A possible major flaw with the gold standard?

[jon_perez]

If an economy were operating on the gold standard and banks loaned out the gold at an interest rate higher than the rate increase of the total gold supply, what's to prevent the bankers from eventually owning all the gold?

This actually sounds more dastardly than a debt-based, fiat-money supply.

[DocGrimes]

The market would likely limit this problem. Folks would only take such loans from a bank if they could make profit enough to pay the loan with it's interest. If the interest were too high then there would be no possibility of profit for those taking the loan so they would seek other business alternatives.

Bottom line is I do not think market forces would allow for such abuse.

Though I freely admit this is just my initial thoughts on this question and not thought out in full detail.

[Bradley in DC]

There are also depositors getting paid. Are you really just a troll or what?

[Green Mountain Boy]

There are also depositors getting paid. Are you really just a troll or what?

Why do you keep calling him a troll? He's bringing up good questions about money and banking and is willing to discuss.

[lucius]

There are also depositors getting paid. Are you really just a troll or what?

Another defender of the status quo policy agenda, a rather atypical Dr. Paul supporter; I agree with your assessment. :rolleyes:

[nexalacer]

Why do you keep calling him a troll? He's bringing up good questions about money and banking and is willing to discuss.

Sure, his questions are fine, but he is completely unable to disprove or accept anyone else's arguments in regards to this matter. He is a troll, in regards to this topic, through and through.

Have you read anything at mises.org yet jon?

[Green Mountain Boy]

Sure, his questions are fine, but he is completely unable to disprove or accept anyone else's arguments in regards to this matter. He is a troll, in regards to this topic, through and through.

Have you read anything at mises.org yet jon?

While it is the best model out there, Austrian economics and "free banking" are not going to create a perfect world where there is no consolidation of wealth by the rich and powerful. I don't see harm in talking about this.

[nexalacer]

While it is the best model out there, Austrian economics and "free banking" are not going to create a perfect world where there is no consolidation of wealth by the rich and powerful. I don't see harm in talking about this.

As long as there is a state, you're right. The state allows the consolidation of wealth through the use of the state's monopoly on aggression. That's why so many Austrians are market anarchists!

[Bradley in DC]

Why do you keep calling him a troll? He's bringing up good questions about money and banking and is willing to discuss.

He is new and all of his posts attack Dr. Paul's agenda. Anyone understanding lending and borrowing has to understand that there are two sides of that equation. Cherry picking nonsense to attempt to make Dr. Paul look bad is all he posts. How would gold or fiat be any different in his "dastardly" scenario? How come the banks don't own all of the paper money? Only one-sided meaningless attacks.

[Green Mountain Boy]

As long as there is a state, you're right. The state allows the consolidation of wealth through the use of the state's monopoly on aggression. That's why so many Austrians are market anarchists!

There would be consolidation of wealth and power even without a state. It's pretty much inevitable.

[nexalacer]

There would be consolidation of wealth and power even without a state. It's pretty much inevitable.

How do you know? That is, when you make a statement that something is inevitable, how did you come to that conclusion?

[Bradley in DC]

While it is the best model out there, Austrian economics and "free banking" are not going to create a perfect world where there is no consolidation of wealth by the rich and powerful. I don't see harm in talking about this.

First of all, only socialists claim heaven on earth. Secondly, the real world experiences with free banking prove the opposite. It is the government's regulation that grants special favors to the rich and powerful that are the root of the problem.

[fsk]

I'll answer the original question. In a truly free market, if someone is monopolizing gold and interest rates are getting too high, then people will start using other forms of money. People would start using silver or copper or aluminum. If there really was a shortage of metal, people would start using other goods.

The point is that money has to be backed by SOMETHING tangible. Metal coins have withstood the test of time, until the government started interfering with money.

[Green Mountain Boy]

How do you know? That is, when you make a statement that something is inevitable, how did you come to that conclusion?

I said "pretty much" inivitable because it is almost inevitable, not inevitable.

I'm not going to call it human nature, but is is much easier for wealth to be consolidated than spread equally when humans are involved. Call it the path of least resistance if you will.

[noxagol]

I said "pretty much" inivitable because it is almost inevitable, not inevitable.

