Topic: Ron Paul
No Gold Standard, Not Again! While I favor the Honest Money Act introduced to the House of Representatives by Congressman Ron Paul of Texas, I do not want to see a return to the gold standard.by The Fugue, a.k.a. Russ Fugal
(libertarian)
Wednesday, January 30, 2008
Hear me out. This isn't an anti Austrian Economics rant. I want to see the IRS and Federal Reserve abolished just as much as you do.
What is the Gold Standard?
The gold standard ties the value of a non-gold currency to the value of gold. One US Dollar used to be equal to the value of one dollar (27g, almost 1oz) of silver, and 0.05oz of gold. Today the market value of one dollar of silver is $17, and 0.05oz of gold is $45 (these are rough figures).
The main principle of the gold standard is that paper currency is redeemable for a given amount of gold. The government is responsible for what that amount is through regulation. This tie to gold helps to prevent the inflation of a currency.
Why not the Gold Standard?
While I am in favor of Honest Money, Sound Money, or Representative Money, I oppose the gold standard. Why? Because at its core, the gold standard is government regulation and interference in the market price of gold. Also, fiat money is not that bad.
I'll address fiat money first. Fiat money is based on a promise by the issuing authority to maintain a stable value, and a promise by those circulating the money to provide goods and services. To put it another way, in principle fiat money is not backed by nothing, it is dual backed:
by the credit of the issuing authority,
and by the strength of the economy in which it circulates.
In practice fiat money is also backed by law and force.
If my neighbor owes me for fixing his roof and I have a contract stating that he agrees pay me for my labors, that contract is not necessarily enforceable. I could have one contract in which he agrees to pay me $900, and one contract in which he agrees to pay me 1oz of gold. If these two contracts are identical except for this one difference, only one may be enforced in court; only the one written in US Dollars is enforceable.
As any business man can tell you, business is always done with contracts. If transactions in anything other than legal tender are not enforceable in court then the issuing authority of the legal tender has a monopoly on transactions and arguably substantial control of the economy.
Fiat money is an invention of the merchant. It is the most basic of contracts. It can be argued that all money that does not have intrinsic value is fiat, even if not by the definition you'll find in the modern dictionary. Fiat come from the Latin, "Let it be done." A certificate can be exchanged for gold because two or more people agreed, Let it be done. Fiat is a promise to pay.
Now I ask, are promises to pay inherently evil?
Could internet commerce exist without promises to pay? Even if you transfer funds immediately and don't buy on credit... Your bank promises to pay his bank, and his bank promises to pay him. The whole concept of banking is based on promises to pay, which takes us from the barely fiat representative money to the idea of credit.
A bank makes profit from accepting deposits and issuing loans from those deposits. That's how it used to work even before the Federal Reserve. This is called fractional lending. This is what causes a banking crisis. If all depositors want to pull their money out at once then the bank doesn't have enough assets on had to pay them all. This is because the banks issued fiat money.
Is that bad? Well, no... A depositor should understand the risks of banking before participating. It is just like investing, only less risky. That is why some people choose to keep their money under the mattress.
I personally am in favor of credit. Not to the extent that our society has entrenched itself, but credit can be very useful especially when going into business. So here is the dilemma, you cannot be in favor of 100% sound money and credit... or can you.
Now we go back to the first opposition I raised to the gold standard. It is government interference in the market value of gold. If gold becomes legal tender then the price of gold skyrockets, and so does the price of your gold tipped audio connectors, low resistance printable gold nanoparticulate inks for flexible electronics, that gold tooth you've had your eye on, and everything else gold. The government should not regulate the price of gold as equal to anything other than... the price of gold. So I believe that the dollar should not be tied to gold!
My Alternative to the Gold Standard.
I believe in letting gold and gold representative money be lawful tender. The Honest Money Act accomplishes this. If I can ask my employer to pay me in gold or gold representative, and that contract is enforceable in court then I have effectively destroyed the Federal Reserve's monopoly on transactions without destroying the Federal Reserve. I also believe that transacting in silver and silver representative should be lawful and enforceable. And kilowatt-hour representative for that matter, and wheat representative, and anything else should be lawful to transact in.
Notice I use the word lawful instead of legal. That is because I don't think anything should be legal tender as currently defined. We shouldn't force anyone to accept one form of payment when they want another, especially if they have a contract specifying one over the other. If I sign a contract with someone to be paid in gold I should be able to demand gold in court, not some substitute.
This doesn't mean that businesses and individuals have to accept anything as payment, they can decide what they want to be paid in. A business can post it on their door, an employee can demand it when being hired.
This would reek havoc on in income tax. Which is why the IRS should be abolished. This would also reek havoc on any money not able to hold value. But I think that fiat money should still be allowed. Banks should be allowed to issue fiat money as well as the US Federal Government and other countries governments. Transacting in Chinese Yuan should be lawful as well. If you are opposed to that, just remember, fiat money is only backed by the issuing authority's credit and the people's faith in that money. As long as I am not obligated to accept Federal Reserve notes as payment I don't care how much they devalue their currency. Same thing applies to Microsoft stock. If I am not obligated to accept it (unless I take payments from Microsoft and signed a contract to be paid in stock) it makes no difference to me if it drops 70% in the next year.
