Repubs party platform: comittee to eval return to gold std and audit fed

[stone]

TBV

You may be surprised by the idea that any level of money supply is sufficient to support vibrant economic exchange so long as prices and interest rates are allowed to adjust.  The problem is that they seldom are.

To my mind the elephant in the room with this is fixed interest debt. If all financing were equity financing (so someone lending money got a profit share from the enterprise they financed) then I could see what you mean BUT with fixed interest debt, I agree with Gumby that on a macro scale, debt burdens don't adjust in value and so when ever prices adjust downwards, debt burdens crush the economy. I think that is why long term lasting sound money systems have required very strong anti usery prohibitions except when military conquests, colonies etc have been providing an source of tremendous expansion.

I think it is crucial not to confuse real economic expansion and financial expansion. Just think about the countries around the Baltic when the Soviet Union collapsed in 1990 or whenever. Finland, Sweden and Denmark were much wealthier than Latvia, Lithuania and Estonia in real terms for everyone. If you have computor companies making labour saving, desirable computors, pharma companies genuinely curing disease, steel companies that are well managed and produce more steel, safer and with less energy etc etc, then everyone is better off. Lets call those attributes "real economy wealth". As TBV says, all of those attributes can in principle be gained or lost with no change in nominal wealth if prices adjust. By contrast nominal wealth can increase massively in CPI adjusted terms with no increase in "real economy wealth". After independence, Latvia, Lithuania and Estonia took advice from economists from Harvard and Chicago and went all out to get increasing financial wealth without bothering about "real economy wealth". If you use taxes purely to limit CPI inflation and free up financial capital formation from tax burden, then the prices of pre-existing assets can inflate. Making more loans to use for further bidding up of asset prices alows greater expansion of financial wealth. At some point the economy won't be able to find the interest payments for the mountain of loans so a crisis will ensue. BUT potentially the government/central bank can step in and deficit spend as fast as the financial system can skim off that money. In that way they can keep the snow ball rolling.
So basically it is possible (we are seeing) a system where "real economy wealth" is decoupled from financial wealth increases. You can go from an economy where everyone is paid say the equivalent of 300 loaves of bread a week and an "owning class" has assets worth 1M loaves of bread for each member of the "owning class" to one where everyone is still paid "300 loaves of bread a week" but each member of the "owning class" now has assets worth 1B loaves of bread and gets a compounding return on capital from all of those assets.
My argument is that such increases in financial wealth decoupled from real economy wealth distort the real economy and actually prevent increases in real wealth. Talents and resources that could be deployed to increase real economy wealth instead get diverted towards expanding such ficticious financial wealth. Basically the private sector gets subverted into being a deficit harvesting financial machine that fails to meet the needs of the population. The government becomes embroiled with both trying to fix the gaps now left by what the private sector neglects to do and also a forlorn attempt to fill in a financial black hole.

[stone]

I’ve been trying get my head around how people propose a hard money system would work. To try and understand it I imagined a scenario where a new previously uninhabited island was colonised by ten million colonists. The new island has ample natural resources and the colonists are all well educated, hard working etc and between them have all of the knowledge and experience to make state of the art computers, planes, medicine etc from the mineral resources available on the new island.  They are fed up with the rest of the world and want to run a free standing closed economy. They all are strict adherents to a hard money philosophy where nothing is done except for payment in gold coins. Ten families out of the ten million colonists arrive with a million gold sovereign coins each. There is no other gold on the island. The other colonists don’t arrive with any gold or any thing else but they don’t worry about that because they are confident that they can borrow from the gold bringers and have marketable skills etc. The gold bringers are also keen art collectors. They each bring many ancient works of art. They have a friendly rivalry between each other as to who has the best collection. They have free entry art galleries  to display the art and each gallery tries to buy out the art collections of the others.
Each person is allotted 1/10 000 000th of the island. That is not enough for each person to live a comfortable life without exchange of expertise and individual resources (eg coal for copper ore, fish for rice etc etc). The first thing that the gold bringers do is to enlarge their land holdings by using a small amount of gold to buy enough such that each gold bringer is entirely able to live off their own land entirely self reliant manner. That takes up 1% of the island. The rivalry between the gold bringers means that they each want to get back that gold in order to buy more art from each other so as to be able to have the most impressive collection. They have no wish to buy anything other than ancient art. They get all their  other wants amply met by their own labour on their own large ranches that they love to tend themselves.

