This page has been archived and commenting is disabled.

The History Of The World's "Reserve" Currency: From Ancient Greece To Today

Tyler Durden's picture


Probably the most interesting part of the previously discussed 174-page World Bank report on the future of world currencies, is, ironically, the part that deals with the past. In its discussion of why "Historically, one national currency has played a global role—or at most, a few national currencies", the WB analyzes the history of the "reserve" or dominant currency from ancient times, through today. It is an engrossing narrative which ebbs and flows with the rise and flow of the dominant superpower (no surprise there). The bottom line of course is whether or not the US will retain its superpower status in an increasingly multipolar (and developing-led) world. And whether it will be replaced by China...or nobody. The implications for the next reserve currency of choice are substantial.

Historically, one national currency has played a global role—or at most, a few national currencies

Historical records indicate that the silver drachma, issued by ancient Athens in the fifth century B.C.E. was likely the first currency that circulated widely outside its issuing state’s borders, followed by the gold aureus and silver denarius coins issued by Rome, even though the Athenian and Roman currencies circulated simultaneously for some time (see figure B3.1.1). The dominance of the Roman-issued coins was brought to an end as the long cycle of inflation that characterized the economy of the Roman Empire from the first century C.E. through the early fourth century led to a continuous devaluation of the Roman-issued currency, causing it to become increasingly less accepted outside the Roman Empire. Ultimately, the aureus became valued according to its weight rather than its imputed “face value,” trading more as a commodity than a currency outside the Roman Empire and making way for the Byzantine Empire’s heavy gold solidus coin to become the dominant currency in international trade in the sixth century.

By the seventh century, the Arabian dinar had partially replaced the solidus in this role, although the solidus continued to circulate internationally at a debased value (reflecting the high financing needs of the Byzantine Empire) into the 11th century. Large fi scal costs also led to a gradual devaluation of the Arabian dinar starting at the end of the 10th century.

By the 13th century, the fiorino, issued by Florence, was widely used in the Mediterranean region for commercial transactions, only to be supplanted by the ducato of Venice in the 15th century. In the 17th and 18th centuries, the dominant international currency was issued by the Netherlands, reflecting that country’s role as a leading financial and commercial power at the time. At that point, paper bills began replacing coins as the international currency of circulation, even though they were not backed by the Dutch government or any other entity under sole sovereign control.

It was only when national central banks and treasuries began holding gold as reserves, beginning in the 19th century, that bills and interest-bearing deposit claims that could be substituted for gold also began to be held as reserves. This development coincided with the rise of Great Britain as the leading exporter of manufactured goods and services and the largest importer of food and industrial raw materials. Between the early 1860s and the outbreak of World War I in 1914, some 60 percent of the world’s trade was invoiced in British  pounds sterling.

As U.K. banks expanded their overseas business, propelled by innovations in communications technology such as the telegraph, the British Pound was increasingly used as a currency of denomination for commercial transactions between non-U.K. residents—that is, the pound sterling became a more international currency. This role for the pound was further enhanced by London’s emergence as the world’s leading shipper and insurer of traded goods and as a center for organized commodities markets, as well as by the growing amount of British foreign investment, of which a large share was in the form of long-term securities denominated in pounds sterling.

At the beginning of the 20th century, however, the composition of foreign exchange holdings by the world’s monetary authorities began to shift, as sterling’s share declined and the shares of the French franc and the German mark increased. The beginning of World War I in 1914 is widely viewed as signaling the end of Great Britain’s leading role in the international economy and the breakdown of economic interdependence.

Despite attempts to revive the gold exchange standard after World War I and to restore an international monetary order based on fixed exchange rates, the restored system lasted only a few years. The U.S. dollar’s use internationally as a unit of account and means of payment increased during the interwar period, particularly during the 1920s, reflecting the growing role of the U.S. economy in  international trade and finance. Although gold was officially the reserve asset (and the anchor) of the international monetary system following World War II, under the Bretton Woods system of fixed exchange rates, the dollar took on the mantle of dominant international reserve currency. By the early 1970s, however, following the breakdown of the system because of its inherent Triffin dilemma, the major economies moved to implement floating exchange rates.

During the 1980s, the global economy showed indications that it was moving to a multicurrency system in which the Deutsche mark was taking on an expanded role as a key currency, both in Europe and globally. This was due to a combination of factors—low and stable German inflation; credible government policies; deep, broad, and open financial markets; and a relatively high share of differentiated  manufactured exports in Germany’s trade. The introduction of the euro in 1999 and its adoption by a growing number of EU countries in the intervening years has only revived the debate about the dollar’s future role as the dominant international currency.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Wed, 05/18/2011 - 09:38 | 1286690 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Precious metal is the only asset that defines monie by the requisite four definitions.

Wed, 05/18/2011 - 09:41 | 1286697 Michael Victory
Michael Victory's picture

Agree. End of fiat is near...


"What You Must Realize..."



Wed, 05/18/2011 - 09:42 | 1286715 bigdumbnugly
bigdumbnugly's picture

i kinda expected the last image to be a roll of TP

Wed, 05/18/2011 - 10:18 | 1286837 DaveyJones
DaveyJones's picture

single ply

Wed, 05/18/2011 - 15:37 | 1288505 Ahmeexnal
Ahmeexnal's picture

....and already used up

Wed, 05/18/2011 - 09:49 | 1286748 Conrad Murray
Conrad Murray's picture

The end of more than just fiat is near when things like this start cropping up...

Wed, 05/18/2011 - 10:24 | 1286896 chubbar
chubbar's picture

OT but a wikileaks cable that spells out the unconstitutional efforts to integrate our country with that of Canada and Mexico. AKA North American Union

Wed, 05/18/2011 - 11:06 | 1287100 Harbourcity
Harbourcity's picture

Following up a post above yours, no thanks from Canada, ours is two ply!

Wed, 05/18/2011 - 10:51 | 1287029 Vanderdekken
Vanderdekken's picture

Let me first make clear that I in fact do hold silver bullion. Given that, here's something I've noticed. People have been saying the end of the paper dollar is near for the past three or even four years now... How close are we to the end? 

In the end, I think it would be better to be conscious of what might happen if the USD looses up to 80% of it's value (just a random number) but let's face it. Paper money isn't going anywhere. We've effectivley evolved from using gold and silver coins. Just look at the aftermath of Weimar germany; Hitler (don't quote me on this) issued a new currency that was basically a claim on labor. 

Still again, nobody knows. My main point is that instead of bluntly hawking the demise of fiat money, be ready for any scenario. That's how people survive.

Wed, 05/18/2011 - 11:12 | 1287145 tmosley
tmosley's picture

Hitler's currency and economy would have collapsed in a few years even without the Allied attack, just like the economy of Spain collapsed under Marco during the early years (while the currency suffered from persistent just shy of hyperinflation), leading to mass starvation.

The starvation and economic decline was only halted by a return to "free market" economics in 1959. I put free market in quotes because it was still an authoritarian regime. In terms of economics, they became quite free, though the people were still brutally repressed at that point. The "Spanish Miracle" that followed speaks to the power of even limited free markets. Basically, loads of manufacturers moved in to take advantage of the low or zero percent taxes.

Wed, 05/18/2011 - 12:19 | 1287492 h3m1ngw4y
h3m1ngw4y's picture

Better one year early than a minute late.

Wed, 05/18/2011 - 10:14 | 1286824 Cognitive Dissonance
Cognitive Dissonance's picture

I tend to agree with your very short term analysis Turd.

Speaking only for myself and not you, for the next few weeks I suspect we will see an engineered push higher in nearly all risk assets. I like the fact that you are willing to look at other asset classes when trying to determine where the PMs are headed. I also noticed the S&P and PM correlation over the last few weeks.

