Gyroscopic Investing

JonathanH wrote: And to Moda and others:

I don't see why these services couldn't also be provided by the market. What we don't see are what would have been used with certain resources.

Some things are easily done by an invested private sector when there's proper infrastructure and stability.  I'm dumbfounded by this libertarian hand-waving on the idea that we could just have corporations own our roads, freeways, sewers, and courts with no problems... either of monopolization or complete and utter dis-coordination.


And the MR/MMT guys have hit on inflation in more detail in plenty other articles.  Long-story short, they're events most-often driven by non-monetary factors first, and only once production collapsed (for REAL reasons), or foreign-denominated debt.  It's easy to once again wave a hand and say "these collapses go hand-in-hand," but if you look at these events you can tell they are driven first and foremost by non monetary problems that would very well sink any country, and once production collapses (a natural result of any collapsing government), collapse of currency ensues (natural result of any amount of money chasing far-fewer goods).

Further if you look at bad inflationary events where the rest of government remained in tact, Real GDP maintained a much better position than where deflationary depressions ensued in a country.

Lastly, all commodity-based currencies that I know of have also "failed."  Of course, the commodities themselves have not.  And you have a right to own all the gold you can buy @ FMV.  What we're asking our government to do is to either form a monetary arrangement that has failed every time it's been tried, or one that has failed every time it has been tried.

We have NO commodity-based currencies so far as I know that exist today.  If it was really the architect for a robust, productive, free nation, one would think we'd see far, far more of it.

rocketdog wrote:

moda0306 wrote: Meanwhile, we have no examples of an Austrian model that works in the modern world. 

Does Estonia qualify?

http://news.heartland.org/newspaper-art ... ic-miracle

https://www.youtube.com/watch?v=4f9SZiZ-azU

rocketdog,

I can't watch the video, but from what I can tell, any country with a universal healthcare system that uses a non-sovereign fiat currency issued by a European central authority is decidedly NOT Austrian in nature. 

I know they've responded differently to the crisis than the US... but their GDP just recently crossed where it was in 2007 if memory serves.  Doesn't seem to me like a great model for successful austerity either.

moda0306 wrote: We have NO commodity-based currencies so far as I know that exist today.  If it was really the architect for a robust, productive, free nation, one would think we'd see far, far more of it.

We have seen far, far more of it.  As for now, why?  I'd never think that it would spontaneously appear or be peacefully allowed to flourish while people in power benefit from creating money.

I know of no free nation today.  Every nation with even a pretense of the rule of law (and many without) has net taxes unthinkable to free people 100 years ago.  With a government that spends at least that much in all those nations, why would those powers that be ever consider relinquishing control of the monetary system?

Gold/silver commodity currencies have never failed.  They have been ended by direct and willful action just like the U.S. government ended ours.  They go out with a whimper and things look very little different, at first.

I don't recall any fiat currencies ever being ended by direct and willful action.  They have all failed catastrophically.  And in almost every case the replacement has some physical tie to limit the powers of money creation if not an outright commodity base.

For more see This Time Is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart, Kenneth Rogoff.  It's a great collection of data but not an easy read.

AgAuMoney wrote: Gold/silver commodity currencies have never failed.  They have been ended by direct and willful action just like the U.S. government ended ours.

Perhaps it's semantic, but you wouldn't call that failure? Maybe it's not a totally destructive event like fiat hyperinflation, but one of the frequently-claimed benefits of hard money is that it supposedly restricts the spending and actions of the sovereign state. If the sovereign state can simply suspend or abolish it at will, seems like it fails pretty hard at that goal.

AgAuMoney wrote:

moda0306 wrote: We have NO commodity-based currencies so far as I know that exist today.  If it was really the architect for a robust, productive, free nation, one would think we'd see far, far more of it.

We have seen far, far more of it.  As for now, why?  I'd never think that it would spontaneously appear or be peacefully allowed to flourish while people in power benefit from creating money.

I know of no free nation today.  Every nation with even a pretense of the rule of law (and many without) has net taxes unthinkable to free people 100 years ago.  With a government that spends at least that much in all those nations, why would those powers that be ever consider relinquishing control of the monetary system?

Gold/silver commodity currencies have never failed.  They have been ended by direct and willful action just like the U.S. government ended ours.  They go out with a whimper and things look very little different, at first.

I don't recall any fiat currencies ever being ended by direct and willful action.  They have all failed catastrophically.  And in almost every case the replacement has some physical tie to limit the powers of money creation if not an outright commodity base.

For more see This Time Is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart, Kenneth Rogoff.  It's a great collection of data but not an easy read.

AgAu,

What would you call a free nation of the past?

