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RX For Modern Monetary Madness: Mises Explained Sound Money 80 Years Ago
Authored by Richard Ebeling of The Ludwig von Mises Institute (via Contra Corner blog),
Eighty years ago, in the autumn of 1934, Ludwig von Mises’s The Theory of Money and Credit first appeared in English. It remains one of the most important books on money and inflation penned in the twentieth century, and even eight decades later, it still offers the clearest analysis and understanding of booms and busts, inflations, and depressions.
Mises insisted that the economic rollercoaster of the business cycle was not caused by any inherent weaknesses or contradictions within the free market capitalist system. Rather, inflationary booms followed by the bust of economic depression or recession had its origin in the control and mismanagement by governments of the monetary and banking system.
Money Emerges from Markets, Not Government
Building on Carl Menger's earlier work, Mises demonstrated that money is not the creature or the creation of the State. Money is a market-based and market-generated social institution that spontaneously emerges out of the interactions of people attempting to overcome the hindrances and difficulties of direct barter exchange.
People discover that certain commodities possess combinations of useful qualities and characteristics that make them more marketable than others, and therefore more easily traded away for various goods that someone might wish to acquire in exchange with potential trading partners.
Historically, gold and silver were found through time to have those attributes most desirable for use as a medium of exchange to facilitate the ever-growing network of complex market transactions that enabled the development of an ever-more productive system of division of labor.
Money and the Savings-Investment Process
Money not only facilitates the exchange of goods and services in the present — currently-available apples for currently-available bananas — but also makes easier and possible the exchange and transfer of goods and their uses over and across time.
Willing investors can borrow from willing savers sums of money set aside out of earned income to then use to purchase and hire various quantities of productive resources — including capital equipment, workers for hire, and useful resources and raw materials — to employ them in production activities that will finally result in potentially marketable and profitable finished consumer goods at some point in the future.
Out of earned revenues from such sales, the investor pays back the borrowed savings with any agreed-upon interest payment, which reflects the time preference of the savers for having been willing to defer the use of a part of their own income for the period of time covered by the loan.
Under a commodity monetary system such as a market-based gold standard, there is a fairly close and closed connection between income earned and consumer spending, and savings set aside and savings borrowed for investment purposes.
Suppose that $1,000 represents the money income earned by people during a given period of time. And suppose that these income earners decide to spend $750 on desired consumer goods and to save the remaining $250 of their earned income.
That $250 of saved income can be lent out at interest to those wishing to undertake future-oriented investment projects. The real resources — capital, labor services, raw materials — that the $250 of purchasing power represents are transferred from the savers to the investors. The remaining real resources of the society represented by the $750 of buying power that income earners choose to spend in the present are directed to the manufacture and marketing of more immediately available consumer goods.
Thus, the scarce and valuable resources of the society are effectively coordinated between their two general uses — producing goods closer to the present (such as a currently existing oven being combined with labor and raw materials to bake the daily bread that people wish to consume), or being used to manufacture goods that will be available and of use at some point later in time (such as the production of new ovens to replace the existing ones that eventually wear out or to add to the number of existing ovens so bread production can be increased in the future).
Like all other prices on the market, the rates of interest on loans coordinate the choices of savers with the decisions of borrowers so to keep supplies in balance with demands for either consumer goods or future-oriented investment goods.
In principle, there is nothing to suggest that within the free market economy itself, there are forces likely to bring about imbalance or discoordination between the choices and decisions of those trading in the marketplace. This remains true either for consumer goods in the present, or for savings in the present in exchange for more and better goods in the future through informed and successful investment by profit-oriented entrepreneurs.
Central Banks as the Cause of the Business Cycle
But what Ludwig von Mises showed in The Theory of Money and Credit and then in even greater detail in his master work, Human Action, was how the harmony and coordination of the competitive, free market can be thrown out of balance through the monetary central planning of governments and central banks.
First under a weakened gold standard and then under systems of purely government-controlled paper monies, central banks have the ability to create the illusion that there is more savings available in the economy to sustain investment-oriented uses of scarce resources in the society than is actually the case.
For example, in the United States, the Federal Reserve has the authority and power to buy up government securities and other “assets” such as mortgaged-backed securities, and pay for them by creating money “out of thin air” that then adds to the loanable funds available to the banking system for lending purposes.
People may be still consuming and saving in the same proportions out of their earned income as they have in the past, but now financial institutions have artificially created bank credit to offer to potential borrowers, and at below what would otherwise be market-generated rates of interest to make investment borrowing more attractive to undertake.
To use our previous example, suppose that people are still spending $750 of their $1,000 of earn income on desired consumer goods and saving the remaining $250. But suppose that the central bank has increased available loanable funds in the banking system by an additional $250.
Investment borrowers, attracted by the lower rates of interest, borrow a total of $500 from banks — $250 of “real savings” and $250 of artificially created credit. They attempt to draw $500 worth of the society’s scarce and real resources into future-oriented investment activities that would not increase output in the economy until sometime later.
But income earners are still spending $750 of their originally earned income on desired consumer goods. This results in the limited and scarce capital, labor and raw materials in the society being “pulled” in two incompatible directions at once — into the manufacture of $750 worth of consumer goods and $500 worth of investment goods, when to begin with there were only $1,000 worth of such real and scarce means of production.
Price Inflation and Misdirection of Resources
This will inevitably tend to push up prices in general in the economy above where they would otherwise have been if not for the central bank’s expansion of the money supply in the initial form of new bank credit, as consumers and investors bid against each other to attract into their direction the goods and services they, respectively, are attempting to buy. Thus, such monetary manipulation always carries the seed of future price inflation within it.