I expect liftoff of the S&P to 1400/1420 in the next few days. Then, it appears the next major plunge will occur. Bernanke needs the political cover of everyone begging him to print like the mad hatter. So he and his supporting cast will produce begging on command. I don't beg. I just roll over and buy PMs.

Wed, 05/18/2011 - 10:21 | 1286861 DaveyJones
DaveyJones's picture

I always thought he was more Carrol's Queen and all I can think to say to him are the words of the cake 

Wed, 05/18/2011 - 10:57 | 1287041 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Bernanke needs no cover; he is above politics; he is a scientist; he has the cover of economics- this neo Keynesian game of checkers (if even) he is playing has the backing of the ivy league:  the people that get articles in the NYT, WP, etc, they house themselves in the schools of the learned, the ivory towers.

Bernanke needs no cover.  He will say what he has done has worked, the economy is still weak, his beard will say, as he cites unemployment.  His beard will say, 'Inflation is still low; we are looking for a target inflation of 3% and so we still have maneuverability to keep rates low for an extended (up the rear, aids or not) period of time to reach our goal.'  His colleagues will agree, we need to print more money.  His colleagues will raise hell to raise the debt ceiling.  And his colleagues will agree, 'bla bla bla'.

The opponents in this Hegelian dialectic will not disagree, for they too sponser this rhetoric (we are all aids vitcems now) as they are the other side of the same coin.  Yet, yet they will  'say' they have an opposing view, and this view is to cut, or rather gut, the pension system.  This while Timmah loots the pension system.  They will atack the people, we the people, from all sides, until there is nothing left of the people, we, the collective people.

As far as finance, the Dow (for example) will serpintinethe 12k range top to bottom while the algo machines housed in the Major Banks trade the tops and bottoms like day traders who never sleep.  Then, once Bernanke utters the words, "Quantitative Easing is working" the day will skip through Dow 13k faster than a sister on a jump-rope.  How ironic that 13 is an unlucky number for those who believe it so, who believe the fear based agenda that has been propagated by the power hungry.  13 is a lucky number for those that understand what it stands for, which is the collective- the godhead.  13 is us, and we have the power.  Together, we have the power.

Wed, 05/18/2011 - 11:01 | 1287088 Cognitive Dissonance
Cognitive Dissonance's picture

Even the mighty lion often hunts in packs where it has near total superiority. Why stick your neck out and go against the proletarian crowd when by creating panic you can be lifted by the crowd and rejoiced as their savior.

There is always a political element involved when 'we the people' still believe we have the power.....even if we don't and never had. Better to let us continue in our delusion then deal with a whole new set of unsettling cognitive dissonances. It so much easier to manipulate the people into asking for what Ben and Company want in the first place.

They are playing the long Con. We must never forget that.

Wed, 05/18/2011 - 14:27 | 1288176 Problem Is
Problem Is's picture

+5... Complete, logically valid and utterly correct analysis...

Wed, 05/18/2011 - 11:09 | 1287111 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Edit:  Final paragraph, first sentence:

As far as finance, the Dow (for example) will serpentine the 12k range top to bottom until  QE whatever the fuck number we are putting next to it is mandated, while the algo machines housed in the Major Banks trade the tops and bottoms like day traders who never sleep.

Wed, 05/18/2011 - 10:35 | 1286936 4realmoney
4realmoney's picture

This article neatly summarizes why gold needs to be the investment of choice regardless whether we are headed to hyperinflation or deflation:

Wed, 05/18/2011 - 10:32 | 1286939 4realmoney
4realmoney's picture

This article neatly summarizes why gold needs to be the investment of choice regardless whether we are headed to hyperinflation or deflation:

Wed, 05/18/2011 - 10:57 | 1287061 Mountainview
Mountainview's picture

10 years from now: Chinese Yuan will be next together with a restructured USD and a remodeled EURO (after a short pause with Gold as reference standard)

Wed, 05/18/2011 - 10:59 | 1287069 JLee2027
JLee2027's picture

No fiat currencies will survive past the next 18 months is my prediction.

Wed, 05/18/2011 - 09:39 | 1286691 RobotTrader
RobotTrader's picture

There appears to be yet another global panic to acquire U.S. Fiatscos this morning.

As well as U.S. Treasuries, as the 10-yr. is within a hairsbreadth of crashing below 3%.

And don't forget the Muni-bond ETF, now up 30-days straight and within a stone's throw of new highs.

Wed, 05/18/2011 - 09:41 | 1286700 russki standart
russki standart's picture

Interesting... it seems to me that on the DXY the USD is up only slightly. Respectfully, how did you derive this conclusion?

Wed, 05/18/2011 - 09:48 | 1286729 Careless Whisper
Careless Whisper's picture

August 15, 1971. remember that date.


Wed, 05/18/2011 - 09:58 | 1286775 LawsofPhysics
LawsofPhysics's picture

Yep.  Absolute power corrupts, absolutely.  Always has always will.  Why the rest of the world didn't kick the dollar to the curb back then is beyond me.  Perhaps it was the lack of internet service back then.

Wed, 05/18/2011 - 10:18 | 1286836 FEDbuster
FEDbuster's picture

The dollar is now backed by the US military.  The tag line "In God We Trust" should be changed to "Accept This, or Else".  Force and fear rule the day. How long can we use Mob tactics to "rule" the currency market?

I would love to see Zimbabwe issue a gold backed currency.  How ironic would that be that the first country to issue a 100 trillion dollar fiat bank note, would become one of the most stable hard money currencies in the world?

Wed, 05/18/2011 - 10:34 | 1286927 DaveyJones
DaveyJones's picture

mob tactics work for a while then collapse. A world wide military is one of the more expensive hobbies and a poor subsitute for an economy 

Wed, 05/18/2011 - 10:33 | 1286945 Cash_is_Trash
Cash_is_Trash's picture


- I had to get it out!

Wed, 05/18/2011 - 10:37 | 1286956 LawsofPhysics
LawsofPhysics's picture

Works fine and good until that military runs out of fuel.

Wed, 05/18/2011 - 10:57 | 1287054 FEDbuster
FEDbuster's picture

They will be the last ones to run out of fuel.  If they can't pay for it, they will take it.  You would see drilling platforms off the beach at Malibu, before the US military runs out of fuel.

Wed, 05/18/2011 - 11:10 | 1287120 LawsofPhysics
LawsofPhysics's picture

Take it from where?  What fuel?  Do they know about my methane digesters?  I don't think so.  Necessity is the mother of invention and the American government has been driving intelligence, innovation, and smart capital out of this country for 30+ years.

Wed, 05/18/2011 - 13:38 | 1287899 dugorama
dugorama's picture

except of course that 95 or so of the world's top 100 universities are in the US and are largely gov't funded... no I don't mean tuition, I mean NIH research grants, etc.  check out any grad school in the country and see what fraction of the students (and, increasingly, professors) hold US passports.  This is perhaps the one place the US gov't has not (yet) hampered biz - intellectual development world wide is hugely dominated by US universities.


From the Chronicle of Higher Ed (

"Foreign-student enrollments grew 3 percent in fall 2010."


"Foreign-student applications to American graduate schools are up 9 percent over last year, with much of the increase fueled by a double-digit expansion in applications from prospective Chinese students"



"In last year’s annual Open Doors report, China overtook India as the country sending the most students to the U.S"

Wed, 05/18/2011 - 11:15 | 1287160 Urban Redneck
Urban Redneck's picture

And in the intervening several years, between deciding to drill in Malibu and extracting oil from Malibu, GI Joe will have to learn how to march again (and swim too, since we don't have any nuclear-powered landing craft).