The gold bringers fall into two opinion groups. One group believes that the way to claw back the gold (initially spent to buy land) is to make loans at interest to the rest of the population to enable the rest of the population to conduct trade with each other. They hope that in that way they will be able to claw back all of the gold they lend together with the small amount initially spent to buy land. The other group of gold bringers believe that they are better off just considering the gold spent on land as a permanent loss and so using all of their remaining gold reserves in the bidding battle to get the best art collection.

Which group will get the best art collection in the end? My bet is that it would be those gold bringers who never lent out any gold and instead kept it all to buy art.  Would the amount of gold in circulation amongst the wider population enable trade? What if one talented non-gold bringer got together most of the gold in circulation amongst the non-goldbringers and used it to buy one painting from a gold-bringer collection?

[Gumby]

I think you might enjoy reading/listening to the discussions about deflation and prosperity as shown below.  You may be surprised by the idea that any level of money supply is sufficient to support vibrant economic exchange so long as prices and interest rates are allowed to adjust.  The problem is that they seldom are.  As for your graph, it shows that a dollar in 1919 was worth a lot more in 1933.  Wouldn't you take that deal?  That's deflation.

I'm well aware that keeping the money supply fixed would probably result in deflation and that deflation is OK as long as people don't mind the value of everything they own and invest in going down. The problem is that people aren't OK with nominal losses, no matter how irrational it might be.

See: http://en.wikipedia.org/wiki/Money_illusion

Behavioral finance is a big deal. It sucks when your house goes down in value. It sucks when even a single PP asset goes down in value (even though it doesn't matter). This is why politicians get reelected when they provide nominal growth. A nominal loss on people's houses and investments does incredible damage to the psyche of a nation and its spending habits. It's just the way it goes.

Compare that to the the value of a 1913 dollar today.  Today, it takes $23.14 to buy what $1 bought then.

Honestly, who cares? You're giving the impression that the entire country lost its savings over the past 100 years. That's not what happened. Does it really matter if a 2012 dollar is worth 0.04¢ of a 1895 dollar? No, it doesn't. We have had mild inflation during much of that time (with a few exceptions). Wages have gone up since 1895, and banks have paid interest all the while (ultimately funded from via deficit spending/interest).

Back then we were a country of poor immigrants. Now, with our dollar in the toilet, we are one of the wealthiest countries on earth in terms of living standards. You might feel warm and fuzzy inside if your dollar bought a bicycle, or an ice cream cost a nickel, but your wages and your savings would likely be 1% of what they are now. Even Harry Browne has pointed out that if you put all your cash into Short Term Treasuries 30 years ago you would have done just fine. The whole "our dollar is now worthless" argument is mostly meaningless political misdirection used to rile up constituents.

If we had lots of severe inflation, that would be an entirely different story.

You mention that maybe inflation doesn't matter so long as prosperity prevails.  The trouble is that many people cannot protect themselves against inflation.

Does inflation really matter if you receive interest payments from the bank that cancels it out (after taxes)? No, it doesn't make a difference so long as your savings account lets you keep up with inflation. Even a government-funded savings account (i.e. Treasuries or debt-free payments) is a form of enabling people to keep up with inflation. However, you raise a good point about negative real interest rates. Negative real interest rates are certainly an excellent argument for holding gold.

[MachineGhost]

that the poor must "earn" in order to square up their loan. That's all well and good, but on a Macro level it becomes harder and harder to make the interest payment unless creditors (i.e. those with money/wealth) are continuously spending or investing money back into the economy. The interest payments, over time, leak money — just like an expense ratio — from the bulk of the population to the rich. Again, we are talking about a macro level.

Allegedly almost 70% of the entire accumulated debt went to interest payments to the bondholders.