At the same time, Mises argued, the fact that the newly created money first enters the economy through the banking system through investment loans brings about a malinvestment of capital and misallocation of labor and other resources as investment borrowers attempt to employ (as in our example) the equivalent of 50 percent of the society’s resources into future-oriented investment activities ($500), while income earners wish only to save the equivalent of 25 percent of their income ($250).
Even though price inflation will push up the dollar amount of money income earned, the unsustainable imbalance between savings and investment brought about by central bank monetary policy will be reflected in any discoordination between the percentage amount of income (and the real resources they represent) that people wish to set aside for purposes of savings and the amount of money investment borrowers attempt to undertake as a percentage of the real resources available in the society, due to central bank money creation.
Recession Correction Follows the Inflationary Misdirection
This misdirection of capital, labor and raw materials away from that allocation and use consistent with people’s actual decisions to consume and to save, means that every monetary-induced inflationary boom carries within it the seeds of an eventual and inescapable economic downturn.
Why? Because once the monetary expansion either slows down or is ended, interest rates will begin to more correctly reflect real available savings to sustain investments in the economy. At which point, it will start to be discovered that capital and labor have been drawn into investment uses and employments that cannot be completed or maintained in a, now, non-monetary inflationary environment.
An economic recession, therefore, is the discovery period of misallocations of scarce resources in the economy that requires a rebalancing and a recoordination of supplies and demands for a return to market- and competitively-determined harmony in the society’s economic activities for long-run growth, employment, and improved standards of living.
The current boom-bust cycle through which the U.S. and the world economy has been passing for over a decade now, has shown the real world application and logic of what Mises demonstrated in The Theory of Money and Credit decades ago, and why reading and learning from this true classic of monetary theory and policy still offers an invaluable guide for ending the business cycles of our own time.
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Listen Zero's.
This Ludwig guy sounds pretty smart, unlike the anti-Bangalorian peanut gallery.
One of the smartest, but how come he could not say that the proliferation of counterfeit is the facilitation of theft instead of bad investments? How could stealing be mistaken for investing?
Listen.
I once viewed an advertisement in the "DEEP" web. A solicitation for execution. The target, a member of The Board of Governors.
It was the first time I had warmth in my heart.
It is the only solution. Action followed by criminalization of fiat.
Gold is money, but it is not always the best answer for a currency.
The supply of currency is what matters. Sometimes Gold acts as a good regulator of supply, but it is also easily horded and controlled by "banking interest" as well.
I'm with Bill Still that a country's currency should be worthless and unbacked by Gold, but control of it's supply should be taken away from private banking interest in the form of fractional reserve credit creation. It does NOT matter what backs your currency when fractional reserve banking allows the banks to leverage credit creation from thin air.
if it is unbacked by somthing substantial, something limited in availability, then it will all go to shit , because even if 'bankers' dont control its supply, whoever/whatever else does control it will succumb to the same temptation as the bankers and politicians have
the greatest force in economics, on the perpendicular axis to supply/demand is the temptation to exaggerate the value of existing wealth
History says otherwise Squid.
The British successfully used notched wooden sticks unbacked by any gold as a currency for centuries
http://en.wikipedia.org/wiki/Tally_stick
until the government ran up debts from war and created the Bank of England to fund them.
Currency supply CAN be controlled if set-up properly. and it does not matter if a currency is backed by gold or anything as long as fractional reserve banking is allowed to lever that currecny supply through credit creation. Whether or not your currency is backed is not the problem, the problem is allowing banks to distort that supply through leveraged credit creation. Until you fix THAT everything is a side show.
a tally stick is just a promise. Gold is superior because its a store of value
a promise as a store of value is only as good as the intentions of the promiser
poor intentions are whats gotten us into this depression
Squid, and that is why I said Gold is money, but it is not always the best currency.
you need to learn the difference between MONEY and CURRENCY. (Mike Maloney has done some excellent YouTube videos on the subject, as well as Bill Still)
Gold is a better store of value than any currency. But gold is not really the best form of currency used within an economy.
Stackers, you are advocating authoritarian rule. Gold is the money of the free man. We don't want to serve a king and his fucking tally sticks. Gold is what people choose when they are not compelled to use government chits via Legal Tender laws and the barrel of a gun.
Any currency, even gold, subjects you to the manipulations of others. Gold and silver are the best options we have now, but ALL currencies allow someone else to determine what the value of what YOU are selling is...There IS no 'currency' of free men. Free men exchange value for value, one man might favor gold or silver, another might want commodities or services, but the system forces them to use the currency du jour, and set a value for their item in that currency. It also allows the government to tax, because it gives them a convenient 'formula' to calculate what you owe. How would the IRS calculate the tax you owe after trading your neighbor some car work in exchange for helping him with his deck? And if you did stuff like that for a living, earning very few actual 'dollars'? It would be a logistical nightmare to try and tax that on a national basis.
Gold as a currency would take us to a system where currency would grow less important over time, for all but the biggest transactions. So, you'd get taxed on any transactions large enough to require gold, but most other everyday exchanges would be out of their reach. Now THAT would be some real freedom!
If people put their mind to it, Gold could be used not only as Money (to settle large payments), but also as Currency in everyday commerce:
You simply issue it in smaller denominations, with each coin encased in a plastic case (to prevent scratches, and wear & tear.
You could issue it in 1, 2, 5, 10, 25 gram coins. 100 gram and 1 kg bars already exist.
p.s. Bye, bye Troy Ounce.
Gold can also be processed to a wire, even nanowire, and woven into fabric. With kevlar thread it could be made into undestructable banknotes of any mass nominations.
F*ck me! Why didn't I think of that? You're a genius!
There we have it then: Real, honest, timeless and universal Money.
TPTB "hates it", because it's not "Money for nothing, and checks for free".
Money for nothing and the CHICKS are free.
The best idea I've read in ages, steroidie old matey potatey.
