Posts Tagged ‘money’

From Tom Woods’ October 7, 2014 podcast, Austrian economist takes on bestselling college text, chapter by chapter, I noted that there was no challenge mentioned of mainstream economics textbooks advocating governments borrowing from private banks to pay for their legitimate government services rather instead of issuing the money directly, interest-free.

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I listened to all of Tom Woods’ September 24, 2014 half hour presentation on the depreciation of the Revolutionary War-era Continental currency, fully expecting him to never mention the massive British counterfeiting, and true to my expectations, he didn’t!

This is yet another example of why I am critical of the Austrian School of Economics and the claims of some of its top proponents. At best, this was a sloppy unacademic omission by a Harvard graduate and Columbia University PhD holder who is more than proud to tout himself as a New York Times bestselling author, and at worst, a deliberate omission in order to convince his uncritical audience of his case that the Continental currency and all paper money is inherently massively inflationary and fatally flawed in relation to gold as money.

As I have discussed my radio program before, G. Edward Griffin, author of The Creature from Jekyll Island, considered by many in the alternative media to be the top book exposing the Federal Reserve, also conveniently fails to mention massive British counterfeiting of the Continental currency, while, like Tom Woods, also leading people to the illusory “free market gold standard.”

For my extensive collection of articles on prominent Austrian School proponents, see my articles on Gary North, Tom Woods and Lew Rockwell.

For more on my critique of Austrian economics, see my article, “I don’t agree with Austrian economics.

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Joseph Meyer, author of the Straight Money Analysis newsletter and 40+ years of Wall Street experience, was on the Josh Tolley Show on May 28, 2014.

The interview starts 14 minutes in to the audio.

When asked about what he writes about he said that he doesn’t write things to make you feel good, he writes things that will help you to make money.

Previously, I interviewed Joseph here and here, and I arranged an interview for him on Radio Liberty with Dr. Stan Monteith here.

For my January 28, 2014 Josh Tolley Show appearance, see here.

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Tom WoodsOn the January 5, 2014 episode of Exposing Faux Capitalism, I provided a two-hour refutation of Tom Woods’ 2013 presentation paper, “Why the Greenbackers are Wrong.

Here are some highlights:

(2) that fiat money is just fine as long as it is issued by the people’s trusty representatives instead of by the Fed
– It’s not fiat money, since it’s being issued into circulation by the 12 privately-owned Federal Reserve Banks
– Misdirection, since the proposal isn’t to have Representatives and Senators issue money, but to have bankers do it through the U.S. Treasury, under the public trust, akin to the successful Bank of North Dakota.

The Fed pays for this purchase by writing a check on itself, out of thin air, and handing it to the primary dealer.
– Not created out of thin air, but instead, by a bookkeeping entry.

For one thing, pieces of paper with politicians’ faces on them are not saleable goods. They have no use value, and therefore could not have emerged from barter as the most marketable goods in society.
– They do, because of the full faith and credit of the government backing them, which is based ultimately upon the productivity of the people, and the exchange between producers (taxpayers and government).

Second, even if government did try to impose a paper money issued from nothing on the people, it could not be used as a medium of exchange or a tool of economic calculation because no one could know what it was worth. Are three Toms worth one apple or seven fur coats? How could anyone know?
Its value is ultimately determined by the market, and even Lew Rockwell said that not only is the USD a medium of exchange, it’s also money.

This is how unbacked paper money comes into existence. It begins as a convertible substitute for a commodity like gold, and then the government takes the gold away.
– What about the first paper money issued by the Mongols, and what about the United States Notes?

“Free-market money, therefore, is commodity money.”
– Says who? Stephen Zarlenga has documented several other ways that money has arisen, and privately-issued, voluntary, usury-free community currencies have been issued that aren’t commodity-based.

So free-market money does not enter the economy as a loan.
– What about the paper notes issued by banks during the Free Banking Era of the United States? Were they not free-market money, just because they were issued by state-chartered banks?

For consistency’s sake, they should support all forms of debt-free money, including money that takes the form of a good voluntarily produced on the market and without any form of monopoly privilege.
– “They do”, as in me (Jason Erb), Anthony Migchels, George Whitehurst-Berry, Wayne Walton, Tom J. Kennedy and others.

