Gyroscopic Investing

In our discussion of MMR in The Bernanke Bust thread (http://gyroscopicinvesting.com/forum/ht ... ic.php?t=7), we started coming up with some potential alternative monetary systems. Seemed sane to break this discussion out into its own thread so the original one can return to discussing MMR and Bernanke. Here was my hypothetical alternative monetary system:

what if rather than one government that issued a government fiat currency that we all just had to live with, we had several private money issuers that each issued their own fiat currencies that competed against one another to be the most stable? These agencies could spend the new money into existence, they could do virtual helicopter drops, or they could have a "customer's dividend" and deposit new money straight into peoples' electronic accounts. These companies would have a strong incentive to be good stewards of the currency since people could always move their money to a different issuer. But in the event that the issuers were reckless, presumably private money insurance agencies would arise to insure against the risk of a money issuer going bankrupt, or their money inflating too much, or a large number of merchants declining to accept it.

It would seem to me that we're actually pretty close to this system. Visa and Mastercard have already created a virtual electronic currency that is only denominated in dollars for convenience. They could easily make a new currency and require that those who accept credit and debit accept the new currency. If this happened, I would be using it for 99% of my transactions from tomorrow onward. And when I accumulate a PayPal balance, I am, for all intents and purposes, in possession of a private fiat currency. Same with iTunes credit, Amazon credit, tickets at amusement parks, etc.

I think one of the big reasons private companies--especially the credit card processors--don't create a new private currency is because the US Dollar is, despite its flaws, still  too good to make it worth it. Occasionally I wonder if something like that wouldn't happen if there was, for whatever reason, some kind of massive monetary disaster, especially the kind that resulted in people making fewer credit and debit transactions.

Let me also hypothesize that to improve the safety of this unstable fully-private fiat currency system, it's likely that competing currency issuers would come to honor each others' currencies in order to facilitate customer switching and gain new ones in the event of one of them collapsing. For example, Visa and Mastercard are companies that will not be around forever, but if for some reason Visa were to implode tomorrow, practically overnight, another company (maybe even Mastercard, or Discover, or American Express, or Maestro, or whatever) would swoop down and honor that currency, thereby gaining a truckload of new customers, many of whom one can presume own firearms and wouldn't be happy about their life savings suddenly becoming worthless.  :)

To facilitate these types of inevitable market adjustments, I think another likely scenario is that companies would eventually commoditize a "standard" for their currencies that they could conform to. For example today I can buy a wireless router from any company, but they all conform to the 802.11a, b, g, and n specs. All the web browsers understand HTTP. These are voluntary specifications. The private currency issuers would probably come up with similar standards. It would be in their interest to.

So you wouldn't necessarily need to worry that your Starbucks Points might become worthless if Starbucks went belly up because you would know that your SPs were compatible with and accepted by the machines that accept iBucks and MasterCash. And even if you still did worry, you could purchase cash insurance that would, in the event your cash somehow did become worthless, replace all your old worthless cash with its equivalent value (prior to the collapse presumably) in a worthwhile cash.

So.. Pointedstick, a few questions to start off...

Why would anyone want to hold their life savings as Starbucks/Walmart points if they were paid for their own services in US Dollars and had to pay their taxes in US dollars and had to pay their debts in US dollars? Are you assuming that the United States is dumb enough to lift legal tender laws (thus making the US dollar irrelevant)?

Secondly, what's to prevent me from forming my own corporation and printing off millions of Starbucks-compatible points and making myself rich (and debasing the private currency market)? Me thinks other corporations would not appreciate that very much. What if Starbucks points become worthless over time from debasement?

Why do you think it's better for corporations to be currency issuers rather than the government? Arguably corporations already control our government. Big corporations are very happy with the political-corporate symbiotic relationship that they currently have (since our system rewards the biggest political contributors and those with wealth). Things would be no different under your plan since the wealthiest would do everything in their power to keep the status quo and keep themselves at the top of the food chain.

Wouldn't it be better for individuals to become currency issuers rather than corporations (i.e. I-owe-you-a-few-hours-of-my-service-bucks in exchange for giving me this bicycle)? This would be a grass-roots bottom-up approach, where the masses have a true democratic say on what happens in their lives and communities.

Or wouldn't it be better for governments to give people official currency to spend into the private sector however they see fit (i.e. a citizens dividend)? I don't understand why you trust corporations more than people.

Thanks for the great questions, Gumby!