I'm not going to call it human nature, but is is much easier for wealth to be consolidated than spread equally when humans are involved. Call it the path of least resistance if you will.

Actually, the opposite happens. It wasn't until people were allowed a free market relatively free of government intrusion that people were able to climb the social-economy ladder and go from rags to riches. Now people are going from half wa y riches to rags again because of government intrusion.

[Green Mountain Boy]

First of all, only socialists claim heaven on earth.

What about libertarian Leo Tolstoy's The Kingdom of God is Within You? Doesn't that propose a certain heaven on earth? :)


Secondly, the real world experiences with free banking prove the opposite. It is the government's regulation that grants special favors to the rich and powerful that are the root of the problem.

I'm don't disagree that free banking can alleviate the problems created by government's protection scheme. I don't see government as the root of the world's evil, however. More like the trunk.

[Green Mountain Boy]

Actually, the opposite happens. It wasn't until people were allowed a free market relatively free of government intrusion that people were able to climb the social-economy ladder and go from rags to riches. Now people are going from half wa y riches to rags again because of government intrusion.

I don't think you understand what I'm saying. I'm not arguing against the effectiveness of free markets. Free markets bring about more equality and opportunity than government regulated markets.

If consolidation of power and money was not the path of least resistance, however, goverments and other monopolies of power would have never evolved.

[nsheedy]

If gold were the only thing of value in the economy, and weath were finite, this would be a problem. But wealth is not finite, and the economy is not static. The only way interest can consolidate wealth in the bankers hands is if the people borrowing the money don't or can't put thier capital to productive use and create more wealth with it--that is, if people don't create something that has lasting economic value.

For example: if I borrowed $1,000 and took a vacation, the money is spent on consumable goods and services and no wealth is created. In this situation (just like with most service-sector work), it is physically impossible for my vaction to contribute to economic growth because all I did was consume resources or pay for some service, yet nothing of lasting economic value was produced. The result is, I then owe $1,000 plus interest to the bank, and I have to earn money somewhere else to pay it back.

On the other hand, if I borrowed $1,000 and bought, say, some standing timber, the money is used to buy a tangible raw resource. I cut some trees and add some sweat equity in the logs, which are worth $2,000 delivered to a saw mill. In this situation, not only do I earn plenty of money to repay the $1,000 loan and interest, but I have profit in my pocket--in other words, the economy grew because I bought and added value to a natural resource. But the economic growth does not stop there. The mill then turns the $2,000 of logs into boards worth $4,000, and a lumber yard sells them for $5,000, and a contractor uses them to frame a house that's worth $10,000. This is all possible becasue of the innitial $1,000 investment and the PRODUCTIVE labor and that adds value to to something that has lasting economic value.

If the economy were static, or wealth were finite, yes, you would have a problem with bank interest swallowing up all the money in the economy. But the economy is not static, and weath is not finite. (Have I made this point?)

And while the amount of gold on earth is finite, it is not limited to the gold that is now in human posession. In short, there is gold in them thar hills. I know--my family has owned gold mines for many years. The big problem in extracting gold is that the mining infrastructure in the United States was largely dismantled during World War II when (War labor Board and executive order) PL-208 made it illegal to mine gold. After WWI, and up to the late 1970s, the gold-content of the dollar was kept artificially low by federal monetery policy, which made most gold mining unprofitable. This allowed the mining industry to be largely consoolidated into huge milti-national corporations. It also allowed the consolidation of gold billion (which private citizens in the U.S. could not hold) by large international banks--especially the World Bank, which benefitted greatly by the scheme to drive up the value of gold in 1979-80. (This is one of the greatest fraudes in the history of the world.)

More recently, an unbelievable amount of environmental controls have prevented gold (and most other types of) mines from operating in the United States. It isn't just that mines can't operate, but that that untapped resources (gold, as well as other metals, minerals, timber, etc.) have been locked up by federal policy. My dad owns an undeveloped gold mine with a documented surface-minable gold reserve of more than 1-million ounces (that's just the gold on the surface), but he can't touch it (oh, he owns it, and pays fees to keep the mining claims, but can't actually extract any ore or profit from it) becasue it is now in a designated wilderness study area. The monetary policy that allows huge banks to control, create and horde money works hand in hand with other policies that lock up resources and wealth. This has the effect of creating a psudo-finite economy--speciallly for the sorry people caught up in the "information age" and so-called new "service economy," beacue they don't create anything tangible and don't produce any real products that have lasting economic value.