And yes, commodity based currencies have failed.  If something can end so abruptly, it's a failure.  Nomadic societies were failures as well. Things fail that morally shouldn't. Lets call it what it is. If you want "sound money," just own gold and quit complaining (sorry for the snarkiness).

Maybe the root of the problem lies in the fact that we are looking for stability in money when it is only a conceptual social invention. The fundamental problem is that money is inherently worthless (even gold to a large degree) outside of a stable civil society. So what creates this stability everyone is after?

1. Stable society leads to Stable money
2. Stable money leads to Stable society

Which one is it? Seems like both are correct to some degree and operate in a type of symbiosis. The Austrians seem entirely fixated on the second one it seems as the answer to all of humanity's problems.

Pointedstick wrote:

AgAuMoney wrote: Gold/silver commodity currencies have never failed.  They have been ended by direct and willful action just like the U.S. government ended ours.

Perhaps it's semantic, but you wouldn't call that failure? Maybe it's not a totally destructive event like fiat hyperinflation, but one of the frequently-claimed benefits of hard money is that it supposedly restricts the spending and actions of the sovereign state. If the sovereign state can simply suspend or abolish it at will, seems like it fails pretty hard at that goal.

No I would not.

When you turn off the water is that a failure of the water system?

If that water system was supposed to be a prescribed solution to someone shutting off the water in the first place, then yes it is a failure.

Own commodities yourself.  Don't have government do it for you.

I don't think a fiat currency failing is the same thing as a gold standard ending due to government force. If people have chosen to voluntarily trade in gold and the government uses violence to put a stop to that, that sounds like interference, not an inherent failing of the gold standard.

And if you are going to say that we are the government or that government represents society, I think that is not necessarily true. Just because a majority of people have voted to use violence to confiscate gold or prevent its trade, the following government action only represents those majority voters.

I know that some elections are not even decided by the majority of the population. Sometimes only a small subset actually votes and of that subset the majority opinion prevails.

JonathanH wrote: I don't think a fiat currency failing is the same thing as a gold standard ending due to government force. If people have chosen to voluntarily trade in gold and the government uses violence to put a stop to that, that sounds like interference, not an inherent failing of the gold standard.

The gold standard in the USA was established by the constitution, not the aggregate effect of people voluntarily deciding to trade in gold (unless these collective decisions could be seen as embodied in a government policy, which you just said no to ). Every monetary system we've had has been created by government. And people have seemed perfectly content to use fiat currencies when they've emerged. Overall, it seems to me that people are a lot less dogmatic about their currency than hardcore Austrians believe they are or should be; most just use whatever's expedient and doesn't seem to be inflating too badly.

Pointedstick wrote:

JonathanH wrote: I don't think a fiat currency failing is the same thing as a gold standard ending due to government force. If people have chosen to voluntarily trade in gold and the government uses violence to put a stop to that, that sounds like interference, not an inherent failing of the gold standard.

The gold standard in the USA was established by the constitution, not the aggregate effect of people voluntarily deciding to trade in gold (unless these collective decisions could be seen as embodied in a government policy, which you just said no to ). Every monetary system we've had has been created by government. And people have seemed perfectly content to use fiat currencies when they've emerged. Overall, it seems to me that people are a lot less dogmatic about their currency than hardcore Austrians believe they are or should be; most just use whatever's expedient and doesn't seem to be inflating too badly.

+1,000^2

There have been some very loose forms of money that develop socially, but gold/silver based currencies were easier for states to participate in than salt or beaver pelts, so they essentially codified those monetary systems into law.

One might also say that the role of private property has been quite similar... Loosely natural on a social level but launched to totally different levels through the cooperation of the state.

Gold has been the preferred currency in the past because of the abuses government engaged in with fiat money because it was perceived as a store of value, originating in the market out of barter, and one reason it was codified in the constitution was because of the abuses past governments engaged in with fiat money. The reason why it was placed in the constitution was to be a limitation on the powers granted to government. Your turning this argument around to mean that gold was just like fiat because government dictated it.
Of course even then the government didn't represent everybody. We know how a majority opinion was able to make slavery legal in the constitution. Yuck.


Edited to be more specific on history of gold.

JonathanH wrote: [...] and one reason it was codified in the constitution was because of the abuses past governments engaged in with fiat money. The reason why it was placed in the constitution was to be a limitation on the powers granted to government.

Our point is that this goal has proved to be a miserable failure. When the government ties its own hands, it can simply undo the binds anytime it wishes. This is why those who believe that constitutions will secure their rights find themselves constantly frustrated. A constitution is just a piece of paper listing the restrictions that the government has placed upon itself. Little wonder that it always eventually exceeds those bounds and another branch of itself (the judiciary) declares those excesses to be perfectly reasonable.

