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What Has Government Done To Our Money

by Trace Mayer, J.D. on June 26, 2009 · 9 comments

Reading time: 3 – 4 minutes

BOOK REVIEW:  WHAT HAS GOVERNMENT DONE TO OUR MONEY

On 25 June 2009 I was invited to the Cafe Libertalia to speak at a book club where I was given the latitude to choose the book for discussion.  I picked What Has Government Done To Our Money And The Case For A 100% Gold Dollar by Murray Rothbard. This book is an easy to read foundation for the student of the Austrian school of economics.  Therefore, I think everyone should get and read a copy.

What Has Government Done To Our Money is 119 pages while The Case For A 100% Gold Dollar is 61 pages.  It is printed on archival quality acid-free paper and has a sleek cover.  This book makes a great addition to any library.

WHAT HAS GOVERNMENT DONE TO OUR MONEY

This is a well done objective monetary history.  It discusses how money developed, the rise of fractional reserve banking and the constant meddling by government in money and currency.  A key reason governments meddle in the money and currency markets is because it is a source of funding.

The reader learns some some basics of history, government and economics such as the development of monetary names, benefits of money, a short discussion on legal tender application and an entire part on The Monetary Breakdown of the West.

THE CASE FOR A 100% GOLD DOLLAR

This is a persuasive essay on why a 100% gold Dollar should be adopted.  This essay originally appeared in the out of print and hard to find In Search Of A Monetary Constitution by Leland Yeager and published in 1962 by the Harvard University Press.  While the arguments Rothbard makes are sound; I do not really agree because of advances in information technology and monetary evolution over the past 47 years.

Four and a half decades ago there was no Fandango, online checkin for airplane flights, etc.  So likewise there have been advances made in monetary application and I am of the opinion that private digital commodity currencies, like GoldMoney, provide the most efficient solution to the monetary chaos the world has found itself in.

WHO THIS BOOK IS FOR

What Has Government Done To Our Money And The Case For A 100% Gold Dollar by Murray Rothbard is a quick and easy read divided into two main portions.  I think the objective presentation of monetary history is a good read for anybody.  The persuasive essay is a good read for anyone who wants to stimulate their analytical capacities; but keep in mind the essay is obsolete.  Therefore, I think everyone should get and read a copy of this book.

You can get a free digital copy from the Mises Institute or purchase a physical copy from Amazon.

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9 comments

ABOUT THE AUTHOR: Trace Mayer, J.D., author of The Great Credit Contraction holds a degree in Accounting, a law degree from California Western School of Law and studies the Austrian school of economics. He works as an entrepreneur, investor, journalist and monetary scientist. He is a strong advocate of the freedom of speech, a member of the Society of Professional Journalists and the San Diego County Bar Association. He has appeared on ABC, NBC, BNN, radio shows and presented at many investment conferences throughout the world. This is merely one article of 240 by .
Free Free Great Credit Contraction Sample

{ 8 comments… read them below or add one }

1 John OHare June 28, 2009 at 6:25 pm

Tracy,
You’ve got to be kidding. If “advances in information technology and monetary evolution over the pase 47 years” are so much more important that a gold/silver based money system, then why is the economy in the tank? I’ll tell you why, decades of increases in suppy of money caused by the by the Government BECAUSE WE ARE NOT ON A GOLD/SILVER STANDARD.

47 years of advances in information technology and monetary evolution (ha ha) vs. 3,4 or 5,000 years of stable economies on the gold standard (well – stable as long as they STAYED on the gold standard). You can keep todays “modern” system…I’ll take the gold standard any day.
John OHare

2 Jim Lorenz October 31, 2009 at 8:33 pm

I must agree with Mr. OHare. The PRINCIPLES of a gold standard are as immutable as gold itself.
Goldmoney Dot, is only an modern means of transferring right, title and interest, to a certain amount of physical gold to another party; but there are now 3 parties involved, which permits counterparty risk.
I’m still with Murray.

3 Trace Mayer, J.D. October 31, 2009 at 9:23 pm

Jim,

There is a difference between counter-party and performance risk. Bullion held in trust via GoldMoney is not subject to counter-party risk but is subject to performance risk. The key distinguishing feature is the financial ability of the counter-party. Of course, gold in the hand removes even this layer of performance risk. Keep in mind the Internet just turned 40 and did not even exist when Rothbard wrote the book.

With our advanced economy, the speed of transactions and need for divisibility the feasibility of using physical gold in ordinary daily transactions without a third party like GoldMoney is extremely inefficient and arguably even more inefficient than the current fiat currency and fractional reserve banking system. As the motor was to transportation so likewise is the Internet to monetary instruments.

The reason the economy is in the tank is because the monetary instruments being used such as checks, credit cards, etc. are like ‘horseless carriages’ and it is the digital commodity currencies that are the next stages of evolution like automobiles and governmental interference in the market is stifling monetary evolution through bailouts of the current monopoly and various laws to protect market share (28% rate gain tax, anti-money laundering laws, legal tender laws, etc.). It is a three hundred year old money substitute and now illusion based system that is being cobbled together like a horseless carriage with duck tape.