Gumby wrote: So.. Pointedstick, a few questions to start off...

Why would anyone want to hold their life savings as Starbucks/Walmart points if they were paid for their own services in US Dollars and had to pay their taxes in US dollars and had to pay their debts in US dollars? Are you assuming that the United States is dumb enough to lift legal tender laws (thus making the US dollar irrelevant)?

First of all, I can see two big reasons why someone might want to hold iMoney/MasterCash/GumbyBucks:

• The U.S. dollar collapsed and people lost complete and total confidence in it (the post-monetary-collapse scenario)
• There was no U.S. dollar or U.S. government (the hypothetical senario)

And heck, why do some people like Bitcoins? Beats me, I haven't got any, but whatever made Bitcoins attractive to them is presumably the thing that would make any other private currency attractive to someone so inclined.

Gumby wrote: Secondly, what's to prevent me from forming my own corporation and printing off millions of Starbucks-compatible points and making myself rich (and debasing the private currency market)? Me thinks other corporations would not appreciate that very much. What if Starbucks points become worthless over time from debasement?

Starbucks-compatible-points != Starbucks points. If you did that, nobody would use them because you hadn't yet established yourself as a trustworthy currency provider. Simply creating a Starbucks Points-compatible currency wouldn't obligate everyone who accepts Starbucks Points to accept your compatible currency, it would just just make it easier if they did eventually decide to.

So your GumbyBucks would only work in the card reader machines if the folks who made, provided, and used the machines approved. This is what today prevents me from making my own credit card company whose cards just instantly work in the swipe machines. I have to either conform to the MasterCard, Visa, Discover etc standards, or I need to invent a new one and then convince the existing networks and merchants to accept them. That's no mean feat, and it would take a lot of trust before merchants trusted me enough to let me provide them with customers' payments.  Once you reached this level of trust, your currency would basically be an easy drop-in.

And if peoples' Starbucks Points or GumbyBucks started becoming worthless, they would move their holdings to iMoney or MasterCash or Pointedsticks or Medium Texes, or some other currency. If it did become worthless immediately for some reason, your currency insurance would kick in. And if your currency insurance failed too, well, then you'd be in the same situation you'd be if you held a worthless sovereign currency, like Weimar Republic marks or Turkish lira.

Finally, there'd be nothing preventing anyone from introducing a fully-backed non-fiat currency that was incompatible with all the currency standards. Say, coins made of precious metals, with electronic versions 100% backed by the metal. Anyone would be free to accept these if they wanted, and people would probably flock to them if any currency provider went under or started to debase its currency. Just like how we accumulate gold coins for our PPs! People would have some expectation that they'd be able to exchange their inherently valuable hard currency for whatever fiat electronic currency was in vogue. It would be like self-insuring.

Gumby wrote: Why do you think it's better for corporations to be currency issuers rather than the government? Arguably corporations already control our government. Big corporations are very happy with the political-corporate symbiotic relationship that they currently have (since our system rewards the biggest political contributors and those with wealth). Things would be no different under your plan since the wealthiest would do everything in their power to keep the status quo and keep themselves at the top of the food chain.

For the same reason why I think government is always an inferior form of social organization: it it based on institutionalized violence against some to all of the private citizens to benefit the political rulers or certain favored citizens, rather than voluntary mutually-beneficial exchange between trading partners. In the government-less scenario, there is no government to become corrupted by the corporations. I'm absolutely in agreement with you on the symbiotic/parasitic relationship between government and corporations, but this to me is just further evidence that government is incompatible with the values of a free society.

Gumby wrote: Wouldn't it be better for individuals to become currency issuers rather than corporations (i.e. I-owe-you-a-few-hours-of-my-service-bucks in exchange for giving me this bicycle)? This would be a grass-roots bottom-up approach, where the masses have a true democratic say on what happens in their lives and communities.

That's a fascinating idea. I would love to see it developed farther.

Gumby wrote: Or wouldn't it be better for governments to give people official currency to spend into the private sector however they see fit (i.e. a citizens dividend)? I don't understand why you trust corporations more than people.

I wouldn't say that I trust corporations more than people, it's more like that I'm far more fearful of people operating under a government than people operating under a corporation or individually. No corporation I've dealt with has ever threatened me with violence, or taken my money or property outside of the bounds of a voluntary contract I've signed. Every government I've ever lived under has done both of these things, and to be honest, I don't really like it.  I've never gotten a reassuring answer to the question of how a violent coercive property expropriator is supposed to go about satisfactorily guaranteeing property and freedom.