A constitution isn't a bad start, and it can be useful for reminding people of which restrictions on government their ancestors found sensible, but without the people to ultimately restrict the government, the government quickly finds itself unrestricted.

Pointedstick wrote:

JonathanH wrote: [...] and one reason it was codified in the constitution was because of the abuses past governments engaged in with fiat money. The reason why it was placed in the constitution was to be a limitation on the powers granted to government.

Our point is that this goal has proved to be a miserable failure. When the government ties its own hands, it can simply undo the binds anytime it wishes. This is why those who believe that constitutions will secure their rights find themselves constantly frustrated. A constitution is just a piece of paper listing the restrictions that the government has placed upon itself. Little wonder that it always eventually exceeds those bounds and another branch of itself (the judiciary) declares those excesses to be perfectly reasonable.

A constitution isn't a bad start, and it can be useful for reminding people of which restrictions on government their ancestors found sensible, but without the people to ultimately restrict the government, the government quickly finds itself unrestricted.

Now that I think of it, where does the constitution that we have to stay on a gold based currency?  It simply states the government has the right to "coin money," does it not?

Commodities have been used as a store of value, but using gold as the driving currency in a fully functioning economy has been a function of government.  It seems to me that since commodity based currency came before fiat currency, we can't simply say that commodities are a result of people protecting themselves from fiat money.  The yellow stuff came first.

Absolutely, people would be wise to protect themselves from monetary collapse, but it's utterly useless to try to build that into the structure of government.  That has truly failed.

And let's not forget that fiat currency has hardly been the ravaging of savers that Austrians would claim. For 20 years before 2001, almost without interruption, our fiat system rewarded savers with REAL return without taking any risk.  Trying to show how much our fiat system has screwed savers by quoting inflation figures isn't valid.  If I can earn 16% in a t-bill and inflation is 10%, I'll take that scenario 24-7-365 as a saver...

moda0306 wrote:Now that I think of it, where does the constitution that we have to stay on a gold based currency?  It simply states the government has the right to "coin money," does it not?

No State shall ... make any Thing but gold and silver Coin a Tender in Payment of Debts ...

(Excerpted from Article 1, Section 10, Clause 1)

rocketdog wrote:

moda0306 wrote:Now that I think of it, where does the constitution that we have to stay on a gold based currency?  It simply states the government has the right to "coin money," does it not?

No State shall ... make any Thing but gold and silver Coin a Tender in Payment of Debts ...

(Excerpted from Article 1, Section 10, Clause 1)

The reason they put that into the Constitution was that the states had previously had that power.

The reason they didn't put into the Constitution that the federal government could not make anything else legal tender is that the federal government was explicitly granted powers by the Constitution, and had no power to do anything not granted.

Unfortunately, decisions as to what the federal government can and can't do are made by... employees of the federal government. Thus, it was quite predictable that its powers would grow and grow until eventually they encompass every imaginable power.

And that is where we are today.

^^
Yep, pretty much.

An interesting historical phenomenon is that in Europe different gold coins, with the same weight in gold, traded at different values in the free market. They traded at different premiums to their metallic content. This flys in the face of the idea that gold was the determinant of the currencies value.

Historically, many of the previous monies that were issued were effectively fiat money that happened to be stamped on to gold. The gold was basically an extra step in the currencies' counterfeit prevention process, not the driver of their value. The value was driven by taxation. Many governments only accepted their coins as payment for taxes. Because of this, the coins traded at a premium to their metallic value.

I really think that seeing money as debt makes the whole thing very clear. Historically money is almost always someone elses liability that you hold as an asset. The dominant forms of money are the liabilities of the institutions with the most power. In our current system the federal government and banks are the most dominant institutions, so FRN's/Treasuries and bank deposits are the most popular forms of money respectively.

A gold coin issued by a sovereign can still be seen as a government liability that you hold as an asset and the metallic content of the coin is best viewed as the collateral for the liability. So, when the gold coins were trading at a premium to their metallic content the value of the liability was higher than the value of the collateral. If the nominal value of the currency collapsed however, you still had the collateral (gold).

Our current system is not really any different except our coinage has very little collateral value. We value government government liabilities because if we don't pay our taxes with them we go to jail. Same as it ever was.

Libertarian666 wrote: The reason they didn't put into the Constitution that the federal government could not make anything else legal tender is that the federal government was explicitly granted powers by the Constitution, and had no power to do anything not granted.

Unfortunately, decisions as to what the federal government can and can't do are made by... employees of the federal government. Thus, it was quite predictable that its powers would grow and grow until eventually they encompass every imaginable power.