It may be a while before ‘Porsches’ show up on the monetary scene but they will come and you can be rest assured that they will be more efficient than any of the various gold standards.

4 Jim Roache May 5, 2011 at 11:02 pm

Check out FreeGold. Gold cannot be money – as in currency. It is a store of value. Currency is a medium of exchange. There is not enough gold for that – or the denominations would be too big. It can be the asset-backing for money/currency – silver, paper, or whatever.

If you don’t get that, we are never gonna get this mess sorted. The gold backing cannot be pegged either – that’s why the gold standard didn’t work before. If we PM people can’t get this right, how will the paper nerds get it?

5 Trace Mayer, J.D. May 9, 2011 at 9:20 pm

Jim,

Free Gold as in FOFOA’s misguided theory? I wrote an article about that. Correct monetary science in this regard is very old, with great contributions by both Menger and Mises, and very thought out and contained in The Regression Theorem. Your comment when weighed against The Regression Theorem is found extremely weak. You may want to also read the article I cite in The Regression Theorem from Bob Murphy. It is great for those unacquainted with this basic principle from Austrian economics on the origin of money, currency and their value.

6 Jim May 10, 2011 at 12:34 pm

Call me old-fashioned, but I see no need to say my or anyone else’s comments are “extremely weak” and FOFOA’s “misguided,” as if that somehow proved another theoretical position to be valid. Since we are discussing (comparing) theories (not facts), personal aspersions are best left out – they narrow focus. I think we also have semantic difficulties, compounded by virtue of the Internet’s two-dimensional nature. But we have huge problems to solve, and time is short.

The Theory of Money and Credit by Ludwig von Mises
Publication date 1912
Published in English 1934

The Theory of Money and Credit written by Ludwig von Mises, originally published in 1912 (almost a century ago), along with Menger’s Principles of Economics and von Böhm-Bawerk’s Capital and Interest were all major contributions to economic theory.

In this work (Wiki), Mises looks at the nature and value of money, and its effect on determining monetary policy. Included is his regression theorem, that tries to explain why money is demanded in its own right, as moneys at first glance do not serve a consumable need. Mises explained that moneys only came about after there was a demand for it to fascilitate barter or exhange of good for good.

The German word Umlaufsmittel translates as “means of circulation” or in English as “fiduciary media”. However, the publisher substituted “money and credit” in the title, thereby losing the specific distinction Mises had made in selecting the term.

Money is a medium of exchange – it can be worthless – as long as people are satisfied to use it for convenience – it has taken many forms (including gold and silver) – most recently electronic debits and credits in cyberspace. It facilitates barter, thus “medium of exchange.” It much however, represent, not necessarily possess in and of itself, value, assets, wealth, worth….and it is a promise of value in exchange for mutal value and an agreed or acceptable rate of exchange.

Money has not proven to be a store of value or wealth because governments (Central Banks/Treasuries) debase it. They want to get more than they give in return and resort to all sorts of illicit behavious to achieve those ends. And there is the “invisible tax”, inflation, to consider. The interest rate never keeps pace with the inflation rate, so $100 in a bank account in 1971 does not equal $100 in an account today….in terms of what it will buy…even with compound interest – it has not kept up. With a shrinking, but convenienct medium of exchange, how does one maintain or grow savings? And this is to leave aside questions of credit and debt, direct taxation, etc for now.

Gold can be both a medium of exchange and a store of value/wealth, the former being a poor use for the metal – of which there is no longer enough available to meet the need anyway – as has been proven by pegged gold standards in the past. Gold is the closest metal we have to not being a commodity. It simply sits there 67 ft cubed…if we imagine it that way – all the gold ever taken from the earth. The silver-gold ration in the earth’s crust is approximately 16 to 1.

So we are left with establishing the value of a medium of exchange by arbritrarily comparing it with a select (not all inclusive) “basket” of similar
media – all backed by nothing, all created out of thin air, at the whim of our rulers and their functionaries (or the other way around), worth nothing in and of themselves. That is fine, BUT ideally they must represent more than a promise; they must represent value – GDP, commodities or gold, etc.

Such media of exchange require asset backing or total faith (enter psychology) plus trust between trading/bartering parties. Floating media of arbitrary value/s one to the other can work for a time, but can also produce currency wars.

Even when media of exchange work within a widely accepted system, we still have the problem of wealth (or saving). If trading/exchange/bartering media have no value – because they are printed out of thin air or parties lie about GDP, inflation, debasement, etc., how does one save and build wealth?

The only way, after all, is tyo defer present consumption, trade or barter while accumulating assets or commodities that will maintain their value over time. Otherwise, why save? However, no commodity, including land, has consistently held real value over so long a time as gold. People confuse the value of gold with the price (spot price) which includes paper of many kinds and distorts (debases) its value.