Although the “there isn’t enough money to pay the interest” argument fails, I want to take up a related warning about sound money
– Is gold sound money when it dropped from $1700 to $1200 in 2013?

First of all, no one can expect to print pieces of paper with his face on them and spend them into circulation. Nobody would accept them, needless to say, and as we have seen, it is impossible for money to be introduced ex nihilo in this way. The only kind of money that can emerge on the free market is one that, at least at one time, had been considered a useful commodity. Paper money can come into existence on the free market and without coercion if it serves as a redemption claim for the commodity money, but irredeemable paper money cannot originate without government threats or violence.
– Tom Woods flaunts his ignorance of the success of voluntary, usury-free community currencies, such as Ithaca Hours and mtnHours.

Again, as we saw previously, the pattern is this: a commodity is freely chosen by market participants to serve as money, for convenience paper receipts fully convertible into that money begin to circulate as money substitutes, and finally the government removes the commodity backing from the paper and only the paper circulates.
– In other words, gold doesn’t function directly in a wide-spread way as money.

When Franklin Roosevelt confiscated Americans’ gold in 1933 and gave them paper money in exchange, this money did not enter the system “as debt.” It was a simple act of conversion of specie into paper. (Thanks to J.P. Koning for tracking down that link.)
– If it didn’t enter as debt, why were they still referred to as notes?

the naive confidence in the American political class that the Greenbacker alternative demands is beneath the dignity of a free people.
– By that standard, why trust government with any powers? — In this way, the anarcho-capitalist critics of government-issued money have some credibility on this point, unlike the minarchist critics like Gary North, who still call for government regulation of contracts in his illusory free market gold standard that is just as much a fool’s gold standard as any government-guaranteed gold standard.

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In response to Gary North’s December 10, 2013 article, “Showdown: Bitcoins vs. Greenbacks and/or Precious Metals“:

First, the primary benefit that libertarian promoters of Bitcoins offer in justification of their theory that Bitcoins will become an alternative currency is this one: Bitcoins offer privacy. Paper money today offers a much greater degree of privacy that Bitcoins do, plus a whole series of other major advantages that Bitcoins do not offer.
– Except for that fact about governments and banks knowing who you are by the card you use to withdrawal your money.

Second, money is the most marketable asset. Paper money is vastly more marketable than Bitcoins.
– Yes, because of government force, not because of any inherent inferiority of Bitcoin.

Third, gold-based and silver-based digital currencies are more likely to become future world digital currency than Bitcoins.
– Yes, mostly because that’s what the international banksters want, for a time.

He has a virtually unlimited number of establishments from whom he can make the purchases.
– Not “unlimited” locally. If by the Internet, Bitcoin can also be widely accepted in time.

Almost nobody knows how to buy Bitcoins.
– More people know how to buy gold, but gold dealers like Bob Chapman estimated that only 1% of Americans even own any gold, let alone have bought any recently.

He has no idea which ones are reliable. He risks getting into a Bitcoins-related Web business like Silk Road, which the government shut down.
– Or with gold, the Ron Paul Liberty Dollar, so there’s nothing special about Bitcoin in that regard.

In other words, there is a huge learning curve involved in gaining access to this privacy money.
– There were a lot of people who didn’t know how to use ATMs at first, but once the banks started pushing them, it lowered the cost of learning to use them.

Conclusion. Here is a fundamental economic rule: as the price of anything increases, less is demanded.
– Only true if the supply is fixed or goes down, but there is still the concept of price inelasticity, where demand doesn’t drop as much, despite a big increase in price.

Therefore, anyone who promotes Bitcoins is a viable alternative to greenbacks is ignoring the following: (1) the low information costs of gaining access to greenbacks;
– A big reason is because of government force, which he is supposedly against.

(2) the complete lack of interest on the part of the government or the bank in withdrawals of a few hundred dollars at the time;
– With real price inflation in the past few years in the double digits, you’ll increasingly need more than a few hundred dollars for meaningful purchases, and cash is being increasingly phased out.