You need to give it a name.
Why stop there? Why not have a cryptocurrency of electronic warehouse receipts? The possibilities are endless.
Good idea, but I wonder if everyone is forgetting something...Sure, we can go smaller and smaller, even weaving filaments of gold into our bills, but it seems to me that the logical end-game for gold-backed currency is a slow, steady deflation in prices to the point where most everyday transactions aren't worth the trouble of dealing with currency. I think the idea is for us to transition to a new way of running our economies, and I think gold would take us there in a slow steady way that would allow us to adjust incrementally...
Currency is NOT the ultimate way to conduct business. It is A way, and works for awhile. But when your economy becomes mature, and productivity increases, currencies actually hold you back, and cause you to mis-value things, like labor. At that point, you ought to be transitioning away from currency into something more suited to economic needs. Something more reflective of actual VALUES.
Historically silver and copper rather than gold have been used for day to day small exchanges. Why limit to gold?
Why limit day to day exchanges to silver and copper?
There is also better full-redemption potential (with regards to whatever sound-money electronic exchange system ends up on top) if small denominations are in gold too.
WHAT?
Put the power of money creation into the hands of the state?
No thank you!
Worked real fine under Stalin and Hitler.
Bill Still is a total and complete statist moron.
Why so small number of people grasp the concept and efficiency of free markets.
Really?
So, could you give us some examples of yours “concept and efficiency of free markets.”
Listen EI.
I said: " Stop the neoclassical trolling" AT ONCE!
You guys all rag on her, but I don't mind her posts. I disagree with a lot of what she says, but I'll take one of her posts over some insulting, expletive-laden, misspelled rant by one of the more 'colorful' posters any day.
She like, uses WORDS and stuff...just sayin'...
Ever heard the term 'black market'
The one where people volantairly and freely trade their goods and
services without the interference of the gouvernment,skimming of
the fruits of ones labour.
Of course! I was born in Brazil.
Black markets are very corrupted. Lots of fake products. And prices are usually higher.
And if you have to purchase services, to go around the red-tapes and its inconveniences, the prices are exorbitant. But, done it many times.
Anyway, there are mainly four forms of capitalism:
Penny capitalism: Farmers selling their goods
Local capitalism: Small business. Such as your hardware store. Owners that would be serving on their boarder schools and so on in their communities.
Social capitalism: Such as the Amish’s. Where the labors/manufactures owns their production. Then, they hire business managers to assist them.
And Multinationals: America largest corporations and banks are great examples
My advice?
Focus on Penny, Local, and Social Capitalism. Multinationals as well as ‘Black-market” are totally corrupted.
Note: US multinationals offer great prices because of their global scale advantage, and because they’re subsidized by the US Government (US Empire)
With this Brazilian socialist, the stupidy of the internet has reached a new low...
Scarlett,
Unnecessary.
DavidC
Since black markets usually arise from bad economic policies, it should come as no surprise that they contain all the corruptions of the origin economy. Black markets like this are best navigated with caution.
But with time, most such markets become self-policing, and organize themselves according to agreed-upon rules. Too many people depend on these markets for their livelihoods for bad behaviors to be tolerated for long.
It is often black markets like this that form a basis for re-organizing an economy after catastrophic collapses. But, those early Wild West days can really try one's patience.
Back at you, Silversinner: "Why do so small a number of people grasp the concept and efficiency of free markets" IN FRAUD AND MURDER?
Those who want to believe in the miraculous power of "free markets" tend to deliberately ignore that there surrounds that a "free market" in fraud and murder, which can only be restrained by itself. The real historical selection forces were military conflicts, which created the War Kings, which created the sovereign states, which had the power to tax, and to kill those who resisted being taxed.
As information became more important than physical power, the Fraud Kings, the central banks, captured control of the governments' powers to rob, in order to transform those banksters' monetary systems into enforced frauds that controlled everyone, to the degree that the powers of government could. It was never a voluntary choice to put the power to tax into the hands of governments. It was never a voluntary choice to allow the banksters to effectively privatize the governments' power to rob, by creating a fundamentally fraudulent financial accounting system.
That the vast majority of people want to continue to believe in bullshit is the main reason why it is practically impossible to resolve our problems any better, that, as I explained in other comments, MONEY IS MEASUREMENT BACKED BY MURDER.
Any alternative system usually is proposed on the basis of some miraculous "rule of law" that sidesteps the paradoxes with respect to enforcement of any "rule of law." Only those who are the biggest and best organized gangs of criminals can enforce their "rule of law" against other groups. The ONLY connection between human laws and natural laws is the ability to back up lies with violence. There is NO way to get out of that predicament. The only way to have a better monetary system is to have a better murder system, which requires governing expressed as better organized crime.
Those who refuse to face the paradoxes of enforcement have no problem proposing miraculous solutions that presume there will be some rule of law operating, without the problem that NOBODY GUARDS THE GUARDIANS. In principle there is no solution to that problem, other than the dynamic equilibria evolving between the different systems of organized lies operating robberies, which is most ideally expressed as being "We the People" control the government. However, in fact, the real control over the monetary system, through covertly operated organized crime, being successfully done for generation after generation, has resulted in enough of the People becoming merely Zombie Sheeple.
Promoting any idealized "free market" money is just another silly little love song, unless it addresses the background issue of the actual free market that exists in fraud backed by murder, because such organized crime is DE FACTO! The de jure justifications are always bullshit! There are none, except the realities of lies backed by violence, which become systems of legalized lies, backed by legalized violence, which get to pretend and be presented as something better than that, while they are not, but really rather worse!
Any alternative system usually is proposed on the basis of some miraculous "rule of law" that sidesteps the paradoxes with respect to enforcement of any "rule of law."
