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If advocates of freedom were to make up a list of New Year’s resolutions for 2016, one of the most important items should be ending government’s monopoly control over money. In a free society, people in the marketplace should decide what they wish to use as money, not the government.

For more than two hundred years, practically all of even the most free market advocates have assumed that money and banking were different from other types of goods and markets. From Adam Smith to Milton Friedman, the presumption has been that competitive markets and free consumer choice are far better than government control and planning – except in the realm of money and financial intermediation.

This belief has been taken to the extreme over the last one hundred years, during which governments have claimed virtually absolute and unlimited authority over national monetary systems through the institution of paper money.

At least before the First World War (1914-1918) the general consensus among economists, many political leaders, and the vast majority of the citizenry was that governments could not be completely trusted with management of the monetary system. Abuse of the monetary printing press would always be too tempting for demagogues, special interest groups, and shortsighted politicians looking for easy ways to fund their way to power, privilege, and political advantage.

The Gold Standard and the Monetary “Rules of the Game”

Thus, before 1914 the national currencies of practically all the major countries of what used to be called the “civilized world” were anchored to market-based commodities, either gold or silver. This was meant to place money outside the immediate and arbitrary manipulation of governments.

…click on the above link to read the rest of the article…

A Free Market in Interest Rates

December 22, 2015

A Free Market in Interest Rates

Unless you’re living under a rock, you know that we have an administered interest rate. This means that the bureaucrats at the Federal Reserve decide what’s good for the little people. Then they impose it on us.

In trying to return to freedom, many people wonder why couldn’t we let the market set the interest rate. After all, we don’t have a Corn Control Agency or a Lumber Board (pun intended). So why do we have a Federal Open Market Committee? It’s a very good question.

Someone asked it at the recent Cato Monetary Conference. George Selgin answered: no matter if the Fed stands pat or does something, it’s still setting rates. This is a profound truth, which brings us to a fatal flaw in the dollar.

In our irredeemable currency, interest cannot be set by the market. There’s literally no mechanism for it. To understand why, let’s start by looking at the gold standard.

Under gold, the saver always has a choice. If he likes the rate of interest, he can deposit his gold coin. If not, he can withdraw it. By withdrawing, he forces the bank to sell an asset. That in turn ticks down the price of the bond, which is the same as ticking up the rate of interest. His preference has real teeth, and that’s an essential corrective mechanism.

Unfortunately, the government removed gold from the monetary system. Now you can own it, but your choices have no effect on interest. If you buy gold, then you get out of the banking system. However, the seller takes your place, getting rid of his gold and thereby taking your place in the banking system. The dollars and gold merely swap owners, with no effect on interest rates.

…click on the above link to read the rest of the article…

Paper Money Versus the Gold Standard

December 15, 2015

Paper Money Versus the Gold Standard

We are living in a time that can only be considered monetary chaos. The U.S. Federal Reserve has manipulated key interest rates down to practically zero for the last six years, and expanded the money supply in the banking system by $4 trillion dollars over that time. And with the true mentality of the monetary central planner, the Fed Board of Governors are now planning to manipulate key interest rates in an upward direction that they deem desirable.

The European Central Bank (ECB) has instituted a conscious policy of “negative” interest rates and planned an additional monetary expansion of well over a trillion Euros over the next year. Plus, the head of the ECB has assured the public and financial markets that there is “no limit” to the amount of paper money that will be produced to push the European economies in the direct that those monetary central planners consider best.

We also should not forget that it was the Federal Reserve that earlier in the twenty-first century undertook a monetary expansion and policy of interest rate manipulation that set the stage for the severe and prolonged “great recession” that began in 2008-2009, in conjunction with a Federal government distorting subsidization of the American housing market.

The media and the policy pundits may focus on the day-to-day zigs and zags of central bank monetary and interest rate policy, but what really needs to be asked is whether or not we should continue to leave monetary and banking policy in the discretionary hands of central banks and the monetary central planners who manage them.

Central Banking as Monetary Central Planning

…click on the above link to read the rest of the article…

What’s Different About Monetary Policy?

November 5, 2015

What’s Different About Monetary Policy?

Many people agree that it’s important to move to a free market in money (i.e. the gold standard). They also say that it’s just as important to fight bad taxes and regulation. In their view, government interference in the economy is like friction in a car. The more friction you add, the slower the car goes. One source of friction is much the same as any other.

Let me explain why it doesn’t quite work that way, using a few examples.

Suppose the government imposes an expensive tax on employers based on the number of full-time employees. Full time is defined as working at least 30 hours per week. Employers respond to this tax by reducing the hours of as many employees as possible below the threshold. The law still harms employers, but less than intended. If the law were a bullet aimed at the chest of the employer, it ends up causing a flesh wound.