Wed, 05/18/2011 - 12:18 | 1287469 DaveyJones
DaveyJones's picture

why use the future tense. We are "taking it" as we speak 

Wed, 05/18/2011 - 12:04 | 1287388 Treasure Freedom
Treasure Freedom's picture

The dollar is backed by fear... Fresh water is the ultimate currency.. Silver & Gold > US dollar.

Wed, 05/18/2011 - 09:41 | 1286711 Josh Randall
Josh Randall's picture

What, no TZOO gloating this monring ? Up $3 and change -- maybe TZOO credits are tied into the basket that make up the SDR's

Wed, 05/18/2011 - 09:50 | 1286718 Internet Tough Guy
Internet Tough Guy's picture

TZOO down almost 40% since Momo was pumping it. Always fade momofader.

He also lost money buying silver, apparently.

Thanks, Mega Bear
RobotTrader - Tue, May 17, 2011 - 04:39 PM

But after the horrific beating I took on my PM's this year, my chances of owning a Lexus now are slim to none. And slim just left the room....



Wed, 05/18/2011 - 10:45 | 1287009 LawsofPhysics
LawsofPhysics's picture

Where is that dollar now robo?

Wed, 05/18/2011 - 09:36 | 1286692 LawsofPhysics
LawsofPhysics's picture

There is a lot of physical in that picture.  Got yours?

Wed, 05/18/2011 - 10:44 | 1287005 MiguelitoRaton
MiguelitoRaton's picture

Let's play "Which one of these items is different" with the picture above, OK boys and girls?

Wed, 05/18/2011 - 12:43 | 1287620 Transformer
Transformer's picture

Only one of them has a woman on it, the British pound. 

Wed, 05/18/2011 - 09:37 | 1286693 russki standart
russki standart's picture

The more things change, the more they stay the same. Gold is always, in the end, real money.

Wed, 05/18/2011 - 09:44 | 1286722 HamyWanger
HamyWanger's picture

Gold is a money only in the psychotic minds of libertarian goldbugs.

In the real world, you can't buy a loaf of bread with gold, and it doesn't have any probability to change one day. 

Wed, 05/18/2011 - 09:49 | 1286733 Dr. No
Dr. No's picture

More importantly, you cant pay your tax bill in gold.  You need dollars.  This is a huge demand which will continue to support the dollar as a means of exchange within the united states.

Wed, 05/18/2011 - 09:55 | 1286764 Careless Whisper
Careless Whisper's picture

going all the way back to 1 BC, like the money chart above; just one question, has gold ever defaulted?  anyone? anyone?


Wed, 05/18/2011 - 09:58 | 1286780 HamyWanger
HamyWanger's picture

You completely miss the point, like every goldbug. 

Yes, we know gold is a good money, probably perfect, even if a well-managed paper currency can do as well. 

But you wrongly assume that those who have the power (and in our current world, those who are elected by the people) will adopt this perfect currency. 

Just because something is good does not mean people will rush to it. Actually, history proves the contrary. 

Wed, 05/18/2011 - 10:07 | 1286797 Careless Whisper
Careless Whisper's picture

But you wrongly assume that those who have the power (and in our current world, those who are elected by the people) will adopt this perfect currency.

They will adopt the perfect currency for the people they serve, which is the large global banks. Right now the dollar serves that purpose, but that could change.

Wed, 05/18/2011 - 10:10 | 1286809 LawsofPhysics
LawsofPhysics's picture

yep, see my comment below.  PMs can be turned into fiat very easily, regardless of the fiat of the day!

Wed, 05/18/2011 - 10:08 | 1286804 LawsofPhysics
LawsofPhysics's picture

No, you complete miss the point.  It is very easy to turn PMs into paper (lots of it) to pay whatever you need to pay.  I do this all the time.  Buying power is all that matters.  Should the fraud continue to go unpunished, the real drivers of the economy (those that add real value, not simply push paper around) will go elsewhere.  History shows that paper remain good as long as the "faith" behind that paper is there.  Black market volume has grown by leaps and bounds since 2008.  How is that volume on Wall street going?  It is fucking laughable.  You wrongly assume that those in power will stay in power.  With 45 million American on SNAP already and the financial fucknuts insisting on an economic model that depends on infinite growth on a finite planet, you are more than missing a few important points Hamy.

Stay ahead of the herd hamy!  yeah, people are, in general, stupid.  Since when did Nature guarantee your survival based on intelligence?  Big difference between knowledge and wisdom hamy. 

Wed, 05/18/2011 - 12:54 | 1287665 Transformer
Transformer's picture

I know a guy who uses the local coin store as his bank.  He is retired and converted all his FRNs to PM several years ago.  Any new FRNs he gets are likewise converted.  When he needs currency to buy groceries or whatever he goes to the coin store and withdraws from his PM savings acct. by turning in a little of his PM for FRN.  He says his calculated interest on his acct. is on the order of 20%+ per year so far, and maybe this year will be a lot higher. 

Wed, 05/18/2011 - 17:26 | 1288928 Marla And Me
Marla And Me's picture

Do not waste your time with HamyWanger.  He is a caricature of HarryWanger.  HarryWanger does not even post anymore, so this "ironic" caricature of a caricature is pointless.  There are many people who have done an excellent job of completly demolishing the quality of the comments section on ZH.  It's not an accident...  That's the problem with open anonymous posting - it's very easy to derail and direct.  Bernays, Goebbels, and Brzezinski would be proud...

Wed, 05/18/2011 - 10:18 | 1286854 Raymond Reason
Raymond Reason's picture

History also shows people who have power, lose power. 

Wed, 05/18/2011 - 10:06 | 1286788 Dr. No
Dr. No's picture

Gold has never defaulted, it has always had value.  My point is the US goverment demands I pay my tax liability in us dollars.  This fact creates a $2T yearly demand for fiat.  If I dont pay, I go to jail.  It is a strong incentive for me to gather enough paper currency over a tax year to pay what is required by the US gov.  Multiply by 300M people and this creates support for using the dollar as a means of exchange.

Wed, 05/18/2011 - 10:10 | 1286810 Quintus
Quintus's picture

As a means of exchange, the dollar works fine.  As a store of wealth, however, it's not so good.  Why would you store your wealth in something that consistently, perpetually, and by design degrades in value over time?

The great scam inherent in the Fiat system was to provide people with a tidy, convenient means of exchange and convince them that it's also as good a store of value as the gold which used to provide backing for the paper, but now does not.


Wed, 05/18/2011 - 10:16 | 1286844 Dr. No
Dr. No's picture

Good assessment.  The primary reason for fiat is so the government can inflate behind the scene.  and because of this reduction in value over time, holders of fiat look to "invest" in order to maintain purchasing power (rather than hold the currency).  is it con-incedence the big fiancial banks are the primary marketers of "investments" for your hard earned currency?

Wed, 05/18/2011 - 10:34 | 1286941 TheTmfreak
TheTmfreak's picture

Well in all fairness everything has value, even old Zimbabwe trillion dollar bills. Of course this follows the value is what the purchaser will pay for it. The ability to distort the supply and demand changing the values, is an entirely different issue.

I'm sure I wouldn't mind having trillions and trillions of Zimbabwe dollars to heat my home with paper/wood.

Wed, 05/18/2011 - 12:17 | 1287462 LoneCapitalist
LoneCapitalist's picture

You pay $2T/yr. in taxes? Damn. I thought I payed alot.

Wed, 05/18/2011 - 10:09 | 1286807 trav7777
trav7777's picture

can't pay my tax bill in gold...well then I'll just have to not incur any taxes

Wed, 05/18/2011 - 10:14 | 1286813 Dr. No
Dr. No's picture

Which should be the goal of all patriotic americans.

Wed, 05/18/2011 - 10:14 | 1286816 LawsofPhysics
LawsofPhysics's picture

Exactly, besides how hard is it to change physical into the fiat du jour?  Pretty fucking easy.