Marijuana: As I have asserted, "rule of law" is the weakest method for efficient regulation of behavior. In fact, at the current refined level we have today, it is a method of sanctioning misbehavior. When you pass 40,000 new laws a year, you don't have a "rule of law".
In choosing a behaviorial environment, you must always look for one that has minimal laws for it will always yield the most desirable environment.
Did I somewhere miss where you describe your preferred normative system for money? It sure isn't present in your commentary here. In your "chicken little" space where everything is corruption, force, and murder, do you have a recommendation? Is stamping coins to pay the enforcer your recommendation or was that just an illustration of how in the very first instance of money (according to you and easily proved wrong) that we slid onto the wrong track?
Stackers, I agree with the theoretical solutions promoted by people like Bill Still or Ellen Brown. However, as my comment below outlined, WHAT MONEY IS ACTUALLY BACKED BY IS MURDER!
There could be no "sound money"
without sound murder behind that!
Any honest murder system to back up any honest money system is fraught with profound paradoxes, since history selected for successful warfare to be based on deceits, which then was the foundation for successful finance to become based on fraud. Most of those who propose an idealized, sound and honest money system tend to presume there will be a good rule of law to back that up. However, that ignores the realities of organized crime, which have already captured control over governments. Furthermore, any idealized notions of productive political economy tend to also deliberately ignore the ecological limits of the natural environment, which require that there must be some death controls to limit growth somehow. Both in the short-term, as well as in the longer term, the realities of the murder systems made and maintained the money system, and must necessarily continue to do so!
Both in the short-term, as well as in the longer term, the realities of the murder systems made and maintained the money system, and must necessarily continue to do so!
Marijuana: Murder is one way of obtaining behavior or a result (and a very inefficient and undesirable one). It's a destructive way. In the end, it gets the murderer killed. Just as in monitoring and controlling any feedback controlled mechanism, there are non-destructive ways as well. I ask again, what do you recommend?
There is absolutely no murder threat for anyone to accept a gold coin in payment for a good or service.
That's also FOFOA's thesis of free gold. Gold is unsevered completely from the financial system and becomes THE store of wealth. Either way, backed or not, fiat money will always exist and be exchangable for gold and silver at some price. Most central banks around the world do own some gold. One glaring exception is Canada yet the canadian dollar is still accepted... so I agree, fiat money does not have to be backed necessarily, AS LONG AS IT IS WELL MANAGED (no unabated credit binge, deficit spending etc that lead to creatation of excess fiat currency). Alas, in the absence of a gold backing, central bankers and politicians tend NOT to be responsible, so maybe (actually practically always) this simply does not work as the temptation to abuse their power is simply too big. So maybe a partial backing at the CB level - just as the Swiss are about to vote for - might be some sort of compromise. Not a gold standard with a full backing of every unit of fiat currency, but a certain percentage of the reserves of the CB that should be in gold.
There are situations where fiat money is NOT accepted, at any price, and THAT is why Central Banks hoard gold. Greenspan said it himself, giving the example of 1944 Germany, which could only import goods in exchange for Gold (Marks were not accepted).
But but, BS the Bernank said it's just "a tradition"... /sarc
Savers should call in their loans.
Oh wait.......
Never did like Bangalore Foul.
There are a lot of good ideas out there but without law and order from the top down not even the Queen with the cloven hooves can appear as little more than a monkey in a cage.
A ring of steel will be thrown around Whitehall tomorrow as the Queen leads events at the Cenotaph to mark the centenary of the start of the First World War
All the photos on the page coincidentally have been cropped not to show her feet.
Read more: http://www.dailymail.co.uk/news/article-2825277/Four-Islamic-terror-plot-suspects-arrested-west-London-Home-Counties.html#ixzz3IWYjVleV
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Every boom-bust cycle transfers more wealth to the 0.1% at the expense of everyone else. And the US economy is run just for the benefit of the chosen few. Why would the Fed be interested in stopping the boom-bust cycle?
Ok then why is the FED trying so hard to stop the bust part of this cycle?
central banks are the cause of the business cycle. if only a majority of our population could grasp that simple fact.
no. High street banks are the cause of the business cycle. Central banks however coordinate and amplify it.
Looks like the japs have been at it for a while: https://www.youtube.com/watch?v=quisMMLJRFo
Skip to the 5 minute mark: "... and Australian money. Not as pay for them, because there's nothing they can do with it. But pay for the natives who appreciate the silver currency. The Japs offer paper money printed on the spot."
Too many Bobos in Paradise to care about the future hangover.
Building on Carl Menger's earlier work, Mises demonstrated that money is not the creature or the creation of the State. Money is a market-based and market-generated social institution that spontaneously emerges out of the interactions of people attempting to overcome the hindrances and difficulties of direct barter exchange.
As I've said over and over, money is "a promise to complete a trade". It is created by traders and extinguished on trade delivery as agreed. Mises Monks have dissed me for saying this. So maybe they can tell me how what I have been saying differs from what is written in the above sentence from this article? It's a little (actually a lot) silly to say money is a social institution but that not withstanding, money is simply an efficiency applied to simple barter allowing barter to be carried out over time and space.
To me, the most important aspect of money is that it allows the working man to accumulate any surplus earned by his labor. Instead of just working for straight exchange, like room and board for six 12-hour days. Even if it's the best room and board ever, you can't 'save' it for future use elsewhere.
Money allows that laborer to do that. What isn't used today doesn't just 'go away', you can SAVE it, and it will hold its value. Then YOU can decide how much that room and board are really worth. Money gives the working man a say in determining price, both of the things he can now CHOOSE to buy or not, and of his labor.
Well, I should qualify that, I should say SOUND money does all these wonderful things. Fiat money is NOT sound money. See how the working man can have the purchasing power of his compensation stolen, without his having to do a thing? If he decides to go around the banks and stash his money under the mattress, government created inflation or currency failure can render it near worthless from a distance...it's magic.