[nsheedy]

Gold has lasting economic value. If used to back currency, it doesn not have to be static, becasu the gold content of the dollar can be changes to allow some elasticity. Also, the extraction of gold and deposition into the U.S. Trasury allows the money supply to grow... this could only happen if billion was transfered to the U.S. Treasury by some economic mechanism.

One criticism I read is that the scarce nature of gold could create a shortage of money, or allow easy consilidation by bankers through interest. Well, the scarce nature of a comodity like gold is exactly what would prevent unfettered inflation of currency!

But wealth is not finite. And the amount of gold in circulation can be increased. The best part is that miners (and others who extract and add value to natural resources) actually produce wealth and cause the economy to grrow. Whereas other money-making schemes in our modern "service" economy only accumulate wealth by taking it out of someone else's pocket. The following quip offers a sense of what I am talking about.

--Nick Sheedy


A Minister on Mining
The miner who digs a fortune out of the ground has the satisfaction of knowing that he has not robbed a soul, even though becomes a thousand times a millionaire. Then, too, there is another factor to take into consideration. The man who makes his fortune on the board of trade or the stock exchange, or in building a gigantic business, adds nothing to the store of the world’s available wealth. The world, in other words, is no richer because he is richer. He is richer rather because someone else is poorer. The miner, on the other hand, whether he digs out $10 or $100,000, adds that much to the world’s wealth, and with the added wealth he contributes just that much to the possible amount of the world’s comforts and pleasures.
As I look at the matter, there are a few producers of wealth. The many live on the few. The only man comparable to the miner is the farmer. He gets what he has directly from nature, but he produces a perishable wealth. While he meets a want, his contribution to the world’s wealth, therefore, is not permanent, like the miner’s. The gold miner is today the king of wealth of the country, and I honor him above all others. It is no dishonor; it needs no apology to emulate his example or assist him in his efforts. There is the whole story in a nutshell.
—The Reverend Robert McIntyre
(Mining Investor, Colorado Springs, Colorado, Vol. XXX, No. 11, p. 367, May 11, 1903)

[mordechai]

I've said before, the real problem is when the government attempts to regulate money, or become the sole definer of money.

The great object is to keep the government out of money besides as a regulator (ie making sure you actually have the gold to back the bills out there), or that your coins are as pure as you say they are. That really is the only place government can stay here.

As to bankers, it would be dificult bordering on impossible for a banker to accomplish what you're talking about outside of current regulations. But, the government effetively guarantees, (and has been guaranteeing) people's bank accounts, as well as bank holdings. The truth is this.

When a bank loans you money on time, it's an investment. Investment with risk. But the government attempts to take that risk out of the equation. It leads to inbalances all the time.

As does the interest rate controls of the Fed. To have a gold standard, you must also allow four things:

#1.) Free mining of new gold
#2.) No interest rate controls
#3.) No guarantees on investments (it's like playing stocks and bonds)
#4.) Allow that another commodity may replace gold as the preferred backing.

With those guarantees, it's hard to impossible for anyone to close up the supply.

[Paulio]

Hey everybody I just wanted to point out that mises.org has some great resources.

You can buy book or you can read it for free or even to download mp3 and listen it for free.

Actually I'm listening to Rothbard's "What has Government Done to Our Money". It's not that long, so you can go through it in few days while commuting. Most educating about the nature of money, which can be quite complicated issue.

Here's the links: audibook here (http://www.mises.org/media.aspx?action=category&ID=92) and online book here (http://www.mises.org/money.asp).

[nexalacer]

I'm don't disagree that free banking can alleviate the problems created by government's protection scheme. I don't see government as the root of the world's evil, however. More like the trunk.

Would you agree that the problem of evil is violence?