Wed, 05/18/2011 - 10:17 | 1286852 Dr. No
Dr. No's picture

Luckily it is easy.  But the point is one day you will need to exchange for dollars.  This fact gives support to the dollar.

Wed, 05/18/2011 - 10:40 | 1286966 LawsofPhysics
LawsofPhysics's picture

So now you can predict the future?  Bullshit.  The fact is that some day you will have to turn it into "some fiat".  Could be the dollar, could be something else.  Again, why don't you advertise that you are looking to buy bread with gold.  Let me know what kind of response you get.

Wed, 05/18/2011 - 10:40 | 1286984 Dr. No
Dr. No's picture

You can buy bread with gold. Never said you cant. It is more difficult than walking to the store, but I agree you can buy bread from someone who wants gold.  But the US gov will not accept gold as method of payment for taxes.  no matter how hard you look on craigslist.

Wed, 05/18/2011 - 10:57 | 1287048 LawsofPhysics
LawsofPhysics's picture

You again, mistakenly assume that the U.S. government will remain in its present form.  A diverse portfolio begins with holding some physical silver and gold.  It will always be easy to change it into the fiat du jour. Moreover, If the financial fucknuts (who add nothing of real value to the economy) are not going to act responsibly and be accountable for the fraud that they created, then the whole system is going to go down anyway.  Think of all those people living rent free and not paying taxes right now.  You wrongly assume that the U.S. government can collect those taxes.  Tell me, what happens when there are no taxes to collect?  PMs demand accountability because some havard trained financial fuckwad can not simply create it out of thin air.  People throughout history eventually demand accountability.  Market fundamentals show this over and over.  PMs are safe stores of value during the transition.  If a corrupt market will not hold itself accountable, then it will collapse and another market (with some new currency) will take it's place.


Moreover, who the fuck cares about craiglist anyway.  When the fraud collapses the system, you better know who your neighbor, because that is who you will be dealing with, not some schmuck on the internet.  

Wed, 05/18/2011 - 11:01 | 1287076 Dr. No
Dr. No's picture

Tell me, what happens when there are no taxes to collect?

Please provide evidence in history of a government which did not collect taxes.  Also please forward the map to the fountain of youth while you are at it.

Wed, 05/18/2011 - 11:03 | 1287085 TheTmfreak
TheTmfreak's picture

I hear it is in Florida. Thats what the Spanish thought hundreds of years ago right? I guess thats why all old people go there...

Wed, 05/18/2011 - 11:14 | 1287127 LawsofPhysics
LawsofPhysics's picture

What percentage of Americans are paying taxes now?  Sort of speaks for itself doesn't it.


Yeah, keep avoiding the accountability issue.  I'll keep physical gold and silver in my portfolio, thanks.

Wed, 05/18/2011 - 13:26 | 1287846 tmosley
tmosley's picture

The United States didn't have taxes for most of it's history. THe Federal government was funded by a flat tariff, and fees.

Wed, 05/18/2011 - 11:02 | 1287074 TheTmfreak
TheTmfreak's picture

Go tell that to the states who are accepting (or soon to be accepting) gold and silver.

You're saying that can't/won't be the case in the future? Now I'll admit that they don't have printing presses, but I don't think it is entirely inconceivable to have a Federal government take gold and silver as payment (in addition to their fiat).


Wed, 05/18/2011 - 11:14 | 1287155 eftian
eftian's picture

Utah is:

Fed gov will to, one way or another..

Wed, 05/18/2011 - 19:46 | 1289457 OddFieldIsStrong
OddFieldIsStrong's picture

The pertinent word in your sentence "Luckily it is easy" is "is". 

Although I agree that pretty much every economy and the associated fiat currency is on the wane, I worry about government control of alternative currencies such as precious metal.

If USD/new reserve currency is fiat or even partially gold backed (as long as it is not 100% gold backed), then gold in private hands is ultimately a threat to the annointed reserve currency. As such government control of precious metal (or worse confiscation) is on the cards. One of the most "friendly" control would be to tolerate the posession of gold in private hands but to make it illegal to exchange gold to dollars. 

Other than that, I agree with you.


Thu, 05/19/2011 - 03:22 | 1290523 Fiat2Zero
Fiat2Zero's picture

Don't forget the 12 bills in state congresses to allow paying state taxes in gold or silver...

Wed, 05/18/2011 - 10:11 | 1286798 TheTmfreak
TheTmfreak's picture

Wow thats incredibly stupid. You dont' think you can trade bread for gold? Have you tried? I will bake you fresh bread for gold, right this second. In fact go on craigslist as well and state you're willing to purchase gold for bread and see what happens. How is it that somebody can trade a paper clip, and through a few hundred other trades eventually get things like a 90s Ford Bronco? I guess thats not the real world then.

Wed, 05/18/2011 - 10:53 | 1287037 Calculated_Risk
Calculated_Risk's picture

In the real world, you can buy a loaf of bread with gold, and it doesn't have any probability to change one day. 



Wed, 05/18/2011 - 11:38 | 1287250 narapoiddyslexia
narapoiddyslexia's picture

Hamy, Hamy, Hamy....

"In the real world, you can't buy a loaf of bread with gold, and it doesn't have any probability to change one day."

I buy goods with silver now. My CSA farmer takes it, as does the guy on the edge of town with the run-down gas station. There are no taxes on these transactions.

Wed, 05/18/2011 - 14:14 | 1288102 FIAT_FixItAgainTony
FIAT_FixItAgainTony's picture

spot on nara!  lawful money doesn't fall under the rule of the banksters to put it simply.  they prefer we use THEIR currency.  f_k them, don't play with them because they play unfair. 

i too, use silver at 2 restaurants i often eat at.  no, this won't happen at a corporate restaurant, YET, but i prefer supporting the m&p businesses over corporate and always have.

there is a new process in handling your wealth that has been the way to do it for years, but most exclusively since 2008:

Fascist Reich Notes come your way you see your coin dealer and convert the majority into pm's, allowing for the Fascist Reich Notes that you will need to pay corporate "bills".  when there is a decrease in Fascist Reich Notes heading your way for corporate demands for payment, you take some silver back to you coin dealer and get some Fascist Reich Notes to hold corporate at bay.

cleanse, preserve, exchange.

on a side note - it appears clean, unradiated water will be currency as the bozos at tepco are in over their heads and we are poisioning the planet at an alarming rate.  i did some research how levels of exposure have been raised and how food has been exempted from radiation testing.  also discovered a lot of monitoring has gone off-line, most likely due to the fact that contamination is soooooo bad, the instruments will fail detecting at high levels for long periods.

yeah, this nuclear situation is  FUBAR !

i think EVERYONE here at zh can recommend some great bankers and economists to assist in japan and the containment that is needed.

the ol' day o' reckoning hast reared it's ugly head i believe.....

Wed, 05/18/2011 - 11:38 | 1287253 LudwigVon
LudwigVon's picture

Wrong grocery store in EU accepts gold.

Wed, 05/18/2011 - 13:38 | 1287909 dugorama
dugorama's picture

I'm happy to sell you some bread for gold.  Let me put it this way, in what bar in what country in the world can you not get a round of beers with a 1/10 oz gold coin?  you might not get any change, but you can damn sure buy a tank of gas with a krugerrand.

Wed, 05/18/2011 - 09:43 | 1286705 Internet Tough Guy
Internet Tough Guy's picture

In the future, not a reserve currency but a reserve asset. A wealth reserve par excellence. See the ECB consolidated financial statement for details.

Wed, 05/18/2011 - 09:48 | 1286725 HamyWanger
HamyWanger's picture

A "wealth reserve par excellence" is something everybody wants, such as US dollars, not some shiny rock. 