Had the man stashed his wealth in the form of silver, say pre-64 dollars, he'd have reaped a considerable profit for himself over many years, regardless of what fool things his government did.
So, money isn't simply an efficiency, it's an efficiency that can empower the individual in uncertain times, provided of course that he demand proper money, money with value independent of the machinations of the feeble-minded.
Money doesn't have to have that attribute. It functions perfectly well as a medium of exchange without also acting as a store of value.
The labourer just stores his value in something which has been shown to consistently retain relative value over time. He doesn't have to use that to make exchanges though.
This is a point that Gesell was making.
I understand, but Gesell forgets that the only consistent store of value over time has been gold. And since it is that very gold being manipulated, its value isn't behaving consistently. So that laborer doesn't really have the benefit of Gesell's wisdom when his money ceases to have value...the one place he could stash it to protect it is ALSO being manipulated by the same people!
I suppose the laborer could try and get around it by stacking say, cartons of cigarettes, or some other easily tradeable thing, but really, how efficient is THAT? Cigarettes go stale, people quit smoking...no certain future value.
In the Ponzi economy we have, the laborer NEEDS money with a value independent of the central planners.
To me, the most important aspect of money is that it allows the working man to accumulate any surplus earned by his labor. Instead of just working for straight exchange, like room and board for six 12-hour days. Even if it's the best room and board ever, you can't 'save' it for future use elsewhere.
Money has nothing to do with this. A laborer may trade his time and energy for things in addition to room and board. He may trade for health care (an expense), for pension (a savings), for stock (a participation), for vacation and sick time (pay for not working), for transportation (company car), and myriad other things.
This has only to do with the negotiation and agreement of the trade. It has nothing to do with money. However, I think traders (e.g. laborers) limit themselves by entering into anything but money trades.
Taking two employers, one offering only money and one offering money and benefits, all other things being equal, I'll favor the money only employer and buy my own benefits.
Money eliminates the need for the double-coincidence of wants. However, I disagree with your view that money is a promise to complete a trade. Tender of the money is, itself, the completion of the trade. The money has value for its moneyness. This is the innate value of Gold (it's intrinsic value is that it is the best substance to use for money, and this is its use that brings the most utility to humanity).
"Money has value for its moneyness."
Nicely put! Yes, sound money must have its own value to be of use to the laborer. To see money merely as a kind of 'scrip' allows the issuing entity to control its value after it has been honestly earned. Devaluations are a sneaky way of confiscating the laborers wages after they have been paid to him.
A currency with its own, separate value can't be seized in this way. This gives the wage-earner control over his spending and saving. You'll have to tax him directly, and face his wrath.
Fiat currencies allow your economy to be whipped into 'froth', which the banks then skim off as their 'profits'. YOU see all that froth and figure you've got an overflowing glass, so you don't get too upset when they skim some of that froth...But you'll notice, after the froth dies down, that you now have LESS liquid in your cup than before...Hey! How did THAT happen?
The magic of fiat.
You're still talking about barter. Whether for goods or services, it is an exchange of labor for something else of value. But barter doesn't allow you to accumulate much wealth. You can store extra food, for awhile, but eventually it rots. You can work for a pension, but it might not BE there when you are ready to collect it. A laborer needs some way to capture that value in a form that can be stored indefinitely, and that will retain value. It must be portable, and have value apart from the entity issuing it, and not subject to the later whims of that entity (devaluation) This gives him the means of planning for his future, and accumulating a 'nest egg' that he can take with him.
You really don't have a grasp of how broardly defined 'money' can be do you. You should consider the various types of value we have created and then reflect upon the poltical economy of debt, who creates it, who controls it, etc. These are not a simple medium of exchange when examined outside the context of notes and coins. From a political economy perspective Menger and Mises are correct.
withglee, I again point out that all barter exists inside of contexts where robbery is possible instead. What enforces the "promise to complete a trade?" So far, withglee, every time I have pointed that out, and asked that question, you have deliberately ignored those points. You appear to deliberately ignore the paradox of enforcement, that surrounds any notions regarding some idealized "rule of law," which is supposed to sublimely exist.
In fact, human realities are always organized lies operating robberies (as entropic pumps of energy.) The dynamic equilibria of that may develop, which may be perceived to be bartering, or voluntary contracts. However, the deeper realities are always involuntary contracts, in the sense that without something to stop robbery, then there is no trade, but simply theft, with murder to back up that theft. The only thing that could stop that theft is better organized murder systems, which returns us to the paradoxical problem of how to enforce any "rule of law" when "NOBODY GUARDS THE GUARDIANS."
We are stuck with governments being the biggest form of organized crime, controlled by the best organized gangs of criminals, wherein the only real resolutions to the real political problems are better organized crime. Any idealized view of money as emerging from barter is bullshit, that is not correct from a deeper anthropological analysis. Barter presumes that there is already nothing but voluntary contracts, and that people are going to voluntarily agree to keep their "promise to complete a trade."
IN FACT, INVOLUNTARY "CONTRACTS" DOMINATE HUMAN REALITIES. We evolved artificial selection systems inside of the pressures of natural selection systems. Your repetitions of your idealized view of "money" and human societies, continues to be grossly superficial, like the Mises view was, and therefore, as outlined in my comment below, you continue to propose bullshit "solutions" based upon what money should be, that deliberately ignore what money IS!
What enforces the "promise to complete a trade?"
Marijuana:As I have pointed out, the market place and the natural negative feedback (interest collected from irresponsible traders) loop enforce the promise. We have such a mechanism today. It just has a huge leak when it comes to large banks and governments ... so the marketplace should naturally shun them when it comes to trade.
how to enforce any "rule of law" when "NOBODY GUARDS THE GUARDIANS."