[MachineGhost]

I agree wholeheartedly. However, what I meant is that when an individual is "wealthy," let's say that they have no trouble acquiring luxury goods/services (a yacht, a Porsche, a luxury hotel room). But, let's say that ten or fifteen years go by and the economy has done so well that now the average person is successful enough to acquire high end luxury goods. How exactly would that work? Since the average person has acquired lots of wealth, would you imagine that the price of all these high end goods have decreased in price? Or has the price managed to remain stable? I would imagine (though I could be wrong) that those goods/services would have increased in price because more people are buying these luxury goods/services than previously and the raw materials needed to build and run them are suddenly harder to acquire. Wouldn't the demand for all of the goods/services in an economy have an inflationary effect?

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[MachineGhost]

Well, a normal person would not care. I certainly don't care. But if everyone grew wealthier faster than the top 1%, I can't help but wonder if it would cause the cost of many things to increase in price — thus causing the top 1% to lose purchasing power in real terms. The original premise, as described by TBV, was "expanding opportunities to gain wealth without reducing the heard-earned wealth of others in the process". Well, if 99% of the population becomes wealthier faster than the top 1%, then I still don't see how the purchasing power of the top 1% would be preserved. I'm sure I'm just missing something, so please feel free to enlighten me

Don't conflate growth in real wealth with an increase in living standards?  They are not the one and the same thing.

[MachineGhost]

Not sure whose position they endorse more, but I compiled them straight from .gov data without manipulating them at all.

What the price of goods or services costs then vs now cannot be taken in isolation.  It has to be taken in relation to higher level of wages, growth in wealth/assets and improvement in living standards.

Even during the inflationary 1970's, the lower class was the least effected by the high rates of inflation because they had very little assets and were recipients of transfer payment schemes.  The middle class only lost about 28% of their real wealth and the PPer/upper class came out ahead.

Gold bugs love to forget that humans have the ability to adapt, both producers and consumers.

[TBV]

What the price of goods or services costs then vs now cannot be taken in isolation.  It has to be taken in relation to higher level of wages, growth in wealth/assets and improvement in living standards.

Even during the inflationary 1970's, the lower class was the least effected by the high rates of inflation because they had very little assets and were recipients of transfer payment schemes.  The middle class only lost about 28% of their real wealth and the PPer/upper class came out ahead.

Gold bugs love to forget that humans have the ability to adapt, both producers and consumers.

If prices remained stable but wages irrevocably plummeted, it would indeed be misleading to focus on price stability.   If the dollar increased in value over time but dollar wages irrevocably plummeted, it would be misleading to focus solely on the stability of the dollar.  But neither are true of the period observed, so it is not misleading to make the observations that have been made.

Government-influenced transfers of wealth, both the highly visible ones made to low income individuals and the less visible ones made to political cronies, are indeed a feature of inflationary scenarios.  Serbia under Milosevic is a fine example.  Which is why inflation is less kind to those less favored by the powers that be.  However, the combination of stagnation, unemployment and inflation found in 1970's America was not really very kind to anyone.  But perhaps that's because a haircut of 28% suffered by the bulk of the population seems to me something to be avoided.

Humans do have the ability to adapt.  Germans, for example, have adapted quite well after suffering hyperinflation and wholesale wartime devastation.  Part of that adaptation has been to be vigilant in avoiding inflation (and war).  Argentines and Greeks have also been most adaptive, by exchanging their debased money for gold or more stable overseas currency.  Such measures seem to have served them quite well.  On the other hand, governments as a rule tend to be somewhat less adaptive: always trying to maintain artificially higher prices for assets and labor even when money is contracting.  Will they ever learn?  Maybe not, and for the reason mentioned by Gumby.

[stone]

TBV, do you acknowledge that a really key sticking point in a deflation is that debt obligations do not shrink alongside prices and wages? It is the combination of debt and deflation that is the big problem IMO. I think governments favor inflation because they favor indebtedness throughout the economy. They favor indebtedness because increasing indebtedness is a quick fix for the economy. Profits on a macro scale can only come from spending of pre-existing profits or from increasing indebtedness/government deficits. If there is massive concentration of wealth then profits will tend not to all be spent. The only way to avoid a recession is then to increase overall indebtedness/government deficits.

[TBV]

Several here have expressed concern over mounting debt and the interest-payment burden it poses on citizens (individually or collectively).  When debtors do not possess the money to repay their debt, they default.  First, they may seek shorter-term remedies like refinancing into short-term rates that are variable over the life of the loan.  But that makes everything even more precarious.  They may go for interest-only options, but that just delays the inevitable.  Unless there is new wealth created (not money, wealth) there is no way to service the debt.  So, there will be default.  In societies where money is debased, the default comes in the form of repayment in currency worth far less than the original debt.  In societies where money is stable or increasing in value, the default will be outright failure to pay.

