"Competing Currencies"

[galtgulch]

I posted this here as there is as yet no Economics option. Here is the link to the site where I found it:

http://zenandtheart.com/2009/06/25/competing-currencies/

<<<"Zen and the Art of /.*/

“In and of itself, nothing really matters. What matters is that nothing is ever ‘in and of itself.’” –Chuck Klosterman

Competing Currencies

by Mike Phenow

In this statement, delivered by Ron Paul on February 13, 2008 to the United States House of Representatives, Dr. Paul proposes three actions the government should take to allow individuals to use private competing currencies:

eliminate legal tender laws,

eliminate laws that prohibit the operation of private mints, and

eliminate capital gains and sales taxes on gold and silver coins.

Faithfully executing these three actions would have wonderful, seemingly miraculous effects. So many of the myriad other problems that we constantly worry about, argue over, and fight to rectify would steadily melt away.

The vast majority of the economic hardship that people face–while they may have plenty of readily-observable proximate causes–are ultimately a result of the forced use of the unconstitutional, inflationary, fiat paper Federal Reserve Notes.

It was recently estimated that each household in the United State is on the hook for a share of US government debt and obligations amounting to $546,668–that’s more than half a million dollars for those of us not accustomed to balancing our finances using numbers that large.

Now, there is a strange logical disconnect here. Do you have that kind of money? Did you have that kind of money, but had it taken away in taxes to pay your share? Of course not. Then how did the government get it? The government does not operate any profitable business ventures that generate that kind of revenue for them.

But they got the money somehow. When they spent six hundred billion dollars on “defense,” the contractors that built the tanks and the jets got checks that they cashed and used to buy their supplies and pay their employees. The military personnel got checks that they cashed to pay their mortgages and utility bills. When they spent six hundred billion on “social security” benefits or seven hundred billion on Medicare and Medicaid benefits, doctors and retired folks got checks that didn’t bounce (yet).

This should strike us as terribly strange. They acquire some of the money by borrowing from foreign governments and they acquire some if it by taxing us, but that is not nearly enough to cover the checks they write. Where do they get the rest of it? They print it!.

Now, why is this so bad? Because, due to their forced monopoly in the production of money, they are robbing you blind, you don’t even know it, and there’s nothing you can do about it.

Prices are arrived at by an intricate interplay of the demands of consumers and the supplies of producers. We are deeply conditioned to think of all prices as denominated in Federal Reserve Notes, but there’s nothing magic about denominating prices this way. You can denominate the price of shoes in bushels of corn or the price of gasoline in ounces of paper clips. If the three sets of laws listed above were not and had never been around, this would be rather familiar to us.

Ultimately, there really only exists this sort of direct exchange–this thing of value for that thing of value–quid pro quo. Of couse, as economist Walter Block describes, it becomes rather inconvenient, if you are a pickle-owning-chicken-wanter, to find a nearby chicken-owning-pickle-wanter, a phenomena known as the double coincidence of wants. Being a savvy pickle-owning-chicken-wanter, you might cleverly trade your bushel of pickles for a pound of salt, knowing that, whether or not the nearby chicken-owner actually has enough salt for his current needs, everybody is willing to acquire some extra salt, knowing that it is valuable, stores well, and others will be willing to trade for it–it is highly marketable. Thus, you can now trade your pound of salt for the coveted chickens, and the former chicken owner can now use that pound of salt to acquire the real object of his desire, a new sickle.

This tendency for people to acquire something that is not itself the object of their desire, but instead is a more marketable commodity useful for more easily acquiring the actual object of their desire–is known as indirect exchange. Historically, a wide range of highly-marketable products have been used as this medium of exchange, or “money:” salt, belts, shells, alcohol, cigarettes, cannabis, candy, barley, copper, silver, gold, etc.

Of course, some of these things clearly work better than others. If we started using dandelions as money, I would be a considerably more wealthy person for a short while, but soon we would see prices escalate very quickly as the supply of dandelions would grow rapidly when people commenced to grow their own money.

For, it is crucially important to understand, the money used is a sort of accounting of the currently extant set of goods and services of value. If the gas station down the block is charging five dandelions for a gallon of gas today, people will be delighted to know that they can take a cheap trip to the cabin this weekend. As the dandelions start to flood in, the gas station owner soon realizes that dandelions are becoming “a dime a dozen.” When he goes to the bakery next door to buy his breakfast, he begins to realize that his donut is costing him more and more dandelions every day and that he can no longer afford to live on the income generated by his 5-dandelion-per-gallon prices and he begins to raise his own rates. Suddenly, I realize that, while I initially thought I was quite wealthy with my yard full of dandelions, as prices continue to rise, I can’t harvest enough dandelions on my little fifth of an acre to maintain my standard of living.