Laws are the weakest way to enforce anything. Natural negative feedback is the strongest way.
We are stuck with governments being the biggest form of organized crime, controlled by the best organized gangs of criminals, wherein the only real resolutions to the real political problems are better organized crime.
So a natural negative feedback loop would lead us to reject government when it comes to management of our Medium of Exchange (MOEs). Just as merchants accept multiple types of credit cards, the mechanism could evolve for them to accept multiple MOEs. If you look under the covers you discover that credit cards are not all equal in the merchant's eyes ... some cost him more than others. Yet, by contract, they must treat all the same. Further, to the customer, they aren't all equal either ... but the customer has a choice. This is a major flaw in the current mechanism. The merchant should be able to assess fees to customers according to the MOE he is presented. Traders who are trusted will be offered favorable MOEs and enjoy preferred treatment from the merchants. There is nothing that dictates that the MOE be managed by government (just as until Obamacare and medicare, there was nothing that said insurance must be managed by government ... it still isn't when it comes to casualty insurance ... but I shouldn't give them any ideas). It's all about monitoring errors and correcting them through negative feedback, thus driving them to zero. The traders and MOE managers who do that best will be rewarded. Those who don't will be uncompetitive and shunned through natural elimination. But you can't play any game without a way of keeping score. DEFAULTs are the score in the game of trade. Yet you can't find the tracking of that DEFAULT score anywhere. Why do you suppose that is?
Barter presumes that there is already nothing but voluntary contracts, and that people are going to voluntarily agree to keep their "promise to complete a trade."
Trusted trade is an "acquired" taste. You acquire it from dealing with reliable traders. Deadbeat traders are quickly identified and marked in the marketplace. Deadbeat traders must resort to capitalists and laws to effect their trades. Responsible traders do not need these crutches and thus enjoy more efficient trade for themselves and their trading partners as a result. In the olden days "my word is my bond" had meaning. With proper negative feedback and an infallible authentication and counterfeit recognition mechanism, it can have meaning again.
you continue to propose bullshit "solutions" based upon what money should be, that deliberately ignore what money IS!
Well, I'll try to find "your comment below" and see what you think it IS. I have illustrated over and over "the obvious". Money is a "promise to complete a trade". The natural feedback loop that assures this is INTEREST collections applied to deadbeat traders to recover the DEFAULTs their failed trades leave in circulation, thus guaranteeing zero INFLATION. This isn't rocket science. Don't make it more complicated than it has to be.
Willing investors can borrow from willing savers sums of money set aside out of earned income to then use to purchase and hire various quantities of productive resources — including capital equipment, workers for hire, and useful resources and raw materials — to employ them in production activities that will finally result in potentially marketable and profitable finished consumer goods at some point in the future.
This is a corruption capitalism has imposed on trade and money. It says the trader "doesn't create the money". He has to borrow it from an investor. So where did the investor get the money? Where was it initially created?
With a properly managed medium of exchange (MOE), inflation is guaranteed to be zero everywhere at all times. And responsible traders pay zero interest, everywhere, at all times. So a responsible trader has no need to seek out an investor when he wants to make a trade. His attribute of being responsible and paying zero interest makes any investor proposal non-competitive.
The only traders who need to bring investors into a trading promise are deadbeat traders. Of course all governments are deadbeat traders because they never complete their trades. They just roll them over.
This quote might help you be aware of all this nonsense
“I was in Washington for 18 years and never saw any projection of any of economist ever come true in 18 years. Their theories couldn’t even see the 2008 mess.” – Senator Alan Simpson
Alan Simpson was a fraternity brother (Sigma Nu) of mine at Wyoming. I agreed with him on more things than I disagreed.
I love money. I love everything about it. I bought some pretty good stuff. Got me a $300 pair of socks. Got a fur sink. An electric dog polisher. A gasoline powered turtleneck sweater. And, of course, I bought some dumb stuff, too. –Steve Martin
Translation: Short term excessive greedy gain and addiction followed by a terrible hangover and withdrawl. Over and over again this happens with Keynesian economics. Like a drug addict. No long term planning. This is the American system. How does a sane person plan for retirement in a system like this? It is truly beyond the mental capability of most people.
It always intrigued me that conservatives believe in Mises' thesis that order spontaneously arises out of the chaotic, random interactions in the free market, yet most conservatives are Christians, and most Christian believe in Intelligent Design, which posits that evolution is a God-driven command-and-control process rather than a chaotic one as the free market is. Liberals are the inverse: They believe evolution is driven by forces which nobody controls or can control, yet they believe that the economy must conform to a kind of Intelligent Design template.
Hardly anybody believes in command-and-control in both spheres, but it is eminently reasonable and logical to apply Mises to both the economy and evolution.
Reeses pieces or Mises' theses? One is food for the stomach, the other for the brain.
That's an interesting observation and insight. Well done!
There is no evidence that the native Irish made use of coins except for external trade before the arrival of the Normans in 1169...............................Building on Carl Menger's earlier work, Mises demonstrated that money is not the creature or the creation of the State. Money is a market-based and market-generated social institution that spontaneously emerges out of the interactions of people attempting to overcome the hindrances and difficulties of direct barter exchange.
So whats correct?
My Gut feeling is that Misses as usual is talking bollox.
In Pre feudal / Norman Ireland I cannot imagine the local village was very cosmopolitian , no pent house suites and the like.
Norman ireland was not that much different for most.
Celtic ring money was used before this time but we don't know how extensively it was used and for what purpose.
I suspect daisy the cow was used more often for exchange or more diect war extraction purposes.