When this happens, who loses the most?
When governments (or central banks) step in to artificially delay the inevitable, whose loss are they preventing?

The clearing of excessive debt via default is the necessary vehicle by which an economy transitions from a high-debt, inflationary scenario to one that is more sustainable.

[stone]

TBV, I'm not even sure that real wealth allows debt to be serviced in a deflation. Imagine a situation where there was some new enlightenment and lots of novel inventions etc massively increased real wealth BUT there was a fixed amount of money and net saving and so deflation. Then prices would fall, the ever better goods and services would only sell at lower and lower prices. Wages might plummet and yet even with the resulting drop in costs, the debts would default. NB: I'm no fan of increasing indebtedness- quite the opposite.

[Gumby]

Unless there is new wealth created (not money, wealth) there is no way to service the debt.

Wait. But, the interest payments themselves, on a macro level, require the creation of new money to pay down the interest. (That's really why people support debt-free money. To avoid an exponentially growing interest burden). The only way to avoid money creation in that scenario is if creditors are actively spending the debt payments back into the economy the moment they receive them. Otherwise, the debtors' macro economy runs out of money to make the interest payments to creditors on time. And that debt cycle just fuels more debt creation to avoid default, which causes even more debt and interest payments to be created. Debt-based money begets more debt-based money.

Stone's description of "gold bringers" and "non gold bringers" was a good model to use for exploring this. The only way for "non gold bringers" to pay back any debts and interest to "gold bringers", on a macro level, is if the "gold bringers" keep spending gold back to the "non gold bringers". Otherwise, the "non gold bringers" run out of money to make the interest payments.

I suppose the "non gold bringers" could sell their wealth to the "gold bringers" in exchange for gold to make their payments. Not sure if that's what you meant or not. But, that's what I meant by having the "gold bringers" spending money back into the hands of "non gold bringers" before their interest payments are due.

[TBV]

I think there are two sets of questions at work here.

Stone:  The clearance of bad debt and the downward adjustment of prices is the mechanism which allows consumers to feel free once again to consume.  It's what allows businesses to hire and borrow for future expansion.  The impossibility of having bad debts repaid encourages investors to allocate scarce assets in future in a more responsible manner.  The impossibility of getting paid wages at the old levels is what encourages employees to accept nominally lower wages.  The impossibility of getting to charge the old higher prices for goods and services is what encourages businesses to sell at new, lower ones. Equilibrium is achieved, just at lower price levels.

Gumby: Look at Greece.  Given the size of its economy and the relative productivity of its population, there is no way it can ever repay its debts or even the interest on its debts.  We have already seen a partial and substantial default.  I suspect there will be more to come, and not just in Greece.  Liquidity is not the issue.  Solvency is.  No matter how much money is created, the absence of an expansion of actual goods for which it can be exchanged makes the whole process collapse, unless you can appropriate the real wealth of others, for example by exporting inflation or selling Eurobonds backed by the hapless citizens of more responsible countries.  Unlike the US, Greece cannot take the first route, but it and a few of its neighbors would sure like to try the second route.  

So what if Greece could just print up its own money directly and start all over with drachmas?  Well, given the relatively low productivity of the Greek economy, everyone would have to start living within their means.  Presently, they seem very averse to doing so.  Pressures would likely build up to inflate the money supply.  Those first in line would benefit.  Those unwitting citizens who are not would suffer a loss in wealth.  Regardless of how money is created, there must be a reasonable relationship between its supply and what there is in the real world to exchange it for.  At the end of the day, we don't want anyone's money.  We want what it can buy.

[stone]

TBV, like I said I'm no fan of debt as a system. I've actually argued on here that ancient anti-usery laws were perhaps sensible. You say that a cycle of debt creation and default sorts the wheat from the chaff enabling capitalism to prosper. Historically though, isn't it true that once gold ownership becomes concentrated it doesn't get lent out and if it does then it ends up with the lender foreclosing on land etc. I think in practice what happens is that all the gold ends up in a vault and other types of money have to be invented to fill its place. Only when there is massive gold mining or conquests can a gold monetary system keep going.