Another example is a law that makes it illegal for startup companies to pitch their deals to non-accredited investors. Accredited investors form organized groups that entrepreneurs can safely go to and raise capital. It’s cumbersome, and it leaves some entrepreneurs out in the cold, but as with the employer tax, everyone works to minimize the damage.

Both the employer tax and the investment regulation fit the analogy of friction that slows down the economy. However, our monetary system causes a different kind of effect.

For over three decades, the interest rate has been falling. This causes all asset prices to rise. Rising asset prices incentivize people to consume their capital (as I’ve written in many articles). In short, it’s a process of converting someone’s wealth into someone else’s income. The owner of the wealth would never consume it, but the recipient of income is happy to consume most of it.

…click on the above link to read the rest of the article…

Gold & Politicians – Getting it Right For Once

October 20, 2015

Gold & Politicians – Getting it Right For Once

QUESTION: Mr. Armstrong; I heard you on Infowars. I understand how the gold standard would not solve anything for the problem is politicians and not what we call money. Some think that you can create a floating gold standard so gold would be money but not fixed. I really have a hard time seeing where this would solve anything for you still would have loans then in gold and you end back at the same spot with paper gold. This is really getting confusing. That was the question I wanted to ask.

Thank you

ANSWER: It really does not matter what we use for money. It is only a medium of exchange. Before 1934, private loans always had a gold clause. So yes, you are correct. You ended up with more gold owed than actually existed, This is fundamental to any credit system.

The problem is people are arguing over what should be money as if this really matters. There were defaults under a gold standard just as there were under paper. This is kind of blaming your wife because she failed to compel you to take the trash out.

The problem is not money and as long as people only focus on money assuming some return to a gold based system will magically convert all politicians into saints, then we doom ourselves to repeat history for this nonsense is arguing at the surface and ignoring the fact that governments and monetary systems have collapsed for countless millennium. The list of empires, nations, and city states that have collapsed are countless since the beginning of recorded history regardless of what money was.

…click on the above link to read the rest of the article…

Gold Standard Nonsense Compelling Us To Repeat History

October 14, 2015

Gold Standard Nonsense Compelling Us To Repeat History

COMMENT:

“The system is collapsing. It is not because of some derivatives bubble. It is not because of fiat. This is because of the debt gone wild”

Sure! And you don’t see the connection with the lack of a gold standard?
This would never have happened during a gold standard, without someone having gone out of business. Honest money =gold
I think that much should be clear by now.

kind regards

gk
REPLY: The degree of people indoctrinated with gold propaganda is the greatest threat we have to solving any crisis or advancing in society. They constantly regurgitate this nonsense without any factual proof relying completely on made up sophistry. We had Bretton Woods that was a gold standard which collapsed because they tried to peg gold at $35 yet increased the supply of dollars. So where did gold prevent anything?

ANYONE who believes this nonsense that a gold standard will miraculously convert politicians into saints should really just check yourself into an insane asylum. Long before there was paper money, there has always been debt. People borrowed and you still had the same leverage on gold for there was more debt owed in gold than there was ever gold.

This rhetoric seriously prevents us from observing a simple fact. There was debt under a gold standard and every gold standard has also collapsed in history. NOT A SINGLE gold standard ever survived. You just do not understand history. It is politicians that blow it up regardless of what you call money.

As long as you argue for this nonsense, we will never advance as a society. If you really think returning to a gold standard, which has never worked in history, you will condemn us and your children to the same financial chaos time and time again.

…click on the above link to read the rest of the article…

Bishop: Ben Carson Upsets Washington Post for Questioning Fiat Money

October 12, 2015

Bishop: Ben Carson Upsets Washington Post for Questioning Fiat Money

Tho Bishop writes:

Neurosurgeon-turned-Presidential candidate Ben Carson has been under attack this week by our PC-enforcers in the media. While most of the media scorn has been directed at Carson’s defense of gun ownership following last week’s shooting in Oregon – Matt O’Brien of the Washington Post slapped at Carson for flirting with the gold standard.

In an article on Friday criticizing Jeb Bush for not condemning the gold standard harshly enough (Bush only offered a timid “I don’t think so” when asked whether the US should make such a move), O’Brien highlighted some surprisingly sound comments Dr. Carson made earlier this week during an interview with NPR. While discussing the nation’s current debt, Carson said:

“[T]he only reason that we can sustain that kind of debt is because of our artificial ability to print money, to create what we think is wealth, but it is not wealth, because it’s based upon our faith and credit. You know, we decoupled it from the domestic gold standard in 1933, and from the international gold standard in 1971, and since that time, it’s not based on anything. Why would we be continuing to do that?”

Because of views like this, O’Brien dismisses Carson as not being a “candidate of serious policy.”