But when push comes to shove, and systems fail, historically, people turn to gold. We have experimented since 1971 by replacing gold with USD to a degree, but the US Fed/Treasury has defaulted on its responsibility to ensure that the dollar was not just a medium of exchange, but a store of value. It is worth much less now – I’m glad I didn’t save it in the interim – I would be behind in my puchasing power – by a mile.

To return to the old, flawed gold standard (as some States seem intent upon doing) can’t work either. If it didn’t work then, how cn it work now? It didn’t work, they said, because it limited the ability of the state to spend more than it produced – saying there was a need for flexibility – i.e. to go into debt or a negative trade balance, Nixon ensured “flexibility.” We see the result globally.

Either existing Schools of Economics are wrong, misunderstood or disrespected (to the point of mockery) or we have something wrong. Yet people in their gut, i.e. psychologically, feel that gold, and possibly silver, seem to be part of the solution. Words and agendas get in the way – we are human – much too arrogant for our own good and often in trouble as a result.

Instead of name-calling and dismissal, it is time to reason together on how to devise a system that might serve 1) to fascilitate echange (we have many options); and 2) to serve as a store of value (to allow savings which maintain value) over time.

My current $60K car is not much better than my $6K car of 40 years ago — why is it not still $6K? As for gold going from $200 to $1500/oz in a decade – that is nonsense – gold does not change in real value – it is the standard; the asset backing for any medium or exchange (which medium of exchange can be worth something of nothing). But if I went to the Chinese and said I want a ton of iron rods for this stack of pretty paper paper (which unfortunately has no value), would I have a deal? Glass beads maybe – no – same snswer.

Sadly, gold (and other commodities) have been used in a system like fractional reserve banking – which has allowed all sorts of monkey business. Previous gold standards pegged the price of gold. Wrong. Must have been or they would have worked, correct? The medium of exchange must float against it’s asset backing, and the market will determine what the asset backing is worth (its real value), by virtue of the relationship between the paper or electronic signal and the supporting asset or commodity.

Gold needs to be revaluated – we don’t have to ship it around – but the medium of exchange must be based on something of sustaining value. Promises, no – human nature will not allow it. History does not support it. Gold as money – there is not enough, not matter how small the coins. Paper or electronic bits & bits are fine — if they have value behind them….not some arbitrary comparison against those of another countries paper and bits and bits which are also worthless – formed in thin air – but only if they too are supported by assets.

Of all assets tested in this capacity, the most effective have been gold and silver – until debasement. Oil is finite and the supply unstable, for example. And it does not serve as a store of value (wealth) over time as it is consumed. Paper gold of all kinds aside, and the refusal to revaluate gold aside, what could ever bring permanent value to media of exchange – make a list. Or explain why I would sell you my $60K car for $6 and why, had I saved money/currency in a bank since 1971, I would be on the wrong end of the deal.

That is as simple as I can make it. Precious metals seem to meet our current need for a store of wealth; our medium of exchange is an entirely different and separate matter. If there is anything that can hold the value that a medium of exchange cannot, given human nature and the historical record, let me know.

It would be great to find a convenient solution to ou debt, debased money and evaporated savings right now – is there no economist since Friedman who has had an original idea -even a bad one like most of his?

Trace does not seem to understand Free Gold – fine, really – so what we need is some free thinking (no name-calling). Would anything else work to prevent a repeat of 2008 on a larger scale and that would be acceptable to the powers that be in terms to two things we need – a medium of exchange and an asset or assets that will hold or increase in value so that savings are worth at least what they were when we started?

7 Jim May 10, 2011 at 1:13 pm
8 Trace Mayer, J.D. May 12, 2011 at 9:43 pm

Jim, perhaps you can state what Free Gold is in a sentence or two?

As far as your comment, I think it is pretty adequately and thoroughly explained in my book The Great Credit Contraction. You are correct that semantics contribute significantly to the lack of intelligent discussion. For that reason I start of chapter One by distinguishing between money, money substitutes and illusions all of which can function as currency (what is used in ordinary daily transactions or the medium of exchange). But if you discount the Regression Theorem then what do you propose as an alternative? Because on that premise hinges many of the other deductive and inductive inferences to your arguments.

The other issues you raise appear to be tangential to the discussion. But to get to the questions you ask in the last paragraph (excluding the one about free thinking which I think is needed) my response is simply ‘No.’ This is because the Great Credit Contraction has started, 2008 was just the first of many contractions to come, it can be neither stopped nor reversed and the powers that be will likely fight it tooth and nail but it will make no difference because it is the operation of economic law. The powers that be will nor more successful at stopping it than if they tried to pass a law to stop the Japanese tsunami, Haiti earthquake, etc. Most of the ‘savings’ are illusory, the value never really existed anyway and a liquidation must happen because of economic law just as Rothbard discusses in The Great Depression. The practical question is whether the citizens of the world and their respective countries will choose Repression or Regeneration. I hit on additional reasons for that contention, that is not in the book, in the article How To Attack The Fiat Currency And Fractional Reserve Banking Conspiracy.

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