illegal for U.S. citizens to own gold, requiring those law abiding citizens to turn their gold coins in to their friendly govt for the princely sum of 20 Federal Reserve dollars. It also made gold clauses non-enforceable, which was upheld by the Supreme court.”

    Correct, but gold clauses have been enforceable since 1977. So if tomorrow you entered a gold-denominated contract, it would be perfectly enforceable (assuming the contract is otherwise proper.)

    “Do you think our present govt incapable of similar shenanigans?”

    Every government is capable of shenanigans. In fact, your example demonstrates that it is possible for the government to take money away from people whether that money is held as gold or as fiat currency.

    “If counterfeiting is illegal for an individual, because it steals from all other holders of the currency by robbing holders of purchasing power, how is it logically consistent that it is not only OK for the govt to do but absolutely necessary for economic well-being?”

    Because there is a double-standard at work. Putting aside the issue of a gold standard, are you claiming that taxation is always wrong? After all, taxation is taking money from people by force which is usually considered robbery when done by private individuals.

    Are you claiming that taxation is always wrong?

  40. Comment by sabril — October 17, 2009 @ 9:19 am

    “Wrong. Legal tender laws say, Legal tender for ALL debts, public and private. So if you, the cheated landlord, want the gov’t to collect for you from the deadbeat tenant, the only thing the gov’t will collect and give you is dollars. If you don’t want them, tough. It’s dollars or nada.”

    Are you saying that gold futures contracts are all unenforceable? I’m sure the folks on the NYMEX and CBOT exchanges would be surprised to learn that.

    It’s you who are wrong. You may not be able to get a court to order the defendant to turn over an ounce of gold, but you will be able to get the court to order the tenant to give you enough dollars so that you can go out and buy an ounce of gold yourself.

  41. Comment by barbara dolan — October 18, 2009 @ 3:24 am

    “It’s you who are wrong. You may not be able to get a court to order the defendant to turn over an ounce of gold, but you will be able to get the court to order the tenant to give you enough dollars so that you can go out and buy an ounce of gold yourself.”

    I’m not wrong. I agree with you. If you have a contract for gold, not dollars, but gold, and ask the gov’t to collect for you because the counterparty is failing to deliver, all you’ll get is dollars — not the gold you want. You’ll have to go find and get the sctual gold yourself.

    “gold futures contracts are all unenforceable”
    Re: Futures contracts. If the exchange defaults, you don’t get your commodity. You get the dollar value. But if it’s the commodity you want, TFB, dude.
    For instance, there was a nickel default on the LME in 2006. The longs got screwed because the shorts couldn’t deliver the nickel. So the LME bailed out the shorts by forcing the longs to take the equivalent (I use the word loosely) amount in paper money, plus a few extra bucks, for their trouble, you know. But if it was the nickel you must have, because your business depended on it, tant pis por toi, SUCKER!

    So, no, if you have a contract that your renter hand over a gold coin for rent each month, the gov’t will not enforce that contract for you. You’ll be forced to take the Universal Toilet Paper or nothing.

  42. Comment by sabril — October 18, 2009 @ 6:56 am

    “You’ll have to go find and get the sctual gold yourself.”

    “So, no, if you have a contract that your renter hand over a gold coin for rent each month, the gov’t will not enforce that contract for you. You’ll be forced to take the Universal Toilet Paper or nothing.”

    So what? You can convert between gold and dollars any day of the year.

    I propose the following deal: Wire me $2000 and I will give you a one ounce gold coin. You should see it as a great deal since you are giving up “Universal Toilet Paper” and getting real gold in return.

  43. Comment by Veritas — October 18, 2009 @ 11:04 am

    And I increasingly agree with the view that, under a worst case scenario type of situation, the people who have the most brass and lead will end up forcibly seizing gold if they want to.

  44. Comment by barbara dolan — October 18, 2009 @ 3:47 pm

    “So what? You can convert between gold and dollars any day of the year.”

    FALSE. There was a several-month period in 2008, the last time gold hit $1 K UTP, when the coin dealers, for example, KITCO, APMEX.com, Northwest Territorial Mint, were SOLD OUT of any kind of small denominations, like 1 oz. coins / 1 oz. bars / 10 oz. bars, etc., due to the incredible demand at that time from small investors.

