I dunno, why not? You can have one right now. You will be required to use one (1) US dollar in the transaction in order to qualify for protection from the courts, but given the predations of the Federal reserve, this seems a minimal expense. Otherwise, go ahead and denominate your deals in anything you like: ounces of gold, bushels of wheat, ingots of tin, barrels of oil, or anything else you can dream up. You will have to convert back to US currency in order to pay your taxes, but I doubt Ron Paul's system would let you pay your taxes in dried codfish either.
Nor are you limited to barter. You can simplify things by obtaining a certificate which entitles you to some quantity of gold or other commodity--right down there at your local metals exchange. One can buy a bunch of gold and melt it down to coins of a fixed weight of gold. They won't be legal for paying your taxes, so you'd bear some currency risk when tax time rolled around. But you would under any system with multiple commodity-backed currencies, because their relative supplies and demands would fluctuate.
So why haven't you done this? If you say, because no one would spend it, you've hit on the reason for government money; it massively reduces transaction costs to have a single accepted currency.
One common response is that "bad" government money is driving "good" private money out of the market. But that assumes what you want to prove. If government money were so bad, people would turn to substitutes; if you go to any country where the government massively inflates the currency, you'll notice that people turn to dollars or gold in preference. Note that people who could choose any money they want turn to the dollar as their store of value. This is less true than it used to be, for reasons that have very little to do with our central bank's policy, and much to do with global capital flows. But it is still very true. Which is why I say that the gold standard is a solution in search of a problem.
Maybe you should do some research on the good people who tried to use the "liberty dollar" currency, backed by gold and silver.
This doesn't work, because any exchange of Gold is taxed. Therefore to use gold as currency one would have to spend a hefty amount on each transaction. In other words we face a government backed monopoly. The only kind of monopoly that can truly exist in the world, because unless the government backs down they will always have the control.
Any exchange of cash is taxed too.
David, I think you need to be more clear. Anyone who tries to compete with the U.S. dollar as a currency gets charged with a federal crime. Even when the liberty dollar folks expressly said over and over again that they were not printing "legal tender," they are still now being raided by the feds.
So how are people supposed to "compete" with the dollar? Megan, you are essentially challenging people to engage in a criminal activity, unless I misunderstand you.
Megan - you hit the nail on the head. Why not, indeed?
"Legal tender or forced tender is payment that, by law, cannot be refused in settlement of a debt denominated in the same currency."
The US government does not allow competing currencies and uses force to enforce legal tender laws (typically under the excuse of counterfeiting, or 'attempting to undermine the currency of the United State of America'). Thats the problem.
RP is not trying to get a gold standard overnight, he just wants it to be legal to compete with the US Dollar. He suspects a gold standard will win out, but you might be right about transaction costs, and it may not. But the way things stand, we aren't even allowed to find out.
I believe Paul's position is simply to take away the monopoly and let the market create the instrument... it may well be based on dried codfish.
When I travel and exchange one currency for another, I'm not taxed. Would this be true of gold? A private currency backed by gold?
One thing is for sure, if Paul decentralized the dollar, it would drop like a stone. The current dollar could not compete and would effectively lose its value. Though many would be hurt domestically, it would also effectively wipe out the debt and the value of foreign holdings. Boy would China be pissed.
I doubt the Liberty Dollar raid will hold up in court -- the law I've seen cited around it (18 U.S.C. ยง 514) is predicated on intent to defraud.
Even if Liberty Dollars are illegal, commodity barter is not provided you pay taxes on it. Holding and trading in Swiss Francs (which are on a fractional gold standard) is also legal.
Correcting myself -- the Swiss Franc apparently went off the gold standard in 2000. Next time I'll read all my research links before hitting "post".
Paying a sales tax for every gold transaction is a government imposed transactions cost that makes it impossible to compete with the dollar (except if you don't report the transaction to Uncle Sam, which is illegal).
Historic inflation chart.
http://www.safehaven.com/images/saxena/5150_a.png
In the United States the ownership of physical gold is considered the ownership of a collectible. On top of the sales tax, you pay a full 28% tax. That is why Ron Paul wants to eliminate tax on Gold, until then it will not be able to compete.