MediumTex once said, "The basic problem with the government is that as they tell me all of the things they are protecting me from, they cannot tell me who is protecting me from the government.  If I have no way of protecting myself from the arbitrary exercise of the government's monopoly on the use of force in society, how can I really say that I am free?"

It's not like I love corporations or anything, but I do hate violence, coercion, and threats.

I still don't find many corporations very trustworthy. More often than not they are trying to trick people into handing over their money in exchange for sugar water, chemicals, potions, etc. So, having corporations control the money supply seems like a bad idea. And in many ways, corporations have already influenced our culture in negative ways. Turning them into currency issuers would only serve to further their power in that regard.

Pointedstick wrote:

Gumby wrote: Wouldn't it be better for individuals to become currency issuers rather than corporations (i.e. I-owe-you-a-few-hours-of-my-service-bucks in exchange for giving me this bicycle)? This would be a grass-roots bottom-up approach, where the masses have a true democratic say on what happens in their lives and communities.

That's a fascinating idea. I would love to see it developed farther.

See: http://www.altruists.org/
...and: http://www.altruists.org/ideas/
...and: http://www.altruists.org/ideas/economic ... ey_system/

It's basically a monetary system for hippie communes — for people who want to drop out of society. Fascinating idea though. But, it's probably never going to happen on a wide scale. But, hey, you never know.

Another idea is Hour Exchange... where people barter and exchange time blocks of services with each other.

http://thehourexchange.org/

And another fascinating idea is Social Democracy. Martin Luther King was a supporter of that idea:

http://en.wikipedia.org/wiki/Social_democracy

But, again... ain't going to happen. There are tons of post-capitalist monetary systems out there. Pick your poison.

http://en.wikipedia.org/wiki/Post-capitalism

...but they all have flaws. There is no perfect ideal monetary system, because human nature gets in the way. We are imperfect beings with imperfect desires. These systems all get corrupted sooner or later.

Well sure, it's unlikely any of these new systems will come to pass. If I had to predict, I'd bet on national governments, mixed economies,  creeping socialism and nanny statism, etc. But we're talking about hypothetical alternatives. I think it's important to talk about how a new system could come to pass, but this is primarily an academic discussion.

About altruism, I feel like altruism requires personal contact. An altruistic society actually works quite well up to a village of about 500 people, and I have lived in such a village that functioned socially well enough, within the context of subsistence agriculture and a very low level of technology, that is. Unfortunately, this model doesn't scale very well, and usually what happens is that once a village gets so large that people start to not know everyone else, folks move away and start new villages, which interact with one another not through altruism, but through trade or war, depending on their proclivities and institutions.

I think altruistic communities can exist within a larger society, but they will always be small. I don't think a nation of 300 million people could be organized in this manner, and not even if you somehow split it up into 100 million 300-person villages. Apart from the fact that it wouldn't be a nation anymore, people will naturally start forming cities to maximize their economic output, and anonymous and impersonal social relations will dominate. Trade or massive forcible interventions are the only ways to hold together such a society not bound by ties of kinship or friendship.

In other words, I believe that large societies not able or permitted to interact through trade will instead interact through force, usually with a strongman on top.

So, aren't really really just talking about frequent flyer miles? In a way, they already are a fiat cross-corporate compatible currency that can be used to buy things. I've got to say, I'd much rather have my money in dollars or risk-free Treasuries — particularly if I have to pay taxes in dollars. Are there no taxes in your hypothetical world? If so, I'm going to need to keep savings in dollars handy to pay my taxes. The last thing I need is for my Starbucks-compatible points to evaporate and get thrown in jail for not paying my taxes. It's not like I enjoy paying taxes, but I still understand the rules of the game. I'd much rather have real money (Treasuries) and gold than private credit.

Furthermore, I think it's pretty naive to think that any unregulated monetary system wouldn't be abused by those who profit from it the most. What happens when someone abuses Starbucks points or MasterCash? Does the government get involved? Or do Starbucks baristas come in a Starbucks-mobile and throw those people into a private Starbucks prison?

You guys have some interesting thoughts going.  I think for me I'd be interested in utilizing a currency that somehow had a fixed or very limited supply.  I have a hard time imagining a free market fiat currency being successful.  There is too much room for manipulation.  How do you guarantee the credits will hold their value?

hoost wrote: You guys have some interesting thoughts going.  I think for me I'd be interested in utilizing a currency that somehow had a fixed or very limited supply.  I have a hard time imagining a free market fiat currency being successful.  There is too much room for manipulation.  How do you guarantee the credits will hold their value?