Wed, 05/18/2011 - 10:14 | 1286819 TheTmfreak
TheTmfreak's picture

You're actually making a better argument of why the entire idea of a "reserve" is a bullshit idea to begin with. Who says what "everybody wants"? Everybody's needs and desires are different.

The best one can come up with is generalizations like "everybody wants food" but nothing specific enough to locat a specific item that everybody wishes to have (at a particular moment).

I don't want US dollars so what does that say about me? How about other people on here that do not want to use them? I guess that doesn't fit nicely into your one line analysis.

Wed, 05/18/2011 - 10:21 | 1286869 nope-1004
nope-1004's picture

Banksters and credit pimps hate gold, as it stands for accountability and credibility.

It's no wonder all these bankster shills despise an asset they can't fractionally lend, at least not once the truth about supply comes out.  As long as they can keep the pretend train going that Comex has gold and silver and LMBA is not a fraud, they can keep issuing credit for a "rate" and keep you enslaved.


Wed, 05/18/2011 - 10:18 | 1286856 LawsofPhysics
LawsofPhysics's picture

So what government agency are you trolling for Hamy?  Go ahead, advertise that you have gold and are willing to trade it for bread (or anything for that matter).  See what kind of response you get.  If this guy is not a government troll he is probably some financial fucknut that sees his paper world burning and knows that he has NO skills that add REAL value to the economy.  This is what the underlying problem is ALL about.  People have worked damn hard to acquire paper wealth that they know see has lost value.  People simple want to protect the value of their labor.  The financial sector has gotten greedy and stolen that value.  The financial fucknuts (who add nothing of REAL value to the economy) are now a cancer that all other sectors of the economy (that produce things of REAL value) can no longer support.  The interest in gold reflects interest in an asset that the financial fucknuts can not simply fabricate out of thin air.  This doesn't mean one should not have a diverse portfolio, but holding some physical is the #1 rule when starting a "diverse" portfolio.

Wed, 05/18/2011 - 12:37 | 1287577 That Peak Oil Guy
That Peak Oil Guy's picture

You're so sincere... I just have to tell you that you are being reeled in by the Hamy troll.  The Hamy troll is someone's sock puppet just having fun and being contrary to get a rise out of people.

Gotta love the fight club!


Wed, 05/18/2011 - 12:30 | 1287549 legal eagle
legal eagle's picture

HamyWanker is no naive. I guess that is why all the central banks have been purchasing gold and China, Russia and others are liquidating their dollars as fast as possible?

Wed, 05/18/2011 - 09:43 | 1286706 Financial_Guard...
Financial_Guardian_Angel's picture

The US dollar-- the future dominant wallpaper of choice.

Wed, 05/18/2011 - 09:42 | 1286714 Captain Planet
Captain Planet's picture

thanks a name for the muni bond etf? sounds like a perfect time to short that shit

Wed, 05/18/2011 - 11:23 | 1287181 suldog
suldog's picture


Wed, 05/18/2011 - 09:44 | 1286719 DonutBoy
DonutBoy's picture

Protect yourself, get some SDR's.  They have a rep in New York now.

Wed, 05/18/2011 - 09:45 | 1286730 Atomizer
Atomizer's picture


Wed, 05/18/2011 - 09:49 | 1286732 SoNH80
SoNH80's picture

Touche..... that SDR idea is about as viable as the post-war Franc at this point.

Wed, 05/18/2011 - 10:13 | 1286826 monximus
monximus's picture

Cigarettes bitches!

Wed, 05/18/2011 - 11:20 | 1287184 suldog
suldog's picture

Keep him away from the maid.

Wed, 05/18/2011 - 09:44 | 1286721 lynnybee
lynnybee's picture

cool article ..... so much to learn, & it's so interesting.   wish i'd known about currencies & money when i was younger, maybe i'd be in better shape.    This stuff is fascinating.  

Wed, 05/18/2011 - 09:55 | 1286755 Caviar Emptor
Caviar Emptor's picture

I collected gold solidi starting in high school. They were worth a song then. I was judged as crazy by my friends.  Times do change. 

Wed, 05/18/2011 - 10:08 | 1286800 tired1
tired1's picture

Even more interesting viewing conflict and it's financing through the prism of the manipulation of debt.

Wed, 05/18/2011 - 09:44 | 1286723 Hedgetard55
Hedgetard55's picture

Don't hate the game, hate the players.


Jer 17:9 The heart [is] deceitful above all [things], and desperately wicked: who can know it?
Wed, 05/18/2011 - 09:45 | 1286727 tmosley
tmosley's picture

It should be noted that this is a purely WESTERN perspective.  For a look at our future, we would do well to learn from the failures of paper currency in China, particularly that of the Yuan dynasty, which is the only other world reserve fiat currency in history, which was accepted throughout the Orient, and treated as if it were real money.  The issuer was the "world's" sole hegemon, with the greatest military the world had seen at that point (and the greatest ever in terms of manpower and the extent of direct control of contiguous territory).

They had three reissuances in less than 110 years, with the longest single issuance lasting some 60 years.  Notable as well is that that 60 year issuance was the longest any purely fiat currency has ever lasted before destruction by some means (absent the unique case of the English Tally Stick--a non-circulating semi-fiat currency backed by the wealth and power of the crown at a negotiable rate).  The US dollar just hit 40 recently.  Doesn't bode well, does it?

Wed, 05/18/2011 - 09:57 | 1286747 HamyWanger
HamyWanger's picture

No amount of masturbation on history will ever change the fact that gold doesn't have any chance to be readopted as a national or international money in the future. 

You said it yourself: even with so much paper failures in the history of mankind, it didn't stop governments to push forward new paper currencies, immediately adopted by the population like a God's gift, glad to exchange their heavy, unpractical coins for light, small, beautiful, practical bills. 


Wed, 05/18/2011 - 09:58 | 1286769 Caviar Emptor
Caviar Emptor's picture

Paper was only adopted when it meant IOU gold. Later the terms of the deal were changed and you can trace the decline of the US economy and the rise of the national debt to that point. Paper is ok as long as it's backed by something. Notice also that the US never sold its gold reserve, because it's the implied backing for the paper. Without the gold the paper is just paper and someone else will come along and do the same thing (the Euro for ex). 

Wed, 05/18/2011 - 10:06 | 1286795 tmosley
tmosley's picture

Trolls don't pay any attention in history class, and therefore are doomed to repeat it for all eternity.

Wed, 05/18/2011 - 11:20 | 1287173 Mr. Majestic
Mr. Majestic's picture

What do you expect from a C student.

Wed, 05/18/2011 - 10:28 | 1286912 Ignatius
Ignatius's picture


Man, you are fuckin' stupid.  So I'm wondering, is it a 'real' stupid, or just stupid with a purpose?  Gold is money.  Gold is a wealth reserve asset par excellence.  US dollars are currency -- which is fine, as an efficient medium of exchange -- but a failure as a wealth reserve.

The U.S. continues to hold 8000+ tons of gold.  Why?  Why, also, does every central bank that matters continue to hold/accumulate gold?  A hobby of central banks, perhaps?

Wanker, indeed....

Wed, 05/18/2011 - 10:31 | 1286930 Dr. No
Dr. No's picture

Do you have evidence the US still has possession of 8000+ tons of gold?

Wed, 05/18/2011 - 10:37 | 1286967 Ignatius
Ignatius's picture

None.  Other than what's reported on the balance sheet, which will have to suffice for now.

Wed, 05/18/2011 - 10:44 | 1287002 Dr. No
Dr. No's picture

The US government balance sheet or the FED reserve balance sheet? Hell, I would be happy if someone could at least answer that!  The trail gets really cold fast once you get past that!