A system like this quickly spirals into madness, but happily, in a free market absent the laws mentioned above, this never happens because people quickly realize that dandelions are worthless and instead start using corn, or sewing needles, or something else of more stable value. Thus, the community again returns to a rational system of exchange between its members and some quantity of one thing of real value is traded for the appropriate quantity of another thing of real value.

Historically, for these and other reasons, people have always tended to converge on the use of precious metals as the most sane medium of exchange. In such a society, where precious metals–whose quantity is relatively stable–are used as a medium of exchange, prices for goods and services tend to rise if they are in short supply or high demand and prices for goods and services tend to fall if they are in abundant supply or low demand. One of the most fantastic side-effects of such a system is that, as the society tends to improve its technologies, become more efficient, and generally raise its productivity, the supply of goods and services goes up. Given a relatively constant supply of the medium of exchange, the prices of things steadily declines.

This is a phenomena that is almost entirely foreign to the ears of contemporary US citizens who have lived their entire lives in an economy whose medium of exchange is growing almost exponentially, but we do have limited experience with it in particular industries like electronics, for example, whose breakneck pace of technological improvement, impressive manufacturing efficiency gains, heated competition, and relatively low levels of government regulation has allowed them to outrun the high and accelerating rate of inflation.

In an economy where the prices are staying stable or being driven down, people’s savings retain their value and the poor, who have been only treading water, steadily find their way out of poverty, not by building a boat while treading water, but by having the tide roll out, allowing them to simply walk to shore, as the cost of living declines to a level that they can afford with what little money they do have.

In an economy unburdened by the three laws mentioned above, we could then turn our attention to the other problems in government, right? Even better–the problems would simply melt away. The government would like to spend a trillion dollars to send tens of thousands of troops to some corner of the globe to slaughter hundreds of thousands of people that don’t look or think like us. Ok, send them your three hundred ounces of gold so they can fund this field trip. No? You don’t think you’ll donate to that cause? Or send them your five hundred ounces of silver so they can construct a surveillance apparatus to spy on you and squelch any dissenting opinions. No? Not donating to that cause either?

By allowing the government to have a coercive monopoly on the medium exchange we are allowing them, on the one hand, to create money out of thin air to fund their extravagant, ineffective, unconscionable programs, and, on the other hand, allowing them to fund these activities through the crushing and continually-rising cost of living that we are all slaving under. You don’t write them the check, but they get the money out of you by counterfeiting money and diluting the money supply. They are the only ones allowed to grow dandelions.

If we ever want to be free people again, we must insist that legal tender laws, laws against private mints, and laws establishing capital gains and sales taxes on precious metals are eliminated once and for all. It will be an inexpressible joy to watch the tyranny melt away, a delight to see the common good bloom and become as common as the grass, and an unmeasurable relief to experience domestic tranquility set in once again.

Tags: dollar, economics, gold, government, legislation, liberty, money, Ron Paul, silver

This entry was posted on Thursday, June 25th, 2009 at 11:52 am and is filed under Ron Paul, economics, government, legislation, liberty. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.">>>

www.campaignforliberty.com 4 July Noon 165,425

[Steve Gagne]

All commodity monies, both hard and fiat, are a form of faking reality.

In a non-monied economy, the mode of trade is barter. Trading is done, value for value, to mutual benefit. Beyond a certain optimum amount, the received goods have a declining marginal utility to the receiver, thus trading stops; limitless agregation is curtailed. There is a mutuality of market forces at work here.

In a monied economy, the mode of trade is an agreed-upon token, trading token for value, value for token. As the token has no immediate marginal utility (you can't eat, drink, bathe, or clothe yourself with it, etc.), there is no natural limit to aggregation of tokens. Whereas the purchaser still experiences the declining marginal utility of the values he receives, and cannot reassign it elsewhere, the seller does not; the full value is reassignable, hiding the loss from himself and others. There is a lack of mutuality in the contract, thus a lack of a real trade.

[BaalChatzaf]

All commodity monies, both hard and fiat, are a form of faking reality.

In a non-monied economy, the mode of trade is barter. Trading is done, value for value, to mutual benefit. Beyond a certain optimum amount, the received goods have a declining marginal utility to the receiver, thus trading stops; limitless agregation is curtailed. There is a mutuality of market forces at work here.

Without money if m products trade for n products there are m*n barter types. If there is a universal barter good then the combinations are reduced to m + n. Without money we could not have a complicated system of trade. Without credit substantial undertakings could not happen. To have credit we need a universal barter good. That is money.

Money is absolutely necessary for an economy that gets past nuts, berries and smoked fish.

Ba'al Chatzaf