You don't, same as any fiat currency. But the issuing entities have an incentive to keep their currencies stable to matching the supply with the demand, or else people will put their money elsewhere. It's actually not that different from the sovereign fiat currency, where people will hold foreign currencies or hard assets if the currency ever becomes worthless. Of course, the sovereigns have the advantage of being able to extort taxes in their own currency, which props up some level of demand.

A hard currency could work too, but only if there's enough of it constantly being created/minted/etc to keep up with interest and economic growth. The problem is that it's hard to very quickly mine and mint a ton of gold coins in response to a sudden surge in the demand for money. I mean, it's certainly possible, as it is also possible for the issuer to have billions of coins in a vault somewhere to prepare for this eventuality.

Gumby wrote: So, aren't really really just talking about frequent flyer miles? In a way, they already are a fiat cross-corporate compatible currency that can be used to buy things. I've got to say, I'd much rather have my money in dollars or risk-free Treasuries — particularly if I have to pay taxes in dollars. Are there no taxes in your hypothetical world? If so, I'm going to need to keep savings in dollars handy to pay my taxes. The last thing I need is for my Starbucks-compatible points to evaporate and get thrown in jail for not paying my taxes. It's not like I enjoy paying taxes, but I still understand the rules of the game. I'd much rather have real money (Treasuries) and gold than private credit.

Furthermore, I think it's pretty naive to think that any unregulated monetary system wouldn't be abused by those who profit from it the most. What happens when someone abuses Starbucks points or MasterCash? Does the government get involved? Or do Starbucks baristas come in a Starbucks-mobile and throw those people into a private Starbucks prison?

Yes, it actually sounds a lot like frequent flier miles, as a matter of fact. To be honest, I'd rather keep my savings in Treasuries too... until Treasuries become worthless that is, either due to hyperinflation, or the republicans allowing a default, or some other unseen monetary catastrophe. So I hedge my bets by holding some gold and stocks, and keep them with different brokerages... gee, this is starting to sound familiar 

I see the multiple-currency-issuer society similarly; each is a hedge against failure by any other one. But hey, we're all fallible humans here, so when it comes to abuse of currency powers, sure, anything's possible. For that matter, there's nothing really preventing the government from abusing their currency, and if we look all over the world, we see governments doing just that. The advantage with this private credit system is that if the currency issuer that issues the majority of your currency starts doing shenanigans, you can take it out and go to a more trustworthy one, same as what we already do today whenever any corporation we purchase goods and services from begins to irritate us: we buy from someone else. If my supermarket raises its prices too much, I shop elsewhere. If I want higher quality of food, I balance out the two desires, or maybe I can even start my own grocery store. It's open to competition.

But let's imagine a nightmare scenario that after years of free competition, one currency issuer corporation became victorious and discredited, destroyed, or absorbed all its rivals, and then rigged the system such that anyone who wanted to use its currency had to use special devices that would never accept any other one, thereby becoming a semi-permanent monopoly. Then they debased the currency a little bit each year (sometimes a lot), while demanding more and more of it back every year for the privilege of using it in the first place. This would be terrible, right? Well, that's exactly the situation we find ourselves in today, but the corporation is called the U.S. government.

I don't want to seem insensitive to the problems of a private currency issuer abusing its powers, but let's make sure we're acknowledging that government currency issuers can and do engage in the same shenanigans, in addition to demanding unnecessarily high taxes, imposing various forms of capital controls, and distorting the market that produces the wealth it requires to survive.

The U.S. dollar is actually a pretty bad store of value, it's just that all the other ones are generally even worse. Isn't it time for a currency you can be happy to hold, rather than relieved not to be stuck with a worse one?

Pointedstick wrote:But let's imagine a nightmare scenario that after years of free competition, one currency issuer corporation became victorious and discredited, destroyed, or absorbed all its rivals, and then rigged the system such that anyone who wanted to use its currency had to use special devices that would never accept any other one, thereby becoming a semi-permanent monopoly. Then they debased the currency a little bit each year (sometimes a lot), while demanding more and more of it back every year for the privilege of using it in the first place. This would be terrible, right? Well, that's exactly the situation we find ourselves in today, but the corporation is called the U.S. government.