I have the odd ball idea that an asset tax system would allow a non-expanding monetary system to be sustainable though.

[TBV]

Stone: Items that have traditionally been used as stores of wealth do get accumulated.  Nothing out of the ordinary there.  Gold often ends up in a vault out of a desire to keep it safe.  Presumably, many PP'ers do the same thing with their physical gold.  It would, I believe, be more generally used as actual money in circulation if governments cooperated.  (Valuable coins with an absurdly low face value don't cut it.)  In the past, when the value of whatever competing currency for which it might be exchanged was worth as much and kept its value over time, gold did circulate freely. But when exchange rates were askew, or specie content was debased, holders of gold or silver coins were wise to withhold it, export it, or melt it down for its value in metal.  That's why you seldom see American silver dollars or dimes in circulation any more.  In my view, defects in the valuation of competing forms of money are shortcomings for those other forms, not gold or silver.  Naturally, it's easier to circulate paper money.  If backed by gold and exchangeable into gold at a stable rate, that's just as useful.  Were the bulk of it stored in the national treasury, it would be as useful as gold coins stored in someone's home.  Both could be used as money or backing for money.  [Of course: if the government insists on owning all of it, like FDR did, then it can manipulate the exchange rate to the detriment of the public.  Not a good thing.] As to the notion that most gold will eventually fall into the possession of relatively few people, I wonder why that needs to be the case.  Anyone can buy and sell gold any hour of the day.  If most don't, that's their choice, but it's a choice influenced by external factors (such as government restrictions, public media critical of gold ownership, etc.)  We might be better off with a more gold-accepting cultural outlook like they have in India.  In the final analysis, gold is just a device to inhibit debasement of the currency.  I think it's done a reasonably good job of that over time.

[Gumby]

TBV, I think it will help the discussion if we don't use Greece as an example. The Eurozone is a unique situation that really doesn't apply to what we are talking about. For instance, when the Greek government needs to spend Euros, it issues bonds and spends money. Even if those Euros are given to Greek citizens, Greeks have an incentive to stash those Euros into less risky German and French banks, which use those Euros to buy German and French bonds. In other words, the debt-based money spent by the Greek government is used to fund the less risky core Eurozone countries. It's basically a scam against the periphery Eurozone nations.

Anyway, maybe we can use Stone's example of the island of gold holders and non gold holders.

[Pointedstick]

I don't share stone's fear that on this gold money island, the richest ranch-owning self-sufficient 1% will hoard all the gold and swap rare art while everyone else hurts for lack of liquidity. In practice, rich people are constantly spending their money into the economy. Most rich people in fact only get by on an extremely high monthly cashflow. Witness rich celebrities who suddenly go bankrupt, for example; they were making tons of money but spending it all every month on Lamborghinis, mansions, resort trips, and dog therapists.

It's a rare person indeed who has so much wealth that he can live off the interest, dividends, rents, and capital appreciation of his investments and avoid a high-consumption standard of living, and rarer still is the one who deliberately achieves this economic self-sufficiency as well as the physical self-sufficiency of a ranch lifestyle. The people stone is describing actually look more like Early Retirement Extreme practitioners than the typical society's wealthy elite.

I don't believe all that many people--and especially all that many rich people--really want to be self-sufficient. We're all a bunch of weird individualist libertarian-types here but we in no way resemble the average person who just wants to, as KevinW so brilliantly put it, "feel secure and confident when the systems they depend on are popular, have a large community of like-minded people around them, and are endorsed by authority figures." I don't think any more than a small fraction of the population (I'd guess mostly the Rationals and a subset of the Artisans) would even be happy with self-sufficiency.

Are these rich people really going to be satisfied eating self-raised chicken and hand-picked blackberries in their simple earthen homes with luxurious rare art as the only outlet for their passive interest income from the debts they issue lending out their gold? I don't think so. I'm pretty sure these economic elites are instead going to aspire to mansions, private watercraft, exotic meals, frequent vacations, and stylish clothes. And someone's going to need to build those houses and boats, cook the food, chauffeur the cars, tailor the clothes, and of course provide therapy for the dogs. I don't expect that gold of theirs to avoid being spent back into the economy over any real timeframe.