Wed, 05/18/2011 - 11:01 | 1287096 LawsofPhysics
LawsofPhysics's picture

Exactly why holding your wealth in physical gold during the transition between fiat is so important.  The fact is that people will always demand accountability in markets.  If a market is stealing their wealth and fraudulent, people will find another one.  The government already has a problem collecting taxes and will have an even bigger problem doing so in the future as more and more people come off the radar.  Gold and silver demand accountability because some financial fucknut can not simply create it out of thin air.  The financial sector and Washington have had numerous chances over the last 30+ years to address the fraud that they have created.  In refusing to do so they have driven markets and real value adding capital (innovation) out of this country.  PMs remain the safest store of value while we make the transition to accountability.

Wed, 05/18/2011 - 10:32 | 1286935 tmosley
tmosley's picture

He's a faux troll, playing a bit of a Steven Colbert. There was another real troll called HarryWanger here a while back. This guy was his over the top clone, but now he is more like Harry himself.

There was also a HarryWanqer, who still comes out to play occasionally.

Wed, 05/18/2011 - 15:17 | 1288427 RockyRacoon
RockyRacoon's picture

Oh, T-MO, you got junked for giving away the charade.  Shame on you, but 'twas not I who did it.   HW is a great comic relief -- I like him.   We don't have MasterBates to kick around any more.

Wed, 05/18/2011 - 10:33 | 1286947 Internet Tough Guy
Internet Tough Guy's picture

I'm with hamy. We need fiat currency, and we need gold. Gold as wealth reserve, fiat for transactions. The fiat/metal money cycle is broken for good.


Wed, 05/18/2011 - 10:46 | 1287001 Ignatius
Ignatius's picture

Is that what he's saying?

"A 'wealth reserve par excellence' is something everybody wants, such as US dollars, not some shiny rock." -harveywanker (from above)

Yes, FOFOA, a fine intellect.


Wed, 05/18/2011 - 11:33 | 1287232 tmosley
tmosley's picture

FOFOA doesn't explain how or why people would want to hold onto fiat dollars that are known by the masses to be printed to cover government spending for ANY length of time. There seems to be no mechanism in freegold to stop monetary velocity in the transactional currency from increasing to infinite, save to promise that the government won't print any more (we PROMISE!).

As the monetary velocity takes off, people, who already have their savings in gold, will eventually be forced to simply transact in gold, as there is no point in trading gold for currency, losing 15% on the trip to the money changer and back, buying the good, and the seller losing 15% on the trip to the money changer and back. He has inserted a middleman that serves literally no purpose, but will eat up commissions. People will know that everyone wants gold, and that gold will hold its value, so they will just transact in gold directly.

Show me why this isn't the case. For all his words and obvious intellect, FOFOA has never been able to.

Wed, 05/18/2011 - 12:07 | 1287392 fiddler_on_the_roof
fiddler_on_the_roof's picture

When the price in Gold increases, less Gold will be available and will not be affordable. GOld will just go into hiding as wealth reserve. people will still accept and pay currencies for transaction like in any third world country. All the rich men over there transact in currency, but any extra savings is converted to physical assets(like Real Estate/Gold...). FO/FO/A only makes the point that when paper pricing of Gold dissappears, Gold will just be repriced higher and will not be available for common people, but only for CB's and kings. we just try to pickup crumbs dropped by those giants.

Wed, 05/18/2011 - 12:35 | 1287583 tmosley
tmosley's picture

You don't have to trade gold in whole units any more than you have to transact in all million dollar bearer bonds today. Gold is easily divisible, right down to the tenth of a gram level. Hell, when you use electronic gold accounts, you can subdivide that as much as you like.

Here's a 1/2 gram gold coin, and gold is only $1500 ( Imagine the products that will be out when gold is $15000. Or $150000. Gold might be alloyed with other products.

But the truth is that gold is unlikely to go up THAT much faster than other real goods, so you probably won't need to trade in 1/10th of a gram gold coins (likely embedded in a plastic holder the size of a regular coin).

And that doesn't even take into account the likelihood of other metals being monetized. The equilibrium price of silver after the coming defaults from around the world and the industrial user panic that follows will likely be between 1/10th and 1/4th of the same weight of gold, making it somewhat easier to transact in. For small change, bronze will do.

Wed, 05/18/2011 - 15:26 | 1288455 RockyRacoon
RockyRacoon's picture

Canada produced (still?) 1/20th ounce Maple Leafs.   I have several sheets of them.  One sheet is 20 coins = 1 ounce.   Cute little things in their own little sealed plastic slab.   Just tear one off when you need it.

Wed, 05/18/2011 - 13:08 | 1287760 Ignatius
Ignatius's picture


I'll answer as best I can.  I don't know exactly what FOFOA's take would be.

Check your assumptions.  Just because the currency is undergoing excessive abuse right now, it need not always be so.  In fact, there will be times in the future when countries will want their currency to be strong in its bid for gold.  And the obvious, not all times are hyper-inflationary times or even high inflation times, hence little motive for needing to jump in or out of gold.  Further, gold is for saving one's excess production over a typically extended time horizon.  Finally, gold is not the only wealth reserve asset, simply the best wealth reserve asset.

It's problematic for one's transactional currency to be its prime savings vehicle as the act of saving/hoarding hinders normal business activity.


Wed, 05/18/2011 - 13:38 | 1287897 tmosley
tmosley's picture

That is the best answer available, but sadly it isn't good enough. That dynamic is in effect now, and it has stopped NO-ONE from debasing their currency. Indeed, it has never once stopped anyone in history from doing so.

That is the problem with Freegold--it ignores history.

And it is NOT problematic for the transactional currency and the savings currency to be the same. It is actually VITAL that they be the same. Business activity is never hindered by savings. Gold itself is useless for business activity. It is the goods that matter, both those that a given seller produces, and those that he wishes to consume. All that gold hoarding does is increase the value of circulating currency. This means that as time goes on, businesses will eventually prefer to use their profits to fund their business activity rather than loans. This transition was taking place around 1910, and was one of the prime reasons for the meeting at Jekyll Island and the subsequent founding of the Federal Reserve--to keep all business activity reliant on the big banks.

In order to understand the real role of money in an economy, Irwin Schiff (Peter Schiff's father) wrote an allegorical story. Read it, and you will understand more about economics than any econ PhD that isn't from an Austrian leaning school.

Wed, 05/18/2011 - 13:48 | 1287955 lookma
lookma's picture

That dynamic is in effect now

No its not, we have a paper gold market designed to prevent this from occuring (or to forestall the ineveitable and protect the dollar reserve system).

Ever hear of Larry Summers paper  "Gibson's Paradox and the Gold Standard"?

Wed, 05/18/2011 - 15:00 | 1288324 dugorama
dugorama's picture

the best wealth reserve might be something that can pay a yield while you hold it, like arable farm land, a rental mule (okay, rental VW surf bus , but these asset classes tend not to be very good at fulfilling other classic money demand motives like being liquid, transportable, etc. Hence precious metals.  But they pay no yield, typically.  So, I ain't making money on my money.  And, as a reminder, it's hard to survive long term if you're eating your seed corn.

Wed, 05/18/2011 - 13:31 | 1287878 lookma
lookma's picture


People use fiat because it is a superior transactional medium (aka carrying gold around is cumbersome).  You save in gold and buy currency when you want to spend.

There seems to be no mechanism in freegold to stop monetary velocity in the transactional currency from increasing to infinite, save to promise that the government won't print any more (we PROMISE!).

How about the physical gold market?

"OMG, you printed the monies and were a bad fiat currency manager, guess I won't bid for your currency with my gold"

Simple stuff that freegold.


...I hope that this little analogy helps you visualize the separation of monetary roles, because those talking about a new gold standard are not talking about this. I understand that sometimes you have to speak in terms familiar to your audience in order to not be tuned out, but I also hope that my readers come to understand how and why a new gold standard with a fixed price of gold, no matter how high, will simply not work anymore.