If not, how do you define evil?
If so, then why would the only group of individuals on the planet that has a monopoly on the initiation of violence not be the root of the world's evil? What would you say has a larger influence on the use of violence in the world?

[lucius]

Hey everybody I just wanted to point out that mises.org has some great resources.

You can buy book or you can read it for free or even to download mp3 and listen it for free.

Actually I'm listening to Rothbard's "What has Government Done to Our Money". It's not that long, so you can go through it in few days while commuting. Most educating about the nature of money, which can be quite complicated issue.

Here's the links: audibook here (http://www.mises.org/media.aspx?action=category&ID=92) and online book here (http://www.mises.org/money.asp).

Great site and welcome! :)

[jon_perez]

There are also depositors getting paid. Are you really just a troll or what?You obviously didn't think the question through.

Bankers will always lend out at a higher rate than the deposit rate they are paying. Therefore the net tendency would be for the banks to accumulate more and more of the gold. If their spread percentage were more than the influx into the gold supply, then the amount of new gold coming in would eventually not be able to match the amount they were accumulating. The bigger the percentage of gold in their hands, the more quickly this would happen.

A cartel of banks could conceivably hoard the gold. If you have no trouble believing that an "international banker conspiracy" could collude to control the world money system, then why would you expect that in a so-called "free, private, non-government regulated / lightly regulated" US money system, that "purely American" bankers (e.g. no "foreigners") would not do the same?

Furthermore, if one were to make the claim that "free, private, non-government controlled banking" is a good thing, then isn't that exactly what the so-called international banks, accused of being beyond the reach of government control, have achieved???

You can believe in Mises/Rothbard/et al about "free banking" as being optimal for the benefit for society, and you can also believe in the "international bankers are not beholden to national sovereignty and are therefore evil money grubbers" theory. But you can't believe in both. That would be self-defeating.

[fsk]

Banks can only charge interest in excess of expenses when there is government regulation of banking.

Suppose, in your fantasy scenario, that banks get to charge 10% on loans but only have to pay depositors 2%. Under such a scenario, yes, they will accumulate all the wealth of society pretty rapidly. This is, in fact, what happened in the past.

In a free market, other competitors will rush to enter the banking industry.

In that case, the spread between interest credited to depositors and interest paid on loans will converge to the bank's actual reasonable operating expenses and profits.

The above "nightmare scenario" only occurs when there is government regulation of banking, which allows banks to charge more than "fair free-market interest".

I still maintain my original position that jon_perez is the one who isn't thinking and is trolling.

[nexalacer]

... jon_perez is the one who isn't thinking and is trolling.

QFT

[jon_perez]

Gold has lasting economic value. If used to back currency, it doesn not have to be static, becasu the gold content of the dollar can be changes to allow some elasticity.Isn't this exactly what happens when the gold peg to the dollar is changed?


One criticism I read is that the scarce nature of gold could create a shortage of money, or allow easy consilidation by bankers through interest. Well, the scarce nature of a comodity like gold is exactly what would prevent unfettered inflation of currency!Yes, both are correct. Those ARE the pros and cons of using gold exclusively as money.

Gold is not, per se, a hedge against inflation, only its coincidental rarity makes it so. When the Spanish brought over massive amounts of gold from the New World over to Europe, inflation occurred.




A Minister on Mining
The miner who digs a fortune out of the ground has the satisfaction of knowing that he has not robbed a soul, even though becomes a thousand times a millionaire. Then, too, there is another factor to take into consideration. The man who makes his fortune on the board of trade or the stock exchange, or in building a gigantic business, adds nothing to the store of the world’s available wealth.People who engage in business are generally those who do add to the store of the world's available wealth as long as their businesses manufacture goods and provide services. The Apple computer company adds to the wealth of the world in the form of more cool gadgets available for everyone, for example.

If money were in short supply, it would make it very difficult for these businesses to generate the wealth, because money - the lubricant of economy - is not present in sufficient quantity. Businesses would have to resort to barter for paying the people who work for them and that is certainly not going to work well.

If money were in *too much* supply, it would ALSO make it hard to justify operating such businesses, because the smart people would just go and do speculation. Therefore a *balanced* money supply is what you would theoretically want, and a balanced money supply is exactly what central banks are supposed to be making their #1 goal.