(3) a market for this currency that is essentially the same as the market for digital currency;
How? Digital dollars account for over 95% of the money supply. They are far more in demand than paper dollars, just by the numbers.

“(4) the possibility of negotiating discounts for purchases with this currency.”
– Mostly to avoid government taxes, and not because it’s more efficient.

But, with respect to buying with this currency, there are no transaction costs.
– False. The “hidden” transaction costs are borne by the stores, and passed on to the customer. There are handling and storage costs involved in facilitating these transactions.

There are no search costs. You do not have to search for which companies are willing to sell you something for your paper money. They all are.
– Actually, they’re not. A gym I went to didn’t accept paper dollars, just like an increasing number of businesses.

Because there are no restrictions on the use of paper money, no question is asked at a retail establishment regarding the use of paper money to make a purchase.
There are restrictions. Try buying something for one dollar at a dollar store with a $100 bill, and see if they will accept it.

Bitcoins. You cannot use Bitcoins to buy anything in approximately 99.9% of American retail establishments.
– You also can’t buy anything in 99.9% of American retail establishments with actual legal tender gold coins, since they won’t recognize them, and may even call the police if you walk off with the merchandise after tendering your coin in payment.

You cannot buy what you want, when you want, where you want with Bitcoins.
– You also can’t do that with paper currency for most Internet purchases.

There are search costs involved in locating anybody who will sell you anything with Bitcoins.
– They are relatively low, with an Internet connection.

There is no checkout counter that converts Bitcoins into digital dollars, and then issues you a receipt for whatever it is you just purchased Therefore, Bitcoins have close to zero marketability.
– Perhaps not, but there already is the world’s first Bitcoin ATM in Vancouver.

The only way you can buy anything with Bitcoins is because the seller is going to convert the Bitcoins immediately into dollars.
– Is the Mises Institute immediately converting Bitcoins into dollars? Their 501©(3) records will soon show us.

Bitcoins do not have a separate market that is not tied to the banking system.
– Gold, which he promotes, is even more tied into the banking system, directly, and Gold Eagle coins are lawful tender in the United States.

Bitcoins all over the world fell by one-third within a day.
– Gold plummeted by over 70% in 21 years from 1980 to 2001, and dropped around 30% in just a year and a half, from 2012 to 2013.
– In gold bug circles, this is portrayed as a “buying opportunity”, so what makes it any different for Bitcoin?

The risk of holding Bitcoins more than a few seconds is way too high for any retail establishment.
– This won’t prevent them from accepting Bitcoin, so long as they can convert the Bitcoins to dollars or something more stable at the time.

So, for a retail establishment to be willing to sell you anything for Bitcoins, it must have a computer program tied to its bank in order to convert Bitcoins into dollars instantaneously.
– Computing power relative to price is increasing exponentially, so it’s not a big issue.

A joint announcement of the Federal Reserve, the European Central Bank, the Bank of England, and the Bank of Japan would complete the destruction. They could simply threaten expulsion from their respective banking systems for member banks that offered Bitcoins services. “Bitcoins, R.I.P.”
– They could do this with any private, non-coercive currency, so does that mean no non-gold private currencies should be created and promoted?

Therefore, with respect to marketability, Bitcoins are an extension of the central banking system.
– Gold is far more an extension of the central bank system.

Conclusion. There is virtually no possibility that the Federal Reserve System is going to outlaw the use of Federal Reserve notes.
– They will, once they no longer want to have paper currency.

There is always a possibility of the Federal Reserve System will prohibit banks from dealing with any retail company that uses Bitcoins in its transactions.
– Applies to any non-government currency, so is he saying we should not bother trying fighting the system?

Proponents of Bitcoins are necessarily arguing that the unbacked fiat money that is produced by the Bitcoins system will be preferable to the vast majority of people who are attempting to escape the digital currencies of their central banks. Bitcoins will be favored, and digital currencies based on either gold or silver will be bypassed.
– If gold and silver currencies are so good, why aren’t more people transacting in them now?

This is an argument that says that Bitcoins, which nobody understands, are preferable to gold and silver, for which there is a long-established tradition in the Far East, the Middle East, and the West.
– Nobody understands them? Gary North is apparently speaking for himself.