A Case In Point.
This is my dream of the US economy.
Anything from gold to powdered milk and their representatives (whether paper or electronic) can be traded by consenting parties. I think gold and silver would naturally take the largest market share, but I could be wrong. Businesses decide what they accept as payment, as do employees (with the business consent upon hiring). Federal employees (especially legislators and presidents) are paid in federal fiat notes. Taxes are collected in federal fiat notes. Federal contracts can be paid in federal fiat notes or anything else the two parties agree on. Now the government has an incentive to maintain value of its currency.
Federal notes are bought and sold on the market to pay various fees, tariffs, and taxes, but the income tax is ancient history.
Business are allowed to issue notes (stocks) to finance capital purchases. Banks can be federally insured if they adhere to regulations. Banks can only loan federal fiat notes. If I deposit 5,000 grams of gold in my local federally insured bank they cannot loan against it, but my account will be subject to whatever fees they impose (since they are not required to store and protect my gold for free).
Oh, and that last paragraph brings me to my final point. Gold and silver coins should be minted in metric weights. This means that the government should "fix the Standard of Weights and Measures" to the international standard. Why? Because it makes sense.
Twenty seven grams of silver should not arbitrarily be assigned the value of one dollar. Silver and gold coins should be minted in 2.5g, 5g, 10g, 25g, 50g, 100g, and bars should be minted in 0.5kg, 1kg, 12.5kg, and 25kg. The market value of such coins today would be $1.50 for a 2.5g (about a penny) silver coin, $80 for one of gold; and $6 for a 10g (about a quarter) silver coin, $320 for one of gold. The face of the coins are stamped with only one value... 10g Gold, .999 fine.
Most consumer transactions would take place with debit cards. Federally insured banks would hold all sorts representative from local and national agencies (electronic) and real assets on deposit (gold and silver) for you. For example, my account today might have 500kWh representative from the local power company (about $40), 100g of silver on deposit (about $120), 20g of gold on deposit (about $640), 50kg of wheat representative from the local mill (about $40), and $100 in federal notes. Then I go to the local grocer and swipe my card to pay. The grocer wants to be paid in gold, silver, wheat, or federal notes. On the screen $40, 33.33g of silver, 1.25g of gold, and 50kg of wheat pop up on the screen for me to select from (these numbers are determined by the grocer, not the government). I select that I want to pay in gold or, if the grocer allows a combination, 1g gold and 10kg wheat, and then head to the fuel station where I swipe my card and pay 250kWh to fill my electric two seater trike with 250kWh of electricity.
That's my dream. Can't wait until next Friday when I get paid my 50g of gold.
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Posted By: patrick henry
Date: 2008-01-30 16:06:28
Anything written in a contract and agreed upon by both parties is lawful and enforceable.
Fiat money allows others to devalue your fiat dollar. They can always make more, but unless an alchemist you cant make more gold yet.
Screw promises, the President SWORE to uphold and defend the, COnstitution. Swearing is anothe form of "Promising" if that can be so easily broken what about a bank promise. What if we all turned in our money in a fractional reserve system. The system would be broke and your fiat paper worth nothing.
OBTW its worth nothing, look at the EURO, look at gold and silver, look at the GBP, the Kuwaiti Dinar, blah blah blah. Fiat dollars is the cause of inflation which is the cause of the devaluation of the dollar. When government and anks can devalue your currency it is the same thing as stealing from you.
I want honest money. I buy gold and silver every pay day over the last 2 months. I have already made over $500 strictly because the fiat dollar is crashing in value. The price of gold has gone up over 140 bucks in the last 5 weeks. The USD has devalued 400% over the last 7 yrs. So your arguement for fiat dollars is __________________?
LIBERTY or DEATH
LIBERTY or DEATH
Hmmm...I'm not sure this is what Dr. Paul had in mind when he put in the Honest Money Act "medium of exchange chosen by the market" or not. I'll be honest I sure got flashbacks to the historical disaster the colonies were facing when every form of tender was floating about and it got quite difiicult to transact commerce. Just your debit card example had me reeling.
What on Earth to do if I stumbled in to a grocer who wanted gold and wheat which I was low on yet refused silver which I happened to have an abundance of that week. Perhaps I could haggle a fair trade amount slightly below market value for the silver in exchange for the gold I was lacking. Of course, any change due I want to be deposited in crude oil as the dry cleaners I need to stop by only just changed to only accept crude oil and I'm low on that and really need my clothes for work tomorrow.
I'll have to revisit this again with a different eye perhaps because this time through the start was ok but I got lost long before the finish. A thumbs up anyway just for being creative and thinking outside the box while elevating the necessary debate for change.
I think you have a good point. Fiat money has its' place, but competing currencies should be allowed, that would force the Fed to be honest when they are printing money. I would also like to see us reclaim the gold that was siezed by the Fed returned to Ft. Knox and have an audit done on it. This, ultimately, is the American Peoples' wealth...not the Feds'. Why are they in possesion of it? They have no transparency and hold closed-door meetings. That is never a good sign.