Please. Honestly, who cares? You make it sound like 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. 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.

Pointedstick wrote:I don't want to seem insensitive to the problems of a private currency issuer abusing its powers, but let's make sure we're acknowledging that government currency issuers can and do engage in the same shenanigans, in addition to demanding unnecessarily high taxes, imposing various forms of capital controls, and distorting the market that produces the wealth it requires to survive.

Again, you make it sound like we live in a country where all our wealth and standard of living has been taken from us. That's not what's happened.

Pointedstick wrote:The U.S. dollar is actually a pretty bad store of value, it's just that all the other ones are generally even worse. Isn't it time for a currency you can be happy to hold, rather than relieved not to be stuck with a worse one?

I'm not convinced. People like holding dollars because they are accepted everywhere and it has virtually no risk. Furthermore, having a strong currency is not a good thing in the global marketplace. It makes your goods more expensive to others. Countries prefer to have a weak currency, as it makes their goods more affordable to other countries.

Gumby wrote:

Pointedstick wrote:But let's imagine a nightmare scenario that after years of free competition, one currency issuer corporation became victorious and discredited, destroyed, or absorbed all its rivals, and then rigged the system such that anyone who wanted to use its currency had to use special devices that would never accept any other one, thereby becoming a semi-permanent monopoly. Then they debased the currency a little bit each year (sometimes a lot), while demanding more and more of it back every year for the privilege of using it in the first place. This would be terrible, right? Well, that's exactly the situation we find ourselves in today, but the corporation is called the U.S. government.

Please. Honestly, who cares? You make it sound like 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. 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.

I actually agree completely. But you just made my point! If a private currency issuer abused its position and did just what the U.S. government has done, apparently it's not a problem at all. Furthermore, the private currency issuer would allow the currency to lose value without taxation or coercion. Now I pretty much agree that this standard libertarian argument of "the Fed has stolen 95% of our money through inflation!" is pretty much bunk because interest rates and wages have (roughly, usually) kept pace. But I was just answering your question ("What if Starbucks points become worthless over time from debasement?"). "Worthless" is a rather strong and imprecise word, and apparently we agree that a "worthless" currency is useful for foreign trade and doesn't matter to the people if their incomes and savings have risen in value as fast as their cash has fallen. So yeah, even if a private currency issuer debased its currency, even to the point of it losing 95% of its value over the course of a few generations, it really wouldn't be a big deal. But for the people who did think it was a big deal, there would be other currencies for them to consider moving to.

Touché.

I guess what I meant is...what happens to my frequent flyer miles or Starbucks points if those corporations shut down. Typically those miles become worthless overnight.

Gumby wrote: Touché.

I guess what I meant is...what happens to my frequent flyer miles or Starbucks points if those corporations shut down. Typically those miles become worthless overnight.

Today they do. In this hypothetical society, you could purchase various levels of currency insurance to insure whatever quantity of money you chose against just such an event. Starbucks goes bankrupt and your insurer transparently converts your Starbucks Points into whatever other currency you previously chose, using the last exchange rate before your Starbucks Points started their decline. Your insurance rates would fluctuate with the soundness of the currency issuer(s) you patronized, thus providing another signal about possible choppy waters ahead.

Pointedstick,

Have you considered the possibility that our current debt-based monetary system was actually designed by private bankers (who benefit from both public and private debt issuance)? Presidents have tried to issue debt-free money in the past (Lincoln even succeeded for awhile) but bankers have swayed politicians towards inacting debt-based monetary system legislation. In a debt-based monetary system, the banks become destination-zero for all interest payments — both public and private. Bankers become more and more powerful over time (and "too big to fail").

I highly recommend watching Bill Still's Secret of Oz when you have a chance. (Bill Still is a Libertarian, btw). I think you'd find it really interesting (despite that it has a few flaws).

http://youtu.be/swkq2E8mswI

The documentary shows how private bankers manipulated gold and our monetary system — going back to 1694 (with the Bank of England) for their own profit and to maintain a grip on power. The documentary ends by showing ways that state governments can achieve more independence from the tentacles of the debt-based monetary system by legally issuing debt-free loans (i.e. North Dakota State Bank, and other ideas).

I only point this out because you seem to think that the private sector has better intentions than the government. But, the reality is that the wealthiest individuals of the private sector have corrupted government to their own end. Putting currency creation in the hands of the wealthiest individuals in the private sector — and insuring that it remains largely unregulated — is a recipe for disaster.