We are expected to believe that Bitcoins, which were invented by a team of anonymous Japanese programmers, and which are promoted mainly by libertarians who do not have much money, and by programmers who do not have much money, will become the money of the future, whereas gold and silver digital currencies and coins will never come into widespread use in exchange.
– A laughable contradiction with a previous article, since North laughably said “The promoters creators are now very rich, as measured in dollars.”

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Gary NorthIn response to Gary North’s November 29, 2013 article, “Bitcoins: The Second Biggest Ponzi Scheme in History“:

I hereby make a prediction: Bitcoins will go down in history as the most spectacular private Ponzi scheme in history
– If it were a private Ponzi scheme, it’d be illegal, and would already be prosecuted, just like the Ron Paul Liberty Dollar founder, because of its threat to international banking hegemony.

The coins will never be the money of the future.
– Just like his failed Y2K prediction, that it would be a big civilizational disaster, and wasn’t? Or his prediction that Apple stock was going down after the departure of Steve Jobs, only for it to increase by over 50% in just 5 months?

The best definition of money was first offered by Austrian economist Carl Menger in 1892. He said that money is the most marketable commodity.
– Implies that there can only be one form of money at any time. Currently, the U.S. dollar is the most marketable commodity, meaning that gold isn’t the most marketable commodity, currently, by consequence, isn’t money.

In that book, Mises argued, as Menger had before him, that money arises out of market transactions.
– Yes, and through government fiat, which results in the market transactions.

Now let us look at bitcoins. The market value of one bitcoin has gone from about $2 to $1,000 in a year. This is not money. This commodity is not being bought for its services as money. It is unpredictable to a fault.
– By that measure, gold also isn’t money, since it had an embarrassing 21-year performance, in dropping from $850 USD an ounce in 1980 to below $250 USD by 2001.

Here is the Austrian school’s theory of money. People buy money because it has not fallen in price. But it has also not gone up in price much, either. It is predictable.
– By that measure, gold hasn’t been money since at least 1980

In other words, Bitcoins are not money; dollars are money.
An amazing statement from a gold-as-money promoter.

There has been no challenge from Bitcoins to the reign of the dollar.
– And this is surprising, how? It started in January 2009, so why should anyone expect otherwise?

This Ponzi scheme is not illegal
– An internal contradiction, since a Ponzi scheme, by definition, is illegal.

But the fundamental characteristic of money is its relatively stable purchasing power.
– No, the primary characteristic of money is its ability to function as a medium of exchange

Bitcoins have to have stable purchasing power if they are to serve as money, and they will never, ever achieve stable purchasing power.
– Why not? With the growth of the supply decreasing with over half of a fixed total of Bitcoins mined, the math points to an eventual relatively stable purchasing power in the absence of major government interference.

There has to be an economic justification for a capital investment, and there is no economic justification of buying Bitcoins as an alternative currency.
– Then why is fellow Mises Institute associate, Tom Woods, accepting Bitcoin as payment for his goods and services provided through his Liberty Classroom?

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From the October 7, 2013 Economic Policy Journal article, Is Bitcoin Money: What Economists Have To Say, Tom Woods said:

Tom Woods: Bitcoin is a medium of exchange but not money. This isn’t an insult to or a value judgment about Bitcoin. Austrians sometimes describe money as the most widely accepted medium of exchange in society. Clearly Bitcoin does not satisfy this requirement.

Mises, for his part, describes money as a medium of exchange in common use: “A medium of exchange which is commonly used as such is called money. The notion of money is vague, as its definition refers to the vague term ‘commonly used.’ There are borderline cases in which it cannot decided whether a medium of exchange is or is not ‘commonly’ used and should be called money.”

I don’t think Bitcoin is in common enough use to be called money.

Yet, only two weeks later, Tom Woods announced that Bitcoin would be accepted as payment for his Liberty Classroom courses.

What will you believe more? Tom Woods’ words, or his actions? — in actually accepting Bitcoin for payment of his goods and services two weeks later.

For more on Tom Woods’ ever-shifting position on Bitcoin, see my article, Tom Woods had no time for a Bitcoin conference, yet had time to misrepresent government-issued currencies.

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