You could, of course argue endlessly over how, why and if CBs are actually accomplishing this, but you have to realize that having a central bank is not in itself a bad thing, and that the dangers of the money supply in the hands of an unscrupulous few also occur in a gold money regime.

fiat money = threat of inflation, gold money = threat of hoarding. Take your pick.

Keynes taught us to prefer the previous alternative and it worked, for a while. Friedman came along and taught the central banks to not create money indiscriminately. The central bankers do listen to Friedman (they have to).

So now they have shifted to credit expansion instead of money expansion. It is not the central bank expanding the money supply. It is the "moneylenders" who are doing something nearly equivalent to it.







The gold miner is today the king of wealth of the country, and I honor him above all others. It is no dishonor; it needs no apology to emulate his example or assist him in his efforts. There is the whole story in a nutshell.The main thing the gold miners give us are more yellowish lumps of heavy metal which is currently of secondary importance in industry, and which derives most of its value from sentiment and nostalgia rather than any objective measure.

However, in earlier times, when bankers tend to hoard the gold, it makes sense to exhort people to increase the money supply and dilute the value of the bankers' holdings because such inordinate control has an oppressive effect on the people.

[jon_perez]

I'll answer the original question. In a truly free market, if someone is monopolizing gold and interest rates are getting too high, then people will start using other forms of money. People would start using silver or copper or aluminum.Correct. This is exactly what was behind the call for bimetallism with all its attendant political difficulties and controversy. I'm not saying it's necessarily bad, just be aware of the costs because you can't expect everyone's interests to converge just like that.


If there really was a shortage of metal, people would start using other goods.Or in other words, go back to the stone age and barter... :D


The point is that money has to be backed by SOMETHING tangible.And that 'tangible' today would be the collateral behind the debt that banks issue.

[jon_perez]

When a bank loans you money on time, it's an investment. Investment with risk. But the government attempts to take that risk out of the equation.This actually happens all the time, many of these issues have nothing to do with the Fed. The treasury itself is bled all the time to subsidize bad banking practices (like the Savings and Loans scandal).

Discussions of 'moral hazard' and jawboning are found all over the financial and economic literature when it comes to central banks proving that they are quite aware of such issues. The people who single out the Fed as being "the root of all evil" are naive and/or have their own agendas and insecurities.

[fsk]

(Paraphrasing) Bimetallism was a failure.

Bimetallism failed because the government fixed the exchange rate from one metal to another.

If the exchange rate between metals is allowed to float, there's nothing inherently wrong with a bimetallic standard.

Again, regulation of money is the problem.

Seriously, though, does anyone besides jon_perez want me to bother responding to his trolling? If you want a serious answer, PM me or leave a comment on my blog. I already addressed pretty much all this stuff already.

[jon_perez]

Banks can only charge interest in excess of expenses when there is government regulation of banking.Huh? Are you saying that in the absence of government regulation, bankers would only charge enough interest to cover their expenses and not try to make a profit??? You've not only called me a troll, now you're also trying to imply that I'm stupid enough to buy such a ridiculous piece of reasoning.



Suppose, in your fantasy scenario, that banks get to charge 10% on loans but only have to pay depositors 2%. Under such a scenario, yes, they will accumulate all the wealth of society pretty rapidly. This is, in fact, what happened in the past.Exactly why fiat money was largely welcomed in the Keynesian postwar era.


In a free market, other competitors will rush to enter the banking industry.

The above "nightmare scenario" only occurs when there is government regulation of banking, which allows banks to charge more than "fair free-market interest".Banking was less regulated in the past than it is now. The lack of a central bank made it easier for anyone to just open a bank and not be subject to reserve requirements, etc...

In the absence of government regulation, what makes you think will keep the bankers from fleecing naive depositors? The bankers' innate honesty? Who's living in the fantasy world again??

[jon_perez]

Bimetallism failed because the government fixed the exchange rate from one metal to another.

If the exchange rate between metals is allowed to float, there's nothing inherently wrong with a bimetallic standard.You couldn't even paraphrase me correctly. How was bimetallism was a failure?? All I said was that the idea encountered great political difficulty and that thus there were costs associated with it.