The notion that "money" evolved from bartering is bullshit, which most people accept as common sense, because they take for granted living inside of systems where they can not successfully engage in frauds and robbery. The original concept of "money" as metal coins emerged with the history of paying soldiers. That later was transformed to become "money" based on the force of governments to back up the banksters' frauds. ... The deeper issues are how much of a bigger frame of reference is one willing to use to observe these issues, and finally, to what degree will one face the paradoxes that it is impossible to fully separate the observers from the observed.
http://www.youtube.com/watch?v=CZIINXhGDcs
David Graeber, DEBT: The First 5,000 Years
The original concept of "money" as metal coins emerged with the history of paying soldiers.
So that use of giant stone wheels (Rai stones) for money came after that?
http://en.wikipedia.org/wiki/Rai_stones
the use of metal coin for paying soldiers was probably the first major corruption of the use of money as an efficiency of simple barter.
to what degree will one face the paradoxes that it is impossible to fully separate the observers from the observed.
What are you driving at here. When it comes to any MOE, the observed is DEFAULTs. The observer is the marketplace (and more microscopically, the individual traders who make it up).
Just exactly what do you propose that mitigates these corruptions you cite?
THe problem here for bears is that Mises published his Die Gemeinwirtschaft: Untersuchungen über den Sozialismus in 1922, explaining how Russian communism was doomed without right proper economic calculation and markets.
Of course, the Soviet Union lasted a few dacades afterwards ...
Of course, Mises was CORRECT about this: "inflationary booms followed by the bust of economic depression or recession had its origin in the control and mismanagement by governments of the monetary and banking system."
Privately controlled banks being able to indulge in the FRAUD of making the public "money" supply out of nothing as debts, ENFORCED by governments, is GUARANTEED to drive social insanities. However, Mises, and all of the people that follow in his footsteps, then tend to promote bogus "solutions" based on what money should be, which deliberately ignore what money IS. Furthermore, ignoring what money IS, while promoting what money should be, is a pretty well universal trait in most of the articles and comments that I have ever read on Zero Hedge. Thus, there is nothing presented but relatively good analysis, then usually followed by pathetic bullshit "solutions."
MONEY IS MEASUREMENT BACKED BY MURDER.
The existing systems were made and maintained by the application of the principles and methods of organized crime to the political processes. It is EASY to come up with a list of theoretically "good" solutions to the problems, based on what money should be, and therefore, how the rest of the political economy should be. HOWEVER, in fact what money IS means that the only genuine solutions have to be better organized crime.
Since the reality is that governments are the biggest forms of organized crime, controlled by the best organized gangs of criminals, any "solutions" which are based on deliberately ignoring that, or miraculously overcoming that central social fact, are merely silly little love songs, which tend to be popular amongst certain audiences, precisely to the degree that they dwell upon the nicer aspects, while deliberately ignoring the aspects that are not nice.
I have no problem with the Austrian school of economics, on the superficial level at which it is presented. However, it deliberately ignores the human ecology, and general environmental ecology as much as possible. It shares in the same basic ways that we operate our civilization through believing in the biggest bullies' bullshit world view, which has created a Bizarro Mirror World in which everything appears proportionately backwards and inverted. THAT APPLIES TO THE BOGUS "SOLUTIONS" TO PROBLEMS BEING BACKWARDS JUST AS MUCH, IF NOT MORE SO, THAN ANYTHING ELSE.
Actually, militarism is the supreme ideology, because it deserves to be. There are actually combined money/murder systems, whereby the debt controls are backed by the death controls. It is NOT possible to change that, because one is then proposing impossible ideals as the theoretical "solutions," which sound nice, but because they are actually impossible, always make the opposite happen in the real world. The ONLY genuine solutions would have to have a better murder system in order to back up a better money system. That would take profoundly different ways to think about death controls, which requires radical changes in the ways we think about time and space, and therefore, the ways that we think about the concept of entropy.
All of the traditional, common sense ways that we think about energy systems now are BACKWARDS, because they are based upon continuing to presume to understand time and space, and therefore, entropy, BACKWARDS. Hence, we most often get absurd, silly little love song "solutions" based upon what money should be, which are based on money no longer being measurement backed by murder. Instead, in the real world we are stuck with the central fact that money MUST necessarily be based on measurements backed by murders, which is WHY resolving any of our problems is so extremely difficult!
Those dangerous difficulties are getting BIGGER at an exponentially accelerating rate, due to basic progress in science and technology, so that we now have electronic monkey money, backed up by apes with atomic bombs. There is nothing within any old-fashioned ideologies regarding political economy that is consistent with progress in sciences like basic physics and biology. The only ways to achieve such a goal require us to approach human civilizations as general energy systems, BUT, that can not be readily done as long as we continue to repeat the same mistakes, over and over, without even knowing what those mistakes are!
The situation that human beings face is that we DO have globalized electronic systems of fiat money frauds, backed by weapons of mass destruction like atomic bombs. HOWEVER, the changes that quantum physics and the special theory of relativity made to our basic ideas about time and space are pretty well deliberately ignored by all the people who continue to promote various old-fashioned "solutions" to our problems, such as various religions and/or ideologies, including all of the schools of economics which are publicly significant at the present time.
The world is currently dominated by combined state religions, which results from its dominate monetary system being backed up by its dominant national security system. Both are based on the history of their social success through the maximum possible frauds and deceits. Both are only significantly opposed in public spaces by those who operate within the same frame of reference of bullshit as those systems were originally based upon and promoted. Therefore, it would takes a series of prodigious political miracles for enough people to go through enough of a paradigm shift in they ways that they perceive politics to start having scientific solutions to our problems that actually worked!
Right now, we are stuck with progress in basic physics, enabling electronics and atomic energy, while there is virtually NO progress in political science, because the history of social successes through deceits and frauds became the foundation of our current kind of civilization, which are quite significant obstacles to any actually better solutions to the problems we are facing!