To patrick henry: I think you misunderstand the article. He is in no way endorsing fiat money, he's merely saying tying gold _to_ fiat money is a very bad idea. He also says the fiat can peacefully coexist with other forms of currency in an open market.
To gary: I understand your withholdings. Indeed there is much room for confusion and all this conversion stuff. That's my knee-jerk reaction to this as well. Consider this however. Bad as it may be, we do have a "standard" in the current dollar. If the fed's monopoly were destroyed tomorrow, most businesses would still only take the dollar, it's standard, everybody has it. Soon a few companies would experiment with taking silver as well and a few people would play with getting some or all of their paychecks in silver (like the one guy who buys gold with every paycheck, except just eliminate that extra step). If silver turns out to be very good for customers and businesses, then it will gain momentum, more companies will accept it and more people will want to be paid with it. Indeed, it's an unlikely scenario where Russel will be running around with wheat credits on his debit card because what is he going to be able to buy with it? Thus, the best two or three currencies will dominate, when one (*cough* the dollar) crashes, it will lose favor, businesses will stop taking it. People will ask to be paid in gold instead. THIS is what would keep the dollar honest.
Posted By: Walt Thiessen
Date: 2008-01-30 17:17:00
Mostly a good article. However, you overlooked two key points.
First, the gold standard failed because it fixed the price of gold to a particular dollar amount, while simultaneously permitting the Federal government to get away with printing more dollars without having the gold to back it. This was the beginning of fractional reserve banking, and the results were devastating. As you said, the government regulation caused the problem, but you weren't specific enough as to HOW it caused the problem.
This leads to the second point which is: the Constitution specifically gives Congress the power in Article I Section 8: "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;" There are also other clauses that place limits on this power, as well as on the power of the States to coin money. Dr. Paul is specifically trying to stay within the bounds of the Constitution. Your article seems to assume that the Constitution either doesn't exist or doesn't apply, but you give no reason or evidence to justify this assumption.
Good article. We can enter a contract to require wheat or....... check out the commodity pits. However we can be forced to eventually settle the dispute for nonperformance in dollars, that way the IRS can get their cut.
Some people have made deals in silver or gold US coin at face value and paid the tax on the face value, not the intrinsic value, legal by recent case law, but in dispute it might be problematic. The value of the dollar should be regulated by printing dollars or creating public debt with an eye on gold price,oil , wheat etc.
Ron Paul doesn't want a total return to the gold standard either. He's stated on many ocassions that he advocates a competing currency system backed by precious metals that runs concurrent to the USD i.e. the "liberty dollar" alternative currency which was recently raided by the feds and all their valuables seized (stolen). This way people who chose to exchange REAL money with good and services providers could legally do so. We could then take pride in not having our money being used to line the pockets of the fractional reserve, or fund illegal wars, foreign entanglements with dictators and oppressive governments,, clandestine offshore prison and torture programs, domestic spying and survelliance etc,, you know the par for the course.
I say a stopping (or at least a slowing down from their current 24/7 operation) of the printing presses at the US mint is LONG overdue. The fractional reserve devalues and destroys our currency through price fixing and other artificial manipulations without any questions, checks, balances or limitations. Allowing it to continue as such unchecked is ruining our economy and weakening our country; and that is some REAL straight talk...my friends.
I do not like Fiat because it allows others to inflate and I do NOT want my money backed by the strength of the economy. I want my money to have value no matter what...so forget that:)
Posted By: Well Well Well
Date: 2008-01-31 14:15:08
Its the gold standard or nothing. I do not want my money based on the strength of the economy and I do not want others to be able to devalue the currency. Nothing else will do.
Posted By: Jacob Dickson
Date: 2008-11-26 12:26:28
Well i found all comment to be the same regarding the value of Gold,first and foremost, i will like to let myself known,iam Jacob from Ghana,Obuasi gold mines,iam a worker and hope to make great fortune out of my work but it doesn't seem to be so ,we toil day and night for the extracton of this minerals ,despite all these ,it doesn't worth it price ,i challenge that,something be done about it.
As at now i have in my possession 500kg of worth of gold,to be frank i will like to meet a potential buyer to tansact this bussiness with,there are well documented papers covering it.
I am looking for real buyers to contact me, a potentail buyer who wish to come down here can do so without any hesitation,for the mean time ,you can contact me right with my e-mail or on my cell phone :233276347110.
Posted By: Jacob Dickson
Date: 2008-11-27 12:20:53
Well i found all comment to be the same regarding the value of Gold,first and foremost, i will like to let myself known,iam Jacob from Ghana,Obuasi gold mines,iam a worker and hope to make great fortune out of my work but it doesn't seem to be so ,we toil day and night for the extracton of this minerals ,despite all these ,it doesn't worth it price ,i challenge that,something be done about it.
As at now i have in my possession 500kg of worth of gold,to be frank i will like to meet a potential buyer to tansact this bussiness with,there are well documented papers covering it.
I am looking for real buyers to contact me, a potentail buyer who wish to come down here can do so without any hesitation,for the mean time ,you can contact me right with my e-mail or on my cell phone :233276347110.
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