If you invest in gold mining companies, they are taxed like investments. If you hold on to your stock for more than a year, you will pay only capital gains.
Any exchange of cash is taxed too.
Brevity can be a pretty devastating rhetorical tool. I would have taken 10x as many words to achieve half the argumentative effect Megan does here.
I propose a pork belly standard. Let's tie the dollar to pork bellies to get real stability. I've had it with these buffoons (like Princeton Professor Bernanke) controlling a phony fiat money.
Let's tie it to something real. And what's more real than bacon, for heaven's sake.
I think Ron Paul said that.
Freddie/ Megan - actually any exchange of cash is not necessarily taxed, and the rates of taxation are all over the board. Gold (as a medium of exchange) is taxed a minimum of 2 times in any transaction in which cash would also be taxed.
Um...question. The Hunt brothers tried to corner the silver market many years ago. How would a gold backed currency react to someone trying to corner the gold market?
If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.
I think we can get Hitch to play to role of Clarence Darrow.
Ok, so I just realized that Megan's whole schtick here is to bash Ron Paul. Read the other articles, the Atlantic has her on full attack mode.
What was that quote?
"First they ignore you, then they laugh at you, then they attack you, then you win."
A nice fellow named Ghandi once said that.
"First they ignore you, then they laugh at you, then they attack you, then you win."
Worked great for Ross Perot too. Never underestimate the power of a really stupid idea!
How would a gold backed currency react to someone trying to corner the gold market?
I imagine one would see the same thing that happened in the '30s when gold speculation threatened the currency: the government would bar people from owning or trading gold except as jewelry or rare coins. And then yet another ingenious libertarian idea would have led to its exact opposite.
>Ok, so I just realized that Megan's whole schtick here is to bash Ron Paul.
No, silly. She gets paid by the page view, and 10x for each comment. Critiques of Rep Paul are like a license to print you-know-what.
Wouldn't such meanderings be more appropriate to The View?
Going back on a gold standard is a massive deflationary policy. Just how many millions of Americans are going to lose their jobs in the first two years of a new gold standard for our currency?
If the American economy grew by 3.9% last year, did the production of gold keep up? If not, deflation is the inevitable--even if unintentional--consequence. Again, how many millions of Americans would have lost their jobs over the past 35 years, if gold production did not keep up with economic growth?
One thing is for sure, if Paul decentralized the dollar, it would drop like a stone. The current dollar could not compete and would effectively lose its value. Though many would be hurt domestically, it would also effectively wipe out the debt and the value of foreign holdings. Boy would China be pissed.
Well, I'm dubious of an economic program that its supporters acknowledge will hurt "many people" in the US as their savings become worthless. But as long as we're pissing off the Chinese I guess it's okay.
"Ron Paul: Pissing off the Chinese and devaluing your life savings."
Has a nice ring to it.
(FWIW I'm a regular reader, but not commenter, I am not eligible to vote in the US being a dirty foreigner, I am not an economist, but take an interest in these things).
I personally see little problem with a gold standard and I think that no government (or QUANGO) should have complete control over money. Governments mess things up and do so spectacularly (given their monopoly on coercion) - this is just a libertarian position - it makes no impact on whether fiat or commodity standards should be used.
What I do have a problem with is governments preventing competing currencies. I think the Liberty Dollar guys are in the same boat as Lysander Spooner when he tried to set up a rival to the USPS. The Federal Government made so much legal trouble for him that even if he was legally in the right he couldn't afford to continue. (I never quite saw the point of the Liberty Dollar though, since it appears to be pegged to the US Dollar...)
I doubt meagan is interested in bashing Ron Paul
It is ridiculous to assume we could go on an alternative (commodity currency) and our trading partners not. Suppose it was wheat. China would have call on our wheat
commodity based currencies are, as MM well explained, highly subject to commodity market volatility (a couple ships full of gold sinking could send things into tailspin in the 1800s)
we could bring back Bank money. IT is an unexplored idea (read the Denationalization of Money by Hayek) Ron Paul however, clings to ideas he has really not studied. He is much more an ideologue than an intellectual. I am not bashing Paul, but his ideas are generally simple-minded.