Gumby wrote: Pointedstick,

Have you considered the possibility that our current debt-based monetary system was actually designed by private bankers (who benefit from both public and private debt issuance)? Presidents have tried to issue debt-free money in the past (Lincoln even succeeded for awhile) but bankers have swayed politicians towards inacting debt-based monetary system legislation. In a debt-based monetary system, the banks become destination-zero for all interest payments — both public and private. Bankers become more and more powerful over time (and "too big to fail").

Not only have I considered it, I firmly believe it. I watched that movie a few weeks ago when someone--probably you--posted it in another thread, and it did a lot to implode the idea that a hard-backed currency in a debt-based monetary system made any sense. Thank you very much for it; very enlightening indeed.

Gumby wrote: I only point this out because you seem to think that the private sector has better intentions than the government. But, the reality is that the wealthiest individuals of the private sector have corrupted government to their own end. Putting currency creation in the hands of the wealthiest individuals in the private sector — and insuring that it remains largely unregulated — is a recipe for disaster.

It's not that I think the private sector has better intentions than the government, it's that the institutions one lives under colors one's behavior. I believe that living your life and deriving your livelihood from an institution that exists to commit acts of violence against a pool of people it claims that violence is helping systematically warps one's perception of the world and gives one too much power to do evil. Little wonder that bankers exploit the mechanisms of government for their own gain. Without government, how would bankers pull these levers of violence? You even seem to acknowledge this yourself; let's go back to your assertions and highlight just how much of what bankers do, they have to do through government:

Gumby wrote: Have you considered the possibility that our current debt-based monetary system was actually designed by private bankers (who benefit from both public and private debt issuance)? Presidents have tried to issue debt-free money in the past (Lincoln even succeeded for awhile) but bankers have swayed politicians towards inacting debt-based monetary system legislation. In a debt-based monetary system, the banks become destination-zero for all interest payments — both public and private. Bankers become more and more powerful over time (and "too big to fail").

I highly recommend watching Bill Still's Secret of Oz when you have a chance. (Bill Still is a Libertarian, btw). I think you'd find it really interesting (despite that it has a few minor flaws).

http://youtu.be/swkq2E8mswI

The documentary shows how private bankers manipulated gold and our monetary system — going back to 1694 (with the Bank of England) for their own profit and to maintain a grip on power. The documentary ends by showing ways that state governments can achieve more independence from the tentacles of the debt-based monetary system.

I only point this out because you seem to think that the private sector has better intentions than the government. But, the reality is that the wealthiest individuals of the private sector have corrupted government to their own end. Putting currency creation in the hands of the wealthiest individuals in the private sector — and insuring that it remains largely unregulated — is a recipe for disaster.

Look at how the banks have manipulated government! Without a government, how would the banks have done accomplished their aims? I don't disagree with you that these nefarious things have happened, I just see it as government having corrupted banking, not the reverse.

Pointedstick wrote:It's not that I think the private sector has better intentions than the government, it's that the institutions one lives under colors one's behavior. I believe that living your life and deriving your livelihood from an institution that exists to commit acts of violence against a pool of people it claims that violence is helping systematically warps one's perception of the world and gives one too much power to do evil.

Local and State governments aren't exactly committing massive acts of violence. Why not hand over money creation to a local governing body, such as state governments?

Pointedstick wrote:Little wonder that bankers exploit the mechanisms of government for their own gain. Without government, how would bankers pull these levers of violence?

Believe me, they would find another way — particularly if no one was regulating them. My guess is they would start with frequent flyer miles.

Pointedstick wrote:Look at how the banks have manipulated government! Without a government, how would the banks have done accomplished their aims? I don't disagree with you that these nefarious things have happened, I just see it as government having corrupted banking, not the reverse.

Poor innocent bankers, corrupted by the government.

Please.

I think this is a more accurate picture..

[align=center][/align]

Notice the word written on the sword in the banker's hands. If the banker didn't have that sword, they would simply find another weapon to complete their goals. Handing currency creation over to those guys would be a disaster. They would just manipulate their own currencies to attain more wealth.

Gumby wrote:

Pointedstick wrote:It's not that I think the private sector has better intentions than the government, it's that the institutions one lives under colors one's behavior. I believe that living your life and deriving your livelihood from an institution that exists to commit acts of violence against a pool of people it claims that violence is helping systematically warps one's perception of the world and gives one too much power to do evil.