The full explanation of why it will not work is quite involved, and I'm not going to do it here. But the short answer is that the very act of defending a fixed price of gold in your currency ensures the failure of your currency. And it won't take 30 or 40 years this time. It'll happen fast. It wouldn't matter if Ben decided to defend a price of $5,000 per ounce, $50,000 per ounce or $5 million per ounce. It is the act of defending your currency against gold that kills your currency.

You can defend your currency against other currencies… using gold! Yes! This is the very essence of Freegold. But you cannot defend it against gold. You will fail. Your currency will fail. Slowly in the past, quickly today.
If you set the price too high you will first hyperinflate your currency buying gold, but you won't get much real gold in exchange for collapsing the global confidence in your currency, and then you will have to empty your gold vaults selling gold (to defend your price) as your currency heads to zero. And do you think the world trusts the US to ever empty its vaults? Nope. Fool me once…

If you set the price too low, like, say, $5,000/ounce, you will first expose your own currency folly with such an act and have little opportunity to buy any of the real stuff as the world quickly understands what has gone wrong and empties your gold vaults with all those easy dollars floating around. You will sell, sell, sell trying to defend your price, but in the end, the price will be higher and you'll be out of gold. Either that, or you'll close the gold window (once again), sigh, and finally admit that Freegold it is.

Wed, 05/18/2011 - 13:33 | 1287886 lookma
lookma's picture

...But debt itself is not the cause of our problems today. Today we have a situation where the vast majority of excess production value (excess capital) is enabling massive amounts of global malinvestment through new debt creation. That has peaked and is now contracting. But the problem is not the debt itself. The problem is the enabling effect of excess capital not having a viable alternative that floats against the currency. The problem is the lack of the adjustment mechanism of Freegold. There is no viable counterbalance against uncontrolled debt growth today. So we are only left with credit collapse and hyperinflation of the monetary base to clear the malinvestment from the system.

It is easy to blame this on debt as a principle, but unless you don't mind being wrong, there are some deeper explanations out there. Debt under Freegold will not reach such destructive levels. "Easy money" thinkers may or may not get their debt-free money, but if they do they will suddenly realize the flaw in their reasoning. Oops! That it can only have expandable value (needed for the welfare state) if producers are willing to hold it while it expands. Without that, socialist welfare expansion will simply dilute the value of the currency and be as limp as a eunuch.

Wed, 05/18/2011 - 13:52 | 1287964 tmosley
tmosley's picture

This makes no sense. You CAN defend any price. All you have to do is limit the number of paper dollars in circulation to the equivalent weight of gold in the treasury. That is the exact purpose of a gold standard. The number of dollars equals a WEIGHT of gold or silver.

This isn't rocket science, like Freegold apparently has to be.

In all of history, Freegold has never been adopted. Assume that there wasn't a reason for that (ie the automatic hyperinflation in the transactional currency). Why MUST it be adopted now? It makes no sense. If it has never happened, why is it guaranteed this time?

Further, a gold standard only means that you are able to trade paper dollars for gold dollars at a teller window. If you haven't printed more dollars than you have gold, you won't have a problem. If the people want to empty out the treasury, LET THEM! That reduces operating costs. People might get annoyed carrying around gold coins eventually--and when the US didn't default on any of its paper dollars, then they can have confidence in them and trade their gold for paper. They should also be able to do this at any bank for private currency.

No problem. It worked before, and for a VERY long time (Byzantium was on a gold standard for more than 1000 years, and only collapsed when they started debasing their currency). It can work again. People imagine that the world is so different now than it was long ago, but this is not the case. Sure, the world is smaller, but there has always been trade with far away lands, and the people themselves aren't so different. Indeed, there are fewer barbarians (people who deal with others with a sword rather than money), so a gold standard is even better.

Wed, 05/18/2011 - 14:12 | 1288094 lookma
lookma's picture

No troll, your tired Rothbardian arguments have been rejected by most serious AE folks.  Even RP sees how dumb ther are.


You CAN defend any price. All you have to do is limit the number of paper dollars in circulation to the equivalent weight of gold in the treasury.

You are defining, to defend mean to maintain that defiend value in the minds of the users of your currency.  OMG value is subjective, who knew (Mises did!). 

I wonder if that's a big part why most serious AE folks don't consider Rothbard much of an Austrian.  Its kinda hard tyo be an AE guy when you flat out reject the essence of AE - subjectivism - in favor of your autocratic economics.

Israel Kirzner, who i am soure you know got his ph.d under mises and led the NYU program forever before retiring, doens't even discuss Rothbard in his history of austrian eocnomic throught.  I wonder why?  HMMMMMMMM


+1 for reading even Rothbard and either seeing how silly he admits he is (or else maybe you just like gifts to banks):

From the standpoint of the free market, there is admittedly a problem with this transition to 100 percent gold. For the Federal Reserve's gold would be transferred to the commercial banks up to the value of their demand deposits by the Federal Reserve's granting a free gift of capital to the banks by that amount. Thus, overall, commercial banks, at the end of December 1981, had demand deposits of $317 billion, offset by reserves of $47 billion. A return to gold at $1,696 an ounce would have meant that gold transferred to the banks in exchange for their reserve at the Federal Reserve would also have increased their reserves from $47 to $317 billion, via a writing up of bank capital by $270 billion. The criticism would be that the banks scarcely deserve such a free gift, deserving instead to take their chances like all other firms on the free market. The rebuttal argument, however, would stress that, if a 100 percent gold requirement were now imposed on the banks, their free gift would do no more than insure the banking system against a potential holocaust of deflation, contraction, and bankruptcies.

Right, lets give all the gold to the bankers cause its the lesser of two evils.

Yup, that's why RP talks about competing currencies in End the Fed as a means to make the irrelevant so we can just end it and go back to the classcial gold standard pre-1913.  Yeah, even RP and has bailed on the retardo Rothbard idea of the G instituting and maintaining a fixed gold exchnage.  Yay!


Assume that there wasn't a reason for that

That would be dumb when there clearly is a reason.

(ie the automatic hyperinflation in the transactional currency).

Actually, freegold prevents thisThe Gold Standard is just a promise, and G can easily change a promise, as they have throughout hsitory.  History is the tale of  repeated hyperinflations/currency failures all arising form the silly belief in a G promise that is always broken.

Just keep looking to trust the G and the bankers' word, I'm sure that will work out well for you (just as it has over and over and over and over and over ad nauseum throughout history).


FOFOA's gonna do a long post on modern AE and silly hard money socialism in a bit, so I'll just leave you with this to ponder (Mises is smiling at FOFOA, and will even more ina bit):

The Free in Freegold

Okay, here it is. What you've been waiting for patiently, I presume. This is what gold will be freed from: The fractional reserve banking practice, which is a carryover from the gold standard.

This is the free in Freegold.


P.S. - you heart Art


Wed, 05/18/2011 - 16:00 | 1288619 tmosley
tmosley's picture

Your post is a mess. I can't even tell what you are trying to say. It looks like you are quoting a bunch of people who aren't me, and you are putting words in my mouth. I never quoted Rothbard. And funny that you should call me a troll for simply pointing out that your precious system would fall on its face out of the gate and collapse into a gold standard (a REAL gold standard, not a government controlled one).

A transition to an official gold standard does NOT require that the treasury GIVE the banks a bunch of gold. Rather, it would mean they just have to open a teller window somewhere where you can trade dollars for gold at a fixed rate. There can be many (better) or a few (worse). Whoever had the idea (not me) that the gold should be GIVEN to the banks is a nutjob.