People do do this. And, just a few weeks ago, vonNothaus, who was doing this, got arrested by the Fed on some really fuzzy charges. Mostly it seemed to be that his system let people launder money more easily since it wasn't trackable. Or something.
So, yeah. The government knows it sorta has to permit it, but it doesn't like doing so, and sometimes it won't.
Would I be able to use gold to buy tracks from allofmp3.com ? Credit cards and Paypal no longer do business with the site, so this development would be totally bitchin'.
By federal law, US dollars cannot be refused as payment of a debt. Yes, contracts can stipulate payment in dried codfish, but the payer can substitute US dollars instead and the paid can't do anything about it.
So lets say you have two choices: Pay a debt in gold, or pay it in Fed notes. Gresham's law says people will tend to pay in Fed notes.
"Any exchange of cash is taxed too"
Wrong.
Gold appreciated by 100% in a couple of years. It would be taxed as capital gains, very different.
I never quite saw the point of the Liberty Dollar
The point was, the purveyors of the LD would 1) convince you that your Federal Reserve Notes were worthless, then 2) generously and selflessly accept your worthless, pointless FRNs in exchange for real, valuable, silver-backed currency.
You have to admire their altruism, taking in all that valueless paper money and passing out real money in return.
Valueless paper that was, oddly enough, valued higher than the specie content of the coins they sold. Not that the Liberty Dollar has much to do with Ron Paul, as Paul has even said that he doesn't like that sort of monetary system (preferring to trade in denominations of weights instead).
Gresham's law says people will tend to pay in Fed notes.
Unless smart people are betting on the price of gold to fall, in which case they will pay in gold. "Bad money chases out good" depends on correctly guessing which money is badder.
Uhhh, the people who tried what you suggested got raided by the Secret Service and the FBI for threatening the Coin of the United States.
People want to do what you are suggesting, its just that the government will use its guns to stop it.
G nails the answer.
You're not fully allowing competing currencies so long as the other party can legally force you to accept plain old dollars instead. And so long as dollars must be accepted, payers will tend to prefer to use them over any competing currency that is less prone to inflation. When I can open a store that demands payment in silver and charges people who want to pay using dollars an extra 6%, and not get charged with a federal crime, let me know.
There are additional problems with using a basket of commodities as a monetary unit that I won't go into.
Brian W. quotes Gandhi: "First they ignore you, then they laugh at you, then they attack you, then you win."
and Brooksfoe responds: "Worked great for Ross Perot too. Never underestimate the power of a really stupid idea!"
What I say is: If you overestimate the applicability of a really great idea, then you may suffer the consequences of your mistake.
I think G and bbartlog have it wrong. There is a distinction between a Debt and the cost of a good or service. That's why merchants are free to deny certain notes or coins for transactions. See the Treasury's FAQ page.
"No, silly. She gets paid by the page view, and 10x for each comment. Critiques of Rep Paul are like a license to print you-know-what. "-
Posted by Matt B
Merry...
"No, silly. She gets paid by the page view, and 10x for each comment. Critiques of Rep Paul are like a license to print you-know-what."-Posted by Matt B
...Christmas....
"No, silly. She gets paid by the page view, and 10x for each comment. Critiques of Rep Paul are like a license to print you-know-what. "-
Posted by Matt B
Megan.
Would I be able to use gold to buy tracks from allofmp3.com ?
AllofMP3 is located on the wild and semi-lawless frontiers of modern Russia. I imagine the purveyor would happily accept gold, diamonds, firstborn son, or a shopping cart full of Eastern European firearms if you could figure a way to arrange the shipping.
@Matt B,
No one has said otherwise. It is perfectly legal for businesses to refuse payment in, say, pennies or nickels, just as vending machines only accept certain coins and bills.
But if a debt is owed (such as an employee being owed a salary by his employer), US dollars must be accepted as payment. The term "creditor" extends farther than those who lend money (although even if it didn't, legal tender laws have powerful effects).
What you and Megan need to remember is why legal tender laws were passed in the first place. They were created to finance incredibly expensive wars (the first being the Civil War, then WWI) via the printing of money. If people were simply allowed to reject the government's currency, no one would accept the inflated currencies and financing some wars would be impossible. So legal tender laws were required.
Legal tender laws would fail utterly in their purpose if they allowed competing currencies.