Local and State governments aren't exactly committing massive acts of violence. Why not hand over money creation to a local governing body, such as a state?

Sure they are. In fact, a great deal of the external restrictions on my life come from my horrible state and busybody city government. I don't use "government" as a synonym for "U.S. federal government", I use it to mean "all levels and types of government here and everywhere, now and forever".

Besides, if you handed money creation over to a state or even a city, you're getting dangerously close to corporate money issuers in terms of solvency. Cities go bankrupt all the time, and states aren't nearly as durable as nation states. If you're going to break the central government's control over money and hand it to the states, why not let the the people try their hand at it too?

Gumby wrote:

Pointedstick wrote:Little wonder that bankers exploit the mechanisms of government for their own gain. Without government, how would bankers pull these levers of violence?

Believe me, they would find another way — particularly if no one was regulating them. My guess is they would start with frequent flyer miles.

Pointedstick wrote:Look at how the banks have manipulated government! Without a government, how would the banks have done accomplished their aims? I don't disagree with you that these nefarious things have happened, I just see it as government having corrupted banking, not the reverse.

Poor innocent bankers, corrupted by the government.

Please.

I think the government corrupts the private sector, and you think parts of the private sector corrupt the government. I used to believe that this was a fundamental disagreement, but we're actually not disagreeing at all! I agree with you that bankers corrupt the government, and apparently you agree with me (I think) that the banker-corrupted government then corrupts the rest of society.

Perhaps the point of contention is that I happen to think that without a government, bankers would still try to pull their shenanigans, but they would have a more difficult time without the government to manipulate and hide behind. After all, the government is the most powerful force in society. The greedy and power-hungry always salivate at the thought of controlling it for their own ends. Always have, always will. You can never get rid of greed, or the hunger for power; because these desires are in all people to a certain extent. But you can get rid of an institution that systematically empowers and protects the people who most embody these traits.

It sounds like we agree on a lot of things. But, I still don't see how anyone can be comfortable with keeping their savings in frequent flyer miles. And I don't see people lining up to convert their savings into frequent flyer miles (and you can use frequent flyer miles to buy practically anything). Personally, if the government's money was so worthless, I'd rather just hold gold.

I think I'd rather hold gold, too.  Or maybe silver.  I think if there really was a free market for currencies, we would wind up in a situation where the currencies that held up were the ones that were backed by gold or silver and were redeemable at par on demand.  If one ounce of gold was equivalent to 2000 frequent flier miles, and I could exchange my 2000 frequent flier miles at any time for the full ounce of gold, I wouldn't mind using frequent flier miles for their convenience.

You still run into the problem where people will try to utilize the government's monopoly on force to twist the system into their favor.  I'm not sure how you avoid that.  The real differentiator (is that a word?) is that behind the sword of legislation are guns with bullets in them and people willing to use them on behalf of the social construct we call government.  The question isn't really whether or not you want to obey a given law; just because you obey it doesn't mean you want to.  It just means that you feel disobeying it isn't worth your life.

One thing that drives my thinking about supply/demand for money is its role as a few of the different traits of "good" money, and how people see them differently.

First off, the way I view a medium of exchange (the thing I use to buy groceries) is much different than what I view as a "store of value" (the thing I hold on to for the long term), espcially in a fiat money arrangement.

I really don't care all that much if my medium of exchange drops in value 2-4% per year.  I hold enough cash in my account and the rest is invested with expected inflation in mind.  Further, the dollar is "different" than gold in the sense that it's a fiat currency that the gov't has shown they tend to like to control in certain ways, including the fact that interest paid by the treasury, and even banks, to a large degree, is seen as risk-free to an extent it never was before the FDIC was created and the gold-standard was 100% broken.... so even if I'm trying to save in a given currency, it's not done in the same vein as gold... I get interest, sometimes quite lucrative interest, for taking almost zero risk.  This means I'll be much more likely to hold something that, in and of itself, may be a poor store of value (losing 2-4% to inflation every year), because with almost zero risk I can get paid interest to bring it back up to giving me zero real return.

So I don't mean to steer this back into talking about MMR, but I think demand for another currency as a store of value will have a lot more to do with whether someone can get a decent enough interest rate to keep up with inflation while taking almost zero risk.  As far as the currency itself losing value, well that is much more impactful in terms of its store of value role, which has to hold an asterisk next to it (IMO) for the existence of artificially low-risk ROI in terms of treasury & FDIC-insured ROI.