Seriously, though, does anyone besides jon_perez want me to bother responding to his trolling? If you want a serious answer, PM me or leave a comment on my blog. I already addressed pretty much all this stuff already.Is this your stock answer when you find yourself on the losing end of a debate? :)

[nexalacer]

Let this, and all other jon_perez gold threads die, please. Green Mountain Boy, If you want to continue our side conversation, create a thread an PM me, I'd be happy to continue!

[mordechai]

Look, I understand what you are saying. Gold doesn't seem to hold much value to you. It's yellow lumps of a heavy metal, to you. Therefore, it's value to you, jon_perez is minimal. Fine. Don't use it. Don't care about it.

Meanwhile, I will. We'll see who does better.

As to the banking regulations, the only banking regulations which should exist are ones which prevent fraudulent claims (either by banks or their clients). As I said, all that is required is a shift in how we conceive of money.

But, it seems in the long run, regardless of whatever else we use, gold seems to have stood the test of time as the store of value.

[planetaryjim]

A gold standard is better than what we have now. There's no question that the bankers are writing money into existence to please themselves under the current system.

However, a gold standard is not a free market money, but another type of government imposition on the market. It is much better than what we've got now, and when the USA was on a true gold standard, it was growing much faster and getting much more prosperous, quicker.

But, the theory of competing currencies set forth by FA Hayek in 1976 in his excellent book _The Denationalisation of Money_ (sorry, he was British, and they don't do the zed in denationalization) is simply this idea: Let the banks issue different kinds of money, and let the free market choose the best ones. Some money can be redeemable for gold, some for silver, some for copper, and some can be "backed" by "the full faith and credit of the United States Government" whatever credibility that may have left.

The point is, a free market system should involve free market money. There has been a great deal of work on this topic in the last ten years, with actual entries from GoldMoney.com, e-gold.com, Pecunix.com, c-gold.com, e-Bullion.com, the Liberty Dollar, and the Phoenix Dollar, to name only a few. Look up digital gold on wikipedia for some analysis and detail.

The reality is that government is the least appropriate entity for issuing money. They don't produce anything. All the government does is take from productive people. You can argue effectively that some government is essential, and I am, myself, for self-government. I am not one of those "no government" men. I am simply for a government of consent, by consent, and for those who consent.

Free market money is a better idea than a mere gold standard. Let the market choose. The only reason we have not always had a market chosen money is, as Hayek noted a third of a century ago, because the market has been prohibited from providing one. The raids this year on e-gold and Liberty Dollar strongly suggest that those prohibitions are going to continue.

[planetaryjim]

Bi-metallism wasn't the full scope of the problem. The 1792 mint act defined the dollar in terms of three possible metals, copper, silver, and gold. So, it was tri-metallism.

It failed because the market chose different rates of exchange among the metals. The differing market price compared to the official mint-act-set price resulted in shortages of coins and metals as the price shifted. Most often, copper coins were scarce, but sometimes gold or silver were made scarce by this idiotic official price fixing scheme.

[fsk]

The problem with e-Gold and the variants is that they've been regulated and taxed out of existence.

If you want to start an alternate monetary system, IMHO the only way is to do it in private and trade with your friends. If you operate as a "public" business, you're subject to IRS raids and government regulations.

[jon_perez]

Bi-metallism wasn't the full scope of the problem. The 1792 mint act defined the dollar in terms of three possible metals, copper, silver, and gold. So, it was tri-metallism.

It failed because the market chose different rates of exchange among the metals. The differing market price compared to the official mint-act-set price resulted in shortages of coins and metals as the price shifted. Most often, copper coins were scarce, but sometimes gold or silver were made scarce by this idiotic official price fixing scheme."Bad money driving out good", in other words.

I can now see what the problem with "commodity money" would be. The value of "commodity-backed" money would have to be allowed to float freely to accurately reflect supply and demand. But if the value of commodity money floated freely (like currencies today do against each other), people would conceivably have difficulty having a single frame of reference with which to price things.

Ah! But I think perhaps the simplest answer is actually the best one!