People are missing the point here (or deliberately arguing against a straw man). Ron Paul admires the gold standard in theory, but his position is only to allow competing currencies. In other words (for example), to leave Liberty Dollar folks alone. You don't have to use or accept Liberty Dollars if you don't want to. If you say people would always use fiat dollars in preference (and that were true), it simply reinforces the argument that there is no point in throwing people who want to transact in other currencies, in jail. They harm no one.
As to Liberty Dollars driving the fiat dollar to oblivion, that kinda contradicts the notion no one would want to use Liberty Dollars. Anyway, the Fed's driving the dollar down all by itself.
"When I can open a store that demands payment in silver and charges people who want to pay using dollars an extra 6%, and not get charged with a federal crime, let me know."
Exactly. What really is wrong about wanting to do something like this?
By federal law, US dollars cannot be refused as payment of a debt. Yes, contracts can stipulate payment in dried codfish, but the payer can substitute US dollars instead and the paid can't do anything about it.
Cute answer, but it isn't true.
If you and I agree to a contract in which I agree to give you 5 ounces of gold and you agree to wash my car every day for a year, that is an enforceable contract and this has nothing to do with the legal tender laws.
What IS true is that if I breached it and you sued me, unless you could convince a court to grant you specific performance (unlikely, though not totally impossible), the damages award would be in the dollar value of gold as of the day of the judgment. But you could then use the damages I paid you to buy 5 ounces of gold. Again, there's no problem here.
The truth is, the gold bugs can already do all of their business in gold or gold-backed securities if they wanted to. What pisses them off is that the REST OF US use our freedoms to do our business in fiat money instead. They want to stop us from doing that. That may be many things, but it is not libertarian.
According to Kurt Schuler, private US banks are already free to issue paper dollars if they want to.
www.cato.org/pubs/journal/cj20n3/cj20n3-8.pdf
@Dilan Esper,
Thats exactly it, the dollars are the medium of exchange; legal tender laws require this. In modern world with digital transactions and under ideal circumstances, it is possible to sell an alternative currency in order to pay a debt in US dollars. But this was not true in the past (due to high pre-internet transaction costs), and is not true as long as the sale and/or purchase of this alternative currency is taxed (i.e., as long as the transaction costs are significant, which they currently are on all stock and commodity exchanges).
Again, the entire purpose of legal tender laws was to grant government currency a monopoly so that wars could be financed by the printing of money. Their entire purpose was to prevent competing currencies, because no one wanted to accept paper notes during highly inflationary periods.
As the medium of exchange, prices in US dollars coordinate actions in the entire US economy, and in many other nations as well. The US Government's monopoly on currency allows it to distort these signals without penalty, causing distortions in the economy in the process (Google Economics as a Coordination Problem for more information).
private US banks are already free to issue paper dollars if they want to.
Yeah, they're called "cashier's checks" and "letters of credit" and the like. A bank could also issue a promissory note that you could take to the commercial paper market and sell for FRNs, or sign over to someone as payment for a debt. It's not as clean as Ben Franklins--there are complications if the bank doesn't honor the paper--but it's legal.
Thats exactly it, the dollars are the medium of exchange; legal tender laws require this. In modern world with digital transactions and under ideal circumstances, it is possible to sell an alternative currency in order to pay a debt in US dollars. But this was not true in the past (due to high pre-internet transaction costs), and is not true as long as the sale and/or purchase of this alternative currency is taxed (i.e., as long as the transaction costs are significant, which they currently are on all stock and commodity exchanges).
Actually, G, even this isn't a good objection. First of all, the "tax" you talk about isn't really that significant-- with the advent of internet trading, commissions on investments including commodity purchases are down.
But more generally, in my contract hypothetical, if the plaintiff showed that he was going to use the damage award to purchase gold and receiving gold was part of the bargain, THE PLAINTIFF COULD RECOVER THE TRANSACTION COST AS PART OF THE DAMAGE AWARD. In other words, the promise to pay you gold is actually FULLY ENFORCEABLE.
All legal tender laws do is prohibit someone from refusing to accept lawful money for a money obligation. They do not prohibit parties from specifying an alternate mode of consideration nor do they preclude courts from enforcing these contracts and fully compensating a non-breching party.