And that is where we are today.

The Supreme Court and other courts have talked about a "penumbra" within the Constitution that apparently contains a vast number of provisions that the Founders decided not to write down (maybe they were low on ink or paper or something like that).

If these judges were honest, they would simply say that these extra-Constitutional provisions emanate from the penumbras of their own imaginations.

Judges just making stuff up and saying that it's actually hidden in the terms of the Constitution like some kind of Da Vinci Code that they have cracked is really absurd.  If I was a clerk to a Supreme Court justice and he wanted me to write a decision like that (the clerks write most of the decisions) I would strongly urge the justice to take more responsibility than that for his own ideas.

MediumTex wrote:

Libertarian666 wrote: The reason they didn't put into the Constitution that the federal government could not make anything else legal tender is that the federal government was explicitly granted powers by the Constitution, and had no power to do anything not granted.

Unfortunately, decisions as to what the federal government can and can't do are made by... employees of the federal government. Thus, it was quite predictable that its powers would grow and grow until eventually they encompass every imaginable power.

And that is where we are today.

The Supreme Court and other courts have talked about a "penumbra" within the Constitution that apparently contains a vast number of provisions that the Founders decided not to write down (maybe they were low on ink or paper or something like that).

If these judges were honest, they would simply say that these extra-Constitutional provisions emanate from the penumbras of their own imaginations.

Judges just making stuff up and saying that it's actually hidden in the terms of the Constitution like some kind of Da Vinci Code that they have cracked is really absurd.  If I was a clerk to a Supreme Court justice and he wanted me to write a decision like that (the clerks write most of the decisions) I would strongly urge the justice to take more responsibility than that for his own ideas.

Take a look at the 9th and 10th Amendments to the Bill of Rights. That's where the unenumerated rights and reserved powers (of the states and the people) are mentioned, assuming that's what you are referring to.

As to unenumerated powers of the federal government, there aren't any provisions for those. However, by an amazing coincidence, government judges generally don't have much trouble making up something to justify the government's demands for them.

Pointedstick wrote: Our point is that this goal has proved to be a miserable failure. When the government ties its own hands, it can simply undo the binds anytime it wishes.

So you are saying that because gov't breaks its promises, the gold standard failed?  That's asinine.

And every time the U.S. abandoned the gold/silver standard, promises were made that it would make no difference, that it was required because of speculators or some other "evil" of the day.

And the gold standard was NOT established by the U.S. constitution.  The gold standard did not begin until the late 19th century.

The silver standard was put in place by congress in the late 18th or early 19th, but again, not by the constitution.

melveyr wrote: Historically, many of the previous monies that were issued were effectively fiat money that happened to be stamped on to gold. The gold was basically an extra step in the currencies' counterfeit prevention process, not the driver of their value.

That is 100% ignorant of monetary history.  You are simply making sh*t up.

Most of the names for money in languages of the world were derived from commodities, or the measurements of those commodities!

AgAuMoney wrote:

Pointedstick wrote: Our point is that this goal has proved to be a miserable failure. When the government ties its own hands, it can simply undo the binds anytime it wishes.

So you are saying that because gov't breaks its promises, the gold standard failed?  That's asinine.

What I'm saying is that it failed as a check on government power, not that it failed as a viable monetary system.

I mean, a gold standard is just another a government promise: that one unit of currency equals such-and-such amount of gold--right? If that's the case, I don't see how this system that is entirely backed and created by government promises could in any way restrict said government from breaking the promise whenever it is politically expedient--which is exactly what the world's government repeatedly did, until they all said, "to hell with it!" and dropped the charade entirely.

AgAuMoney wrote:
You are simply making sh*t up.

It certainly does feel like that at times!

AgAuMoney wrote:

melveyr wrote: Historically, many of the previous monies that were issued were effectively fiat money that happened to be stamped on to gold. The gold was basically an extra step in the currencies' counterfeit prevention process, not the driver of their value.

That is 100% ignorant of monetary history.  You are simply making sh*t up.

Most of the names for money in languages of the world were derived from commodities, or the measurements of those commodities!

AgAu,

I know you'd like to imagine folks of the past as some kind of monetary warriors, but melveyr and PS are right, most people just used what was accepted, and a lot of times gold coins stamped with the wrong seal weren't accepted as legal tender or for tax payment.  Gold was the government's way of preventing counterfeiting.

This isn't total BS.  I wish I had the time/energy right now to provide a bunch of links, and I'm sure there are people that have loved commodities when the alternative was a hyperinflating fiat currency, but this is a lot more complex than you're realizing.  Governments have played a huge role in gold being used as a broad currency.