That being the case, if we ARE in a period of negative real rates, I'd see much more demand for savings instruments that aren't subject to the risk of inflation much moreso than actually demanding a different medium of exchange.  In spite of taxes, we've never had so many opportunities to save in other currencies, bonds, hard assets via ETF, etc.  If there was ever a time to demand currencies that maintain value better, it was probably back when a rancher couldn't very well save in Japanese bonds in his IRA via a click of the mouse.  For me, personally, wide-spread standard use is far more a consideration in what currency I would like to use than whether it's losing value every year... that's what my savings is for.  I don't need my medium of exchange to be perfect in terms of holding value itself... especially if I'm getting paid plenty of interest without taking any risk.  I am much more concerned that my stores of value, my savings, are diversified outside the dollar, and honestly, with computers, there's never really been a better time to diversify in that way, IMO.

Is there any way that I can transfer my frequent flyer miles into gold??

Reub wrote: Is there any way that I can transfer my frequent flyer miles to gold??

According to this article you can redeem some of them for cash, with which you can buy gold.  The exchange rate isn't very good though.  According to the article and my google spreadsheet's quoted gold price ($1616.70), you would need 389,815 American Airlines miles for an ounce of gold.  It might be better just to take the flight. 

Moda,

I can see a lot of your points.  The thing that gets me though is that it seems to me that the inflation we experience in US dollars is a transfer of wealth facilitated by the government.  At the end of the day, if the government is going to be in the business of transferring wealth, I'd rather they do it honestly with guns and taxation.    It seems like the ability to inflate removes a lot of accountability from politicians, because people don't see the connection between the free things they get and the loss of purchasing power of their money.  They blame businesses for rising prices instead of government.  The same thing goes for the reduction of our freedom over time; it is all facilitated by the government's ability to inflate.

hoost,

I see inflation as the unintended affect of a government-issued fiat currency... I tend to think that fiat currency makes our whole system function much, much more smoothly, efficiently, and with more stability.  It neither destroys nor creates wealth... it simply is a side-effect of a social tool (fiat money) that tends to view inflation as an easier evil to control than deflation... aka, it's easy raise rates to slow velocity, but they can't be dropped below 0% (for now to get velocity moving again.

Freeways tend to be a form of coercion as well ("If you want to go here, you have to take this route, and go this speed, and follow these rules!").  Now, I realize that's coercion, but I only support it because it offers efficiency/effectiveness I don't think I could get via the private sector.  Same goes for money (IMO).  The point isn't the confiscation, but that the confiscation is small in importance when compared to the efficiency & stability a fiat currency offers us.  I really would rather not have all the coercion with none of the public benefits.  That's throwing out the baby with none of the bathwater!  Of course, if you don't SEE a public benefit to fiat money, that's one thing... but given the premise (for a second) that fiat money does provide economic value, then I think it's fair to say that to do away with that value but still steal from people anyway is just a bad idea.

I would say, though, that if people (as a whole) are seeing prices rise while their paychecks stay stagnant, as well as the rich getting wealthier while they stay at the same level, whether the fault of government or private sector forces, they should take a look at the system as a whole and ask themselves why it's happening.  Since "government" is not a person, it can't real hold wealth in a traditional sense.  It can facilitate the creation of wealth (public roads, low interest rates), or destroy wealth (war), or disincentivise the creation of wealth (bad regulation or confiscation on SOME levels, artificially high interest rates), or it can redistribute wealth (welfare, SS, medicare, inflation, etc).  So when inflation hits above expectations, this results in a redistribution of wealth from creditors to debtors, as well as similar transfers in long-term contracts.  It might have an affect on whether the private sector creates real wealth, or is disincentivised from doing so, probably depending on the economic conditions and demand for money.  Put inflation probably shouldn't be described as the government "destroying savings," as that gives a wrong impression, IMO.  It's simply a transfer of wealth that may or may not result in the private sector being more predisposed to engage in economic activity.

moda0306 wrote: Freeways tend to be a form of coercion as well ("If you want to go here, you have to take this route, and go this speed, and follow these rules!").

Not sure I follow. I have the freedom to walk, ride a horse, take a train, fly in a commercial or private plane, etc. If the fact that a freeway follows a specific route is coercion, then by that logic, wouldn't it coercion if my local supermarket only stocked a single type of peanut butter?

What's coercive is not the freeway, but the money that was stolen to build it and any land that was confiscated to make room for it.