In any event, I don't understand the gold standard / anti-Fed / fiat money issue to really be about legal tender laws. What you guys can't stand isn't that YOU can't use gold as money-- you clearly can-- but that EVERYONE ELSE is allowed to use fiat money.
Sproul & Lyman aparently don't grasp the "Bank money" concept in full. sure banks used to issue their own notes, and we are all familiar with cashiers checks and the like(You are probably too old to be cute Lyman)
Bank money - denationalized money as Hayek would call it - is based on the strength of the bank, not that it keeps dollar reserves at a Federal Reserve bank, etc. A bank could trade or settle in "citis" and or settle a client transaction at a bank in europe settled in "UBSs" -- that would be denationalized banking. In this age of electronic exchange, it is an even more workable concept than when Hayek proposed it.
Mind you, I'm not some anti-Federal Reserve nut I'm just rasing an alternative that the Ron Paul fans annd goldbugs have probably not stopped to consider. There's a big beautiful world of ideas out there - some have been found wanting - like the gold standard.
Why are you lying?
@Dilan Esper,
Your point about the courts enforcing transaction costs is well taken. I don't think it changes the fact that in the vast majority of transactions not touched by the courts, converting to a commodity currency does incur a significant cost. But I do see your point.
After reading that Cato article, it does seem like the barriers to free banking are far less than they used to be (as there was a time when even owning bullion was illegal). The author seems to believe that the barriers to private currencies are primarily ignorance (as it almost seems like a mistake that banks were allowed to issue their own notes at all; not many people even know about it) and fear of legislation (as private currencies would cut into the revenue generated for the government by the Federal Reserve).
By the way, I don't want to use gold as money, and I don't care very much about what other people want to use. Ron Paul has made it very clear he is against using the government to force anyone to use any currency they do not wish to use. If you're interested in the reasons why free banking might be a good idea, I'd recommend just searching Google or reading parts of Jesus de Soto's book:
http://www.mises.org/books/desoto.pdf
G:
Well, 1, for the reasons stated, I don't think the government is forcing people to use a particular currency-- and I do agree that there was a lot more "force" in the past especially during the Roosevelt Administration when they used government power to substantially reduce private gold ownership. In actuality, I think people use fiat money because it works pretty well in developed countries so long as the central bank is relatively independent of the political branches of government and is staffed by competent people.
If our fiat money DID beome more unreliable, people would switch to other media of exchange, which could include commodities or commodities-backed commercial paper (but could also include other countries' fiat money). What's stopping them isn't government power, the Fed, the banking system, or any of the other things that "sound money" advocates identify-- its that they don't see the need.
And 2, I think that the federal reserve system is actually a very good solution to a REAL problem that I think is central to monetary policy. That real problem is "how do we design a system that both (a) allows the money supply to mitigate the effects of booms and busts but (b) insulates the money supply from manipulation by political actors".
A federal reserve that is a government agency but is also insulated from the portions of the government responsive to the demands of voters solves that problem. (And by the way, this is a subsidiary point, but under Lebron v. National Rail Passenger Corp., the Federal Reserve is CLEARLY part of the government, not a private bank as some goldbugs and Ron Paul fans claim; the arguments that the government can't create this sort of agency have been rejcted by the courts for almost 200 years, going back to McCulloch v. Maryland, and certainly have had not one supporter on the Supreme Court since at least the 1940's.)
Again, if there were evidence that the Federal Reserve were ACTUALLY causing hyperinflation (not simply a predictable couple of percentage points a year that can be factored into long term interest rates) or a number of unnecessary recessions, I might revise that opinion. But we've had 27 years with 3 of the longest economic booms in history, punctuated by 2 pretty mild recessions. It looks like it's working pretty well.
The fact is, fiat money may be an illusion but it works pretty well so long as most people buy into the illusion. And if at some point they don't, there will always be alternatives available, and the laws do not pose a serious impediment to people utilizing those alternatives. They don't, because they see no need to.
We went off the gold standard in 1933. All of a sudden, we see spikes in the money supply, inflation, and the national debt.
I'm gonna cite some numbers that I hope are at least in the ballpark. If my sources are no good, or I've interpreted this stuff wrong, please let me know.