[Gumby]

That's all well and good, Pointedstick. But, can you at least admit that there would be a problem with the island's economy if gold holders didn't regularly spend their gold into non gold holders' hands? I think that's Stone's point.

If the gold holders choose to spend their gold into the economy, as you suspect, then the non gold holders will have no trouble making their interest payments on a macro level. But, if the gold holders don't spend their gold into the economy, can you see how non gold holders would be unable to make their interest payments in time? After all, when loans are made, the principal is loaned but the interest is not. Therefore, private debts tend to grow (i.e. additional private loans are taken to pay previous loans) when creditors do not actively spend money into the debtors' economy. Once the private debts snowball, and interest payments become compounded, it becomes harder and harder to avoid racking up more debts (or defaulting).

[Pointedstick]

That's all well and good, Pointedstick. But, can you at least admit that there would be a problem with the island's economy if gold holders didn't regularly spend their gold into non gold holders' hands? I think that's Stone's point.

Yes, absolutely. You and stone are quite right that if the majority gold holders didn't continuously spend their gold into the economy, there would be a tight money death spiral as the debt-ridden populace couldn't get enough gold to meet the interest payments on their gold debts. I just don't find the idea of the gold-holding social elites all deciding to live like self-sufficient, expense-free frontiersmen all that plausible. You can come up with all kinds of things that would wreck the economy if an entire social class did something wacky, but I think if you look throughout human history, the social elites have had no problem at all spending opulently and frittering away their cash on luxuries that would make the commoners' eyes pop out. 

[stone]

Pointed Stick, I think 21stC USA is a very special case historically. The post WWII system especially Reaganomics has created a huge new crop of very rich. Post Soviet Russia is another example. I agree they do spray champagne around to some extent. BUT even they typically gather much more from wealth holdings than they spend. In Medieval Europe most of the gold ended up in church vaults and so tally sticks were needed to enable trade to continue. So in reality the economy was running on a system of "out of thin air" money in the form of tally sticks. The church in the UK was pretty much like the "gold bringers" in my fable. They did have plenty of land and monks to tend it to provide all their wants. They did only spend gold on art. Bizarely they didn't even pay people to build cathedrals. Lay people built the cathedrals as expert voluntary workers.

In the UK we do have "old money" families who have probably been extremely wealthy for 1000 years. They may not personally do all their food growing but from a macro perspective, having a land estate with say 100 employees that is self sufficient amounts to much the same thing. They also typically do own expensive art. If you look at the current crop of USA billionaires and extrapolate into the future; then those dynasties that persist will be those that have a family tradition of preserving wealth. In centuries to come that is what you will be dealing with. Such families set up fortress like legal trusts etc to prevent any family member from jepodising the legacy wealth.

From what I can see, debt based money allows wealth inequalities to be ridden out by the system so that they can stretch out for many decades. Using gold as money gives a much shorter time window before crunch time. Either way IMO there is an inevitability about the crunch being on the horizon if wealth doesn't get redistributed. Feudalism is a sustainable system. Cycles of indebtedness and war apocalypse to redistribute is also "sustainable". IMO an asset tax that gives continuous drip drip redistribution would also be sustainable. I think it is mistaken to think that a hard money lending set up would be sustainable. IMO it would soon morph into feudalism or drive the situation to war or at the very least persecutions and ad hoc confiscations from the money lenders as happened periodically in history.

Looking at a wider scale, globally there are billions of people who presumably were born with immense potential to provide what humanity needs and yet barely get to partake in the global economy. I guess amoungst the three billion poorest people today there are innumerable Steve Jobs equivalents, potential top surgeons, potential engineers etc etc. Aren't they all much like the non-gold bringers in my fable who are going to waste due to a dysfunctional global economy?