Just removing capital gains taxes on X commodity (gold and silver being the likeliest candidates, but not ruling out others) and letting these compete fairly with the fiat dollar would function as an early warning canary for when the Fed (or Treasury assuming RP succeeds in abolishing the Fed) is creating too much fiat money. Today, of course, that warning mechanism would be the value of the USD vis-a-vis other currencies.

The backing of so-called fiat money would still be the debt collateral behind it (which is of considerable value) so it would not necessarily collapse, however practices such as fractional lending and other forms of pyramiding that tend to inflate the value of [currently-fiat] USD out of proportion would be greatly discouraged.

[fsk]

Gresham's Law is not "bad money drives out good". (http://fskrealityguide.blogspot.com/2007/09/greshams-law-enslaves-everyone.html) It is "money undervalued by government violence drives out money overvalued by government violence".

Suppose the government decrees that the exchange rate from gold:silver is 1:10, while the free market price is 1:20. Then, rational economic behavior for people is to spend silver and hoard gold.

The solution jon_perez mentions is actually Ron Paul's solution. He wants to eliminate all the capital gains taxes on gold and silver. Then, Federal Reserve Notes and gold and silver would trade together. The exchange rate would be determined by the market.

Suppose that the government decrees "everyone who uses gold as money pays extra taxes". Then, guess what, people stop using gold as money! That's the problem right now. It's not that gold and silver don't work as money. The problem is that government violence prevents people from using gold and silver as money.

Also, banking regulations should be relaxed. Banks should be allowed to offer gold-denominated bank accounts as well as Federal Reserve Note-denominated bank accounts. E-Gold sort of does this now, but it is heavily regulated. E-Gold is hard for the average person to use. It would be nice if I could deposit/withdraw gold and silver at my local bank.

[jon_perez]

Gresham's Law is not "bad money drives out good". (http://fskrealityguide.blogspot.com/2007/09/greshams-law-enslaves-everyone.html) It is "money undervalued by government violence drives out money overvalued by government violence".That sounds like it should be the other way around...

Government money is the bad money, right? :p

[fsk]

Yes, I flipped an inequality sign there.

[Bradley in DC]

Is this your stock answer when you find yourself on the losing end of a debate? :)

Jon, seriously, you are more than irritating since you either fail to understand our answers or, more likely, are a troll purposefully obfuscating. The only thing you're winning is more votes getting kicked off the island.

[jon_perez]

Jon, seriously, you are more than irritating since you either fail to understand our answers or, more likely, are a troll purposefully obfuscating. The only thing you're winning is more votes getting kicked off the island.You seem to want to give the impression that you have more authority here than the forum administrator himself who has said that "there are no trolls in this forum", Bradley.

Asking difficult (for you, at least) questions is NOT trolling. Your explanations and clarifications are welcome but your fascistic streak absolutely contradicts the spirit of Ron Paul's campaign.

[Bradley in DC]

You seem to want to give the impression that you have more authority here than the forum administrator himself who has said that "there are no trolls in this forum", Bradley.

Asking difficult (for you, at least) questions is NOT trolling. Your explanations and clarifications are welcome but your fascistic streak absolutely contradicts the spirit of Ron Paul's campaign.

Jon, I love a good discussion of ideas, but I and the others on the subforum are exasperated by your antics starting with your SOP of saying we say things we don't then claiming victory by refuting your straw man. If you want to continue your arguments with yourself, please take it somewhere else. If you don't understand our explanations, ask, rather than telling us what you misunderstand.

[jon_perez]

Jon, I love a good discussion of ideas, but I and the others on the subforum are exasperated by your antics starting with your SOP of saying we say things we don't then claiming victory by refuting your straw man. If you want to continue your arguments with yourself, please take it somewhere else. If you don't understand our explanations, ask, rather than telling us what you misunderstand.Man, all I can say is stop the condescension and stop the posing.

[Bradley in DC]

Man, all I can say is stop the condescension and stop the posing.

If that's all you'll say from now on, color me happy. :)

[nexalacer]

jon_perez, bradley just said the same thing I said to you before in kinder words:

1. Accept your opponents argument,
2. Disprove your opponents argument,
3. Or GTFO of the debate!

These are the basics of debate. If you can't handle it, then just don't enter.