You say that the gold standard is a promise--well so if Freegold. You are PROMISING that the transactional currency won't be printed into oblivion, and that people should hold on to it for a while (if you can hold it for a long time, then why save with gold?). If the values fluctuate, and the government prints, as they ALWAYS do, then the transactional currency collapses, and suddenly everyone is using gold as currency. "Freegold" has never existed because it is inherently unstable. It tries to acknowledge the corruption of a government with a printing press while simultaneously pandering to it. The people would see though such a scheme, and it would fall apart much more quickly than a pure fiat system (though the destruction wrought by the death of the currency would be far less severe than that of a fiat collapse, simply because people's savings are preserved). The lack of destruction during said collapse leads me to call it a transition state at best.

And how on Earth is Freegold supposed to stop fractional reserve banking? Where does this transactional money come from, and what is it used for? When do you get rid of it? This shit is PAPER, and is going to be issued by the Fed just like dollars, and created with bank loans just like dollars. In effect, it IS dollars. From my understanding of your mess of a post, you say that Freegold forbids use of paper gold frauds--and as such, the only difference between the current system and Freegold is the existence of GLD, the COMEX, and the HKME.

The longer I look at this "system", the more it seems to fall apart.

Wed, 05/18/2011 - 13:46 | 1287929 lookma
lookma's picture

Tmosley says,

There seems to be no mechanism in freegold to stop monetary velocity in the transactional currency from increasing to infinite, save to promise that the government won't print any more (we PROMISE!).

but you allude to the answer in the same post

as there is no point in trading gold for currency, losing 15% on the trip to the money changer and back, buying the good, and the seller losing 15% on the trip to the money changer and back.

Exactly Tmosely, well done!!

If a currency operator does not seeks to facillitate the interchange between its currency and gold, gold won't bid on its currency! And that's not good when real capital is hiding in gold!!!

Freegold is all about a place for capital to go that is outside of the currency system. If you save in the currency system, your savings are subject to dilution by the currency managers.  In Freegold, gold is a real storage of wealth separate from the currency that will need to be "coaxed" instead of "voted" and/or "taken" or... out of one's possession.

Wed, 05/18/2011 - 13:56 | 1287979 tmosley
tmosley's picture

But that's the thing. If the currency lost ten percent on each trip, and there was a 5% fee at the money changer, just holding the paper frees you from paying the 5% fee, but you are still losing 10% an hour from the increasing monetary velocity.

If you are saying that the people will trade directly in gold for goods, then why bother quoting prices in constantly changing transactional currencies?

Wed, 05/18/2011 - 10:42 | 1286992 LawsofPhysics
LawsofPhysics's picture

Once again Hamy, you miss the point.  No one is arguing that gold will be the money.  It is a safer store of value and buying power.  It keep the financial fucknuts from stealing real value from your labor.  It holds people accountable.  It can always be turned into fiat (lots of it, depending on what the flavor of the day is, be that a FRN or something else).  Accountability, it is a word that those financial fucknuts (who add nothing of real value to the system) hate because it means they can no longer steal.

Wed, 05/18/2011 - 12:29 | 1287540 legal eagle
legal eagle's picture


Happy to sell you all the bread you want for gold, or silver, or platinum.  Please lets do that deal.

Wed, 05/18/2011 - 09:56 | 1286765 magpie
magpie's picture

Ah yes, the tally sticks. More like tax credits.

And not to forget the Spartan iron money which should also be considered fiat. No idea how long that lasted though.

Wed, 05/18/2011 - 16:03 | 1288629 tmosley
tmosley's picture

Those aren't fiat. Their value is proportional to their size. You couldn't carve a different pattern on them to make them more valuable, and they took a great deal of effort to make.

They are more like a good that was (and is ) used as money, like cocoa beans.

Wed, 05/18/2011 - 10:07 | 1286792 ZakuKommander
ZakuKommander's picture

Excellent observation.  

To paraphrase, those who ignore history are doomed to repeat its mistakes.

Wed, 05/18/2011 - 09:54 | 1286735 Quintus
Quintus's picture

So.  Metals have been the dominant form of money throughout all of recorded history until 1971, but we are assured by anyone who is anyone in the modern fiat-based monetary system that this is a preposterous solution to the world's need for a stable currency, it would never work and that only paper will do the job.


Empires come and go, but if I found that roman aureus on the ground today, it would buy me more or less the same amount of stuff that it would have bought the guy who dropped it 2,000 years ago.  It doesn't even need the authority of the old Roman Emperor to compel anyone by law to accept it.  Now that is stability, portability, durability, scarcity and fungibility exemplified, i.e. everything that money should be and that Fiatscos are demonstrably not.

Wed, 05/18/2011 - 10:18 | 1286838 Übermensch
Übermensch's picture

'Scarcity' for store of wealth, yes. But as a medium of exchange NO!

Wed, 05/18/2011 - 10:21 | 1286867 Quintus
Quintus's picture

Indeed, but nobody said you have to use the same medium for both purposes.  I'd be happy to store my wealth in Gold and convert whatever was needed into paper as and when required for transacting business.

Wed, 05/18/2011 - 10:30 | 1286918 Übermensch
Übermensch's picture

Indeed, the time is now for competing currencies.


Wed, 05/18/2011 - 09:51 | 1286738 Caviar Emptor
Caviar Emptor's picture

Bottom line: The Pinocchio Factor. With paper, the issuer can always stretch the truth. Paper originally meant : IOU gold. Now it means: IOU bupkis in the near or far future, depending on how I feel about things. 

Wed, 05/18/2011 - 11:07 | 1287108 LawsofPhysics
LawsofPhysics's picture

Precisely, gold and silver demand accountability.  Something that is missing from the current fiat system.

Wed, 05/18/2011 - 09:53 | 1286739 D-liverSil-ver
D-liverSil-ver's picture

A childrens program used to play a little game called,

"Which one of these is not like the others?"

Yes, even a 3 yr. old can tell the difference

Wed, 05/18/2011 - 09:48 | 1286741 ina gadda da vida
ina gadda da vida's picture

the paper toilet is missing ..wait  .. too early ?

Wed, 05/18/2011 - 09:49 | 1286743 CPL
CPL's picture

Cool article, saving it in my files of stuff.

Wed, 05/18/2011 - 09:54 | 1286752 ebworthen
ebworthen's picture


"On the Continous Devaluation of the Roman Currency"


Wed, 05/18/2011 - 10:00 | 1286785 zaknick
zaknick's picture

Well there it is: the banksters' manifesto of eternal fascist funny money. How they plan to keep political control of Amerika is clear with the Patriot Act (boooyah!), the purged (from the sixties' brief spurt of true justice and liberty) judiciary, an Illuminati infiltrated Supreme Court of Shit and decisions like the Indiana Supreme Court telling you the (KGB/FBI/DEA/CIA/NSA/etc) apparatchiks can do no wrong and STFU.

I can't wait for the riots. Cut, cut, cut those evil "entitlements"!

Wed, 05/18/2011 - 10:17 | 1286833 Careless Whisper
Careless Whisper's picture

you sir, or madam, get my award for link of the day.


Wed, 05/18/2011 - 10:49 | 1287033 Bay of Pigs
Bay of Pigs's picture

The guy says "no" when asked if he minds "giving up his freedom".

The brainwashing is complete.


Wed, 05/18/2011 - 15:31 | 1288494 RockyRacoon
RockyRacoon's picture

Anyone who would do it had no freedom to lose.

Wed, 05/18/2011 - 10:09 | 1286806 Dr. Gonzo
Dr. Gonzo's picture

Little bragging here. I have one of the coins shown here from the 4th century and it's pretty damn cool. Image of Christ on the obverse and Emperor Phocas of Byzantine on the front. 22k gold. minted in Constantiople circa 500 AD. 1500 year old gold coin bitches!

Wed, 05/18/2011 - 10:16 | 1286827 trav7777
trav7777's picture

mad props...that is cool

Do NOT follow this link or you will be banned from the site!