Seriously. Stop at 1 paragraph. Maybe 2. All the rest should be stuck up in a blog or something.
Agreed, nobody has the energy to read an entire thesis each time he posts. Summarize, man, and link to a more detailed post elsewhere if you like.
The first locally produced Irish coinage was the so-called Hiberno-Norse coinage which was first minted in Dublin in about 995 AD under the authority of Sithric III (aka Sithric Silkbeard), the Norse king of Dublin. The early Hiberno-Norse coins were good copies of the English pennies of the period (typically of Aethelred II 979-1016 AD). .........................................................Get it ?The proto state The King is the state etc etc etc. Austrian money origin theory is pure bollox.----------------------------------------------------------------------http://www.irishcoinage.com/J00092.HTM
Bronze or indeed Iron age village life is very simple
There is no real strangers.
There is no trade with advanced civilizations
There is the tilled field and the forest.
You don't do something because someone pays you tokens or trinkets.
You do it because your bloody father tells you to fucking do it.
https://www.youtube.com/watch?v=Lqm8JGnSshE
to have "sound" money you will have to outlaw the banks and the present day u.s govt
CR right around the corner, that's CR coming from the old senate and congress, bummer
i guess it will take a divorce inorder to get sound money
wow. that sounds seditious. think of all the judges in the country who grant divorce in this country. now think of the five generations of males who have been screwed by this govt and those very same judges. seditious
simply seditious. that would be my campaign slogan... "simply seditious"
agua-fy the tree of liberty
amnesty equals civil war
to have "sound" money you will have to outlaw the banks and the present day u.s govt
You don't outlaw them ... you shun them ... you reject them ... you refuse to do business with them. That is the natural feedback loop you use with everything that is yielding an undesireable outcome. When the proposed solution to a problem is "law" you know it is a non-starter and you should keep looking for a workable solution. The best solutions will have natural negative feedback mechanisms ... not contrived and controlled positive feedback mechanisms.
http://www.safehaven.com/article/35734/the-financial-repression-authority-with-john-butler
John Butler has 18 years experience in the global financial industry, having worked for European and US investment banks in London, New York and Germany. Prior to launching the Amphora Commodities Alpha Fund he was Managing Director and Head of the Index Strategies Group at Deutsche Bank in London, where he was responsible for the development and marketing of proprietary, systematic quantitative strategies for global interest rate markets. Prior to joining DB in 2007, John was Managing Director and Head of European Interest Rate Strategy at Lehman Brothers in London, where he and his team were voted #1 in the Institutional Investor research survey. In addition to other research, he publishes the Amphora Report newsletter which appears on several major financial websites. A cum laude graduate of Occidental College in California, John holds a Masters Degree in International Finance and Economics from the Fletcher School of Law and Diplomacy, associated with Harvard and Tufts Universities.
Financial Repression
BROAD DEFINITION: "Any Policy that constrains the ability of the financial markets and investor participants in these markets to take rational actions to invest, diversify and manage the risk of their investment as they would personally prefer to do."
NARROW DEFINITION: "A specific tool kit of policies implemented by government which indirectly confiscate the wealth of the private sector and move it to a combination of the public sector and/or "too large to fail" institutions."
FINANCIAL REPRESSION IS ABOUT LIMITING INVESTMENT CHOICE
"The whole point of financial repression is to make it difficult or impossible for an investor to protect themselves"
John feels Financial Repression "is now extremely broad based (globally) and in fact you have to look very closely to find countries not actively pursuing some mix of Financial Repression policies."
A Negative Sum Game
Butler has argued in his Amphora Report that competitive currency debasement is "is not a zero sum game but rather a negative sum game because policy makers don't realize that by trying to devalue against each other, unseen they are undermining the very credibility of unbacked fiat currencies generally."
Increasing the BRICS are "becoming increasingly wary of where all this is going and as a consequence are diversifying not only their fiat currency reserves but are diversifying into gold, oil fields and real assets generally."
How Investors Protect Themselves
"The only free lunch in economics is DIVERSIFICATION. The problem is that in a world of Financial Repression, the way you diversify yourself is very different than a world where financial represion is not an issue."
"There is no way out but Currency Debasement"
John outlines in this video specifically what the "new diversification" must consist of.
He believes the Fed "will blink" as the US dollar continues to rise as a consequence "of the deflationary pressures which are spreading across the world." He sees evidence of a major trend reversal coming in 2015 and possibly before the end of 2014.
https://www.youtube.com/watch?feature=player_embedded&v=brEfmCgWIIY
When you watch episodes of Doc Martin, you know you're getting kicked in the teeth by a shoe brand.
Port Isaac is gorgeous, too bad everyone is always sick and helpless. Cross that off as a place to visit. No USD converted to pound sterling could entice me to visit medical manifestation under applicable propaganda for government servitude.
Fuck you United Kingdom. Can I reload the gun and watch you shoot yourself in the foot again?
The assumption in this paragraph is that we are running under a full 100% reserve banking system.
Not so. It's a fundamental misconception. Fractional reserve banking by definition means that the banks loan out more than has been saved. => BANKs and bankers are the cause of the boom/bust cycle.
Banks and fractional reserve banking are the biggest problem our civiisation has. Bigger than global warming, bigger than peak oil. Bigger than poverty. Because none of the other problems can be tackled effectively while banks are there to fuck up the politics, the businesses, the policies. Everything else will be sabotaged by the banks for their own gain while they have the power to create credit from nothing.
In a half page dissertation.
This is "why" it won't make any difference if the price of oil drops below $65.00 and more importantly "why" you won't see any tangible benefits now or in the future when you do your shopping for whatever it is you are looking for. ...
Same as it ever was!