    “propose the following deal: Wire me $2000 and I will give you a one ounce gold coin. You should see it as a great deal since you are giving up “Universal Toilet Paper” and getting real gold in return.”

    Fat chance. Do you really think I’m that dumb? I exchange my UTPs for real money at APMEX.com because they actually DO send the gold. Oh, and for 2000 pieces of $1 FRNs, I could get nearly TWO gold coins.

    Hey, guys, do I have a “Stupid” sign stuck to my forehead today or something?

  45. Comment by barbara dolan — October 18, 2009 @ 3:57 pm

    “the people who have the most brass and lead will end up forcibly seizing gold if they want to.”

    Correct. Brass and lead — in the form of bullets — are the most precious metals of all, provided you’ve got a gun to shoot them with. The investment hierarchy is this: First, guns and bullets. Then, sufficient food / needed medicines to last six months. THen, four – ten gold coins per person for yourself and each of your dependants. Silver at a 16 – 1 silver / gold ratio. Hold your physical p.m.s in a secret place NOT in a safe deposit box (in case Homeland Security gets a notion to confiscate.)

    After that, you can play futures if you’re brave and / or stupid. Or buy mining cos. stocks. Or buy precious metals etfs. Many like GLD and SLV. I prefer Central Fund of Canada because a: they allow themselves to be audited by independent agencies to PROVE they actually hold the metal they say they do, and b: it’s in Canada so provides some diversification out of U.S. CEF trades on American exchanges.

  46. Comment by sabril — October 18, 2009 @ 4:18 pm

    “There was a several-month period in 2008, the last time gold hit $1 K UTP, when the coin dealers, for example, KITCO, APMEX.com, Northwest Territorial Mint, were SOLD OUT of any kind of small denominations, like 1 oz. coins / 1 oz. bars / 10 oz. bars, etc., due to the incredible demand at that time from small investors.”

    Even during that time it was still possible to convert dollars into gold no problem. You just didn’t get delivery of a gold coin from a dealer.

    “Do you really think I’m that dumb?”

    Yes, I think you are pretty dumb if you believe that receiving sufficient dollars to purchase one ounce of gold is fundamentally different from receiving an actual ounce of gold.

  47. Comment by barbara dolan — October 18, 2009 @ 10:46 pm

    “Even during that time it was still possible to convert dollars into gold no problem. You just didn’t get delivery of a gold coin from a dealer.”

    Are you paying attention? The initial conditions were, a renter is to pay you one gold coin for rent per month. If he gives the UTPs sufficient for you to secure your own gold coin, where are you going to buy it from if the dealers are sold out? From where else are you going to get your gold coin?

    “Yes, I think you are pretty dumb if you believe that receiving sufficient dollars to purchase one ounce of gold is fundamentally different from receiving an actual ounce of gold.”
    Uh, what? If the dealers are sold out, such that your dollars are worthless because they are incapable of securing you your desired gold coin, how is receiving “sufficient dollars to purchase one ounce of gold” NOT fundamentally different? You’ve got dollars and no way to get your gold. Therefore you’ve got UTP and nothing else.

  48. Comment by barbara dolan — October 18, 2009 @ 10:53 pm

    “You’ve got dollars and no way to get your gold. Therefore you’ve got UTP and nothing else.”

    Sorry for the serial posting. Hit “return” too soon.

    To continue:
    You’ve got UTP and nothing else. You do NOT have your gold coin. Therefore your renter cheated you. The gov’t will NOT enforce your contract with him that he must pay a gold coin.
    Therefore, UTPs, because they are “legal tender for all debts public and private” creates an artificial demand: The renter knows he can cheat you by failing to give you your gold coin and instead force you to take the UTPs.
    Ergo, the free market cannot work.

  49. Comment by sabril — October 19, 2009 @ 6:13 am

    “The initial conditions were, a renter is to pay you one gold coin for rent per month. ”

    No, that wasn’t the initial condition. My hypothetical said NOTHING about receiving an actual coin.

    And even during the shortage of gold coins, it was still very easy to buy them online if you were willing to pay significant premium over the spot price.

    Are you claiming that during the gold coin shortage of 2008 it was impossible to buy gold coins on ebay if you were willing to bid high enough?

    Besides, even under a gold standard, one can expect periodic shortages of gold coins (or gold certificates) to take place. Especially under a gold standard.

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