[jeffhenderson]

I'll answer the original question. In a truly free market, if someone is monopolizing gold and interest rates are getting too high, then people will start using other forms of money. People would start using silver or copper or aluminum. If there really was a shortage of metal, people would start using other goods.

The point is that money has to be backed by SOMETHING tangible. Metal coins have withstood the test of time, until the government started interfering with money.

Bingo. In a free market, people only continue to use something as money if they are benefited by using it as such. If they are somehow screwed by a small group of people cornering the market, they will switch away.

[jon_perez]

jon_perez, bradley just said the same thing I said to you before in kinder words:

1. Accept your opponents argument,
2. Disprove your opponents argument,
3. Or GTFO of the debate!

These are the basics of debate. If you can't handle it, then just don't enter.I can say the same thing about you, nexalacer, if you have nothing relevant to contribute to the subject of the debate, just STFU. All you've done so far is lurk in the sidelines and then throw a low blow when you think the time is right, like what you're doing right now.

Your first response to a post of mine was to call me names and since then you haven't really replied with anything besides posts of that nature.

[nexalacer]

I can say the same thing about you, nexalacer, if you have nothing relevant to contribute to the subject of the debate, just STFU. All you've done so far is lurk in the sidelines and then throw a low blow when you think the time is right, like what you're doing right now.

Your first response to a post of mine was to call me names and since then you haven't really replied with anything besides posts of that nature.

I could contribute to this debate, but I chose not to because you never told me how you determine truth from falsehood. If you don't have a valid means of making that distinction, then there is no point in debating. I'm not saying you don't, I'm just saying from your posts I haven't been able to observe one, and you have not made that clear.

As for my first reply to yours, I did use a couple of ad hominem questions, and for those I apologize, but that was already deep in the debate, and your line of reasoning was specious to say the least. I assumed a troll. Again, out of line, no excuse, but I stand by my rules for the debate. Accept, disprove, or get out. You've yet to do the first two, due to strawman arguments like bradley mentioned.

[LeonardK]

Jon, I love a good discussion of ideas, but I and the others on the subforum are exasperated by your antics starting with your SOP of saying we say things we don't then claiming victory by refuting your straw man. If you want to continue your arguments with yourself, please take it somewhere else. If you don't understand our explanations, ask, rather than telling us what you misunderstand.
Well I'm not exasperated. Let Jon speak. His answers may not be to your liking but they're intelligent.

[fsk]

Actually, I get the impression that jon_perez was merely reciting mainstream false economic theory, rather than actually actually thinking.

I do find it amusing to see jon_perez being strongly defending by people who recently created a new account.

I'm ready to declare this forum property of trolls and move to greener pastures.

[enter`name`here]

If an economy were operating on the gold standard and banks loaned out the gold at an interest rate higher than the rate increase of the total gold supply, what's to prevent the bankers from eventually owning all the gold?

They would spend their money, just like anyone else, thus the money would re-enter circulation. Also a higher interest rate doesn't necessarily mean the bank will make more money.

[jon_perez]

Actually, I get the impression that jon_perez was merely reciting mainstream false economic theory, rather than actually actually thinking.Wrong. I have stated time and again that I am trying to maintain an open mind and that means one has to look at the assumptions of 'mainstream' economic theory. Unfortunately, instead of rebutting the arguments head on, you choose to make a dogmatic pronouncement of them being false.

I can appreciate many of the monetary arguments of Classical/Austrian economics, but those of Keynesianism make a lot of sense as well. Historically speaking, there is evidence to support both views.

While I'm more on the side of the laissez faire point of view sentiment-wise, I find that, from a rational point of view, I cannot honestly dismiss many of the "socialists'" arguments. I have essentially been playing devil's advocate and asking for help in how to rebut these socialist arguments, and all I have gotten so far are cop-out replies, being asked believe in certain views, as if they were religion or accusations that I am trying to disrupt 'debate' (this last one is the MOST laughable).



I'm ready to declare this forum property of trolls and move to greener pastures.Copping out, I guess?