[stone]

TBV, I understand that you advocate a gold based financial system but I'm unclear about what sort of gold based banking system you mean. The most extreme form would be to have all transactions being mediated by changes in ownership of allocated gold holdings (I agree that rather than people paying with coins they could do this electronically or via a paper trail). I guess a system where bankers made loans out of thin air as per normal but had to provide gold in exchange for deposits if that were demanded would be more like the system in the 1800s. Even then, there is a massive difference if banks are limited liability companies or if bank owners have unlimited liability as was the case in the early 1800s in England. I think with all monetary systems the actual banking regulations are the crux of it. The limited liability protection of bank owners meant that money lending wasn't the road to ruin that it was without that protection. It also meant that banking dynasties rapidly became increadibly rich and powerful. I think it is a very big mistake to look at a relatively short historical period of a few decades and view that as a model of a sustainable system when in fact it was a state of flux.

[MachineGhost]

I don't believe all that many people--and especially all that many rich people--really want to be self-sufficient. We're all a bunch of weird individualist libertarian-types here but we in no way resemble the average person who just wants to, as KevinW so brilliantly put it, "feel secure and confident when the systems they depend on are popular, have a large community of like-minded people around them, and are endorsed by authority figures." I don't think any more than a small fraction of the population (I'd guess mostly the Rationals and a subset of the Artisans) would even be happy with self-sufficiency

I agree.  99% of people just play hobby politics.  People rather be seen and heard to show off or be apparantly understood on mundane topics than actually walk any talk (i.e. beautiful, shallow people in LA).  It's hard not to become cynical about The Great Unwashed.  But one has to recognize that everyone has free will and gets to choose what their priorities are in life.  Even if you don't agree with their choices, its technically not fair to judge them by your own standards, even if it would be in their best interest long-term. 
I am a Counselor Idealist, so I don't think you can pigeonhole who libertarians really are.  I think upbringing, personal wordly experience, intellectual curiosity and strong distate for blending own's ego into the metaphysical collective play larger roles than personality temperament.  Most people who live, shall we say relatively boring lives as far as changing the world goes, simply don't have an impetus to challenge everything they see or hear.  Even the fact that the PP was thought of by a libertarian plays very little to no role to its adoptees as far as I can tell.

However, it is clearly a fiction based on any number of emerging scientific fields that any man or woman can truly be self-reliant and an island unto their own.  That kind of Randian-Galt philosophy is what motivates conservatives.  Liberals consider it to be a stunted, adolescent fantasy.

[MachineGhost]

[quote="Gumby"]
That's all well and good, Pointedstick. But, can you at least admit that there would be a problem with the island's economy if gold holders didn't regularly spend their gold into non gold holders' hands? I think that's Stone's point.
[/qupte]

But Stone's point is a fantasy.  What would happen is the non-gold holders would create their own scrip out of necessity and use it as money.  Then, unless the non-gold holders start accumulating the scrip also or control the issuance of, their gold would rapidly lose any value from lack of demand unless the scrip was over-inflated.

[MachineGhost]

think if you look throughout human history, the social elites have had no problem at all spending opulently and frittering away their cash on luxuries that would make the commoners' eyes pop out. 

But luxury is a metaphysical concept.  Most everything is made in China nowadays.  The difference between Cheap Chinese Shit and Luxury Chinese Shit is extra quality control.  The rest is all metaphysical branding, ass kissing, hobknobbing and a reliance on blase human emotions such as envy.  Those who cannot overcome such blase emotions will be stuck on a treadmill and always be unhappy.  No amount of luxury goods or designer dresses is going to turn a pig into a princess.

Watch something like "The Real Housewives of Orange County" and see how unhappy these rich elite really are.  They try so hard to find happiness through relationships, children, plastic surgery, material posessions, wealth, status, etc. without ever once realizing it may simply be their environment.

[MachineGhost]

Looking at a wider scale, globally there are billions of people who presumably were born with immense potential to provide what humanity needs and yet barely get to partake in the global economy. I guess amoungst the three billion poorest people today there are innumerable Steve Jobs equivalents, potential top surgeons, potential engineers etc etc. Aren't they all much like the non-gold bringers in my fable who are going to waste due to a dysfunctional global economy?

That's not the fault of the gold holders.  The gold holders need competent rule of law legal systems that protect private property rights as much as the non-gold holders need it to become successful**.  There is no conspiracy by the gold holders, just government incompetence and the influence of anti-property extremists.

** Well, I guess Detroit or South Chicago, et al brings up a lot of other issues.  But thats a different kind of limitation than poor people face in India, Pakistan, Africa, South America, etc.