When I look at a graph of the consumer price index... Why does it look like there was basically no inflation from 1800 to 1933 (fluctuates between about 25 and 50). Then we go off the gold standard, and it seems like we have significant positive inflation every year (all the way from 40.1 to 617.7). That is inflation right?
http://www.minneapolisfed.org/research/data/us/calc/hist1800.cfm
Why does the dollar supply seem to increase so much after 1933 (here's the M2):
2004 Economic Report of the President
1867 to 1913 = $1.28 billion to $15.73 billion
1913 to 1933 = $15.73 billion to $32.22 billion
1933 to 2003 = $32.22 billion to $6,044.6 billion
2007 = about $7,000 billion
And the debt:
http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm
1800 to 1913: $.083 billion in 1800 to $2.8 billion in 1866 to $2.9 billion in 1913.
1913 to 1933: rise to $22.5 billion
1933 to 2003: rise to $6,783.2 billion
2007: $9,139.2
I don't understand any of this at all, at all. If we went back on the gold standard, would the increases in inflation, money supply, and debt stop skyrocketing?
Looks like there is currently about 155,000 tonnes of gold. We find about another 2,500 tonnes a year (increases at about 1.6% a year).
Maybe money is such an abstract "Thing" (see Article 1 Section 10 of the Constitution), people need to think it is linked with something in the real world (like gold and silver). Pegging the money to something in the real world seems to do something good... Right?
Why does the dollar supply seem to increase so much after 1933 (here's the M2)?
It doesn't matter. The money supply is important in the short term because overstimulating the economy can lead to more than nominal inflation, and overcontracting the economy can lead to recessions. But what happens to the money supply over decades is irreelvant, because the necessary adjustments are made (and because real GDP increases over time).
And the debt
The debt increases because the government undertaxes and overspends. When the government taxed at the level of its spending, under Eisenhower and Clinton, the debt went down. Unfortunately, most Presidents and Congresses aren't willing to be fiscally responsible.
In any event, you can't compare the absolute numbers of the debt over that period of time, because with any amount of deficit spending, the increase in the debt will be geometric, not arithmetic, and because the debt, like everything else, is affected by inflation (which raises the amounts of deficts over time).
I believe in balanced budgets. But it has nothing to do with monetary policy.
I don't understand any of this at all, at all. If we went back on the gold standard, would the increases in inflation, money supply, and debt stop skyrocketing?
You ask three questions:
Inflation: who knows? On the one hand, over the long term, the gold standard is deflationary, which is a very bad thing because it will throw the economy into deeper and more unpredictable recessions. In the short term, the gold standard simply prevents the Fed from engaging in countercyclical monetary policy, which means that in some situations we could even have a short term INCREASE in inflation.
Money supply: the gold standard would stabilize it (barring a new discovery of gold or a future politician adjusting the exchange rate), but: as noted above, the money supply is really irrelevant in the long term and you don't want it to be stable in the short term because that prevents the Fed from engaging in countercyclical monetary policy to stabilize the economy.
Debt: the gold standard won't have any effect on the debt. Politicians run budget deficits because the public hates taxes and loves spending. Politicians will continue to do that, and the gold standard won't stop it.
Maybe money is such an abstract "Thing" (see Article 1 Section 10 of the Constitution), people need to think it is linked with something in the real world (like gold and silver). Pegging the money to something in the real world seems to do something good... Right?
Only if one cares more about the SYMBOLISM of money than its function in the economy. If you want everyone to hold and use as legal tender bearer notes that the government must redeem for gold because it makes you feel more secure about your money, the problem is that it comes at a huge cost to do that, and your feeling more secure is totally outweighed by all the harm that you will cause to other people by doing that.
Also, stop bringing up the Constitution. Ron Paul makes some very interesting constitutional claims, and I am not as dismissive as most liberals about claims about the reach of, e.g., the commerce clause. However, the Constitution does not prohibit fiat currency, permits Congress to regulate interstate commerce by chartering a central bank, and permits Congress to create administrative agencies that act relatively independently of the executive branch and Congress. The arguments about the gold standard are POLICY arguments and should be debated as such. No serious constitutional scholar, left or right, believes that the Constituation enacts Ron Paul's monetary policies.