Unfortunately for O’Brien, he spends the rest of his column demonstrating that his own views on the gold standard, which he refers to as “the world’s worst idea today”, should not be taken seriously.

Along with offering the typical flawed-Friedmanite narrative of how the Federal Reserve’s dedication to preserving the gold standard, O’Brien is concerned about the impact a gold standard has on interest rates.

Without a hint of irony, O’Brien suggests that interest rates guided by the market simply lack the wisdom of our current PhD Standard:

…click on the above link to read the rest of the article…

That 70s show – episode 4

August 29, 2015

That 70s show – episode 4

We have shown in the previous three episodes (episode 1, 2 and 3) how the US economy structurally changed after Nixon took the US off gold, letting the Federal Reserve do what it does best. Obviously, with the “hard” anchor of the US dollar cut loose, the rest followed suit. It is telling that the so-called post-Bretton Wood “gold standard” of all currencies, the Deutsche mark lost 65 per cent of its purchasing power from 1971 to 1990.

Also note that the French, with its inferior Franc lost 84 per cent of its purchasing power over the same, time hated the Germans for it. As a “victorious” nation of the Second World War, the French had a right to veto German unification, and would only agree to re-merge east and west if the Germans would give up their coveted mark and join the euro.

But we digress, in the this episode we will focus on debt levels within the context of unrestrained central banking.

Throughout history the US economy used to be leveraged, on average, 1.5 times GDP; total credit market debt fluctuated more or less within a tight range of maximum one standard deviation from its long term mean. Prior to 1971 the only time debt levels really got out of hand was during the Great Depression on back of a 45 per cent decline in nominal GDP. Total outstanding debt, in dollar terms actually fell by 12 per cent over the same time span.

So, the US economy was leveraged 1.5 times its annual output from 1840 to 1971 before fundamentally changing its trajectory. Needless to say, this low debt period was also when the US economy became the world’s largest and most sophisticated (see here) and ultimately a global hegemon.

Source: History of the United States from Colonial times to 1970, Federal Reserve, Bureau of Economic Analysis, Bawerk.net

…click on the above link to read the rest of the article…

Ten Things Every Economist Should Know about the Gold Standard

August 19, 2015

Ten Things Every Economist Should Know about the Gold Standard

At the risk of sounding like a broken record (well, OK–at the risk ofcontinuing to sound like a broken record), I’d like to say a bit more about economists’ tendency to get their monetary history wrong. In particular, I’d like to take aim at common myths about the gold standard.

If there’s one monetary history topic that tends to get handled especially sloppily by monetary economists, not to mention other sorts, this is it. Sure, the gold standard was hardly perfect, and gold bugs themselves sometimes make silly claims about their favorite former monetary standard. But these things don’t excuse the errors many economists commit in their eagerness to find fault with that “barbarous relic.”

The false claims I have in mind are mostly ones I and others–notably Larry White–have countered before. Still I thought it would be useful to address them again here, because they’re still far from being dead horses, and also so that students wrapping-up the semester will have something convenient to send to their misinformed gold-bashing profs (though I urge them to wait until grades are in before sharing!).

For the sake of those who don’t care to wade through the whole post, here is a “jump to” list of the points covered:

1. The Gold Standard wasn’t an instance of government price fixing. Not traditionally, anyway.
2. A gold standard isn’t particularly expensive. In fact, fiat money tends to cost more.
3. Gold supply “shocks” weren’t particularly shocking.
4. The deflation that the gold standard permitted wasn’t such a bad thing.
5. It wasn’t to blame for 19th-century American financial crises.
6. On the whole, the classical gold standard worked remarkably well (while it lasted).
7. It didn’t have to be “managed” by central bankers.
8. In fact, central banking tends to throw a wrench in the works.
9. “The” Gold Standard wasn’t to blame for the Great Depression.
10. It didn’t manage money according to any economists’ theoretical ideal. But neither has any fiat-money-issuing central bank.

…click on the above link to read the rest of the article…

A Portrait of the Classical Gold Standard

May 12, 2015

A Portrait of the Classical Gold Standard

“The world that disappeared in 1914 appeared, in retrospect, something like our picture of Paradise,” wrote the economist Cecil Hirsch in his June 1934 review of R.W. Hawtrey’s classic, The Art of Central Banking (1933). Hirsch bemoaned the loss of the far-sighted restraint that had once prevailed among the “bankers’ banks” of the West, concluding that modern times “had failed to attain the standard of wisdom and foresight that prevailed in the 19th century.”

That wisdom and foresight was once upon a time institutionalized throughout an international monetary culture — gold-based, wary of credit, and contemptuous of debt, public or private. This world included central banks including the Bank of England, the Bank of France, the Swiss National Bank, the early Federal Reserve, the Imperial Bank of Austria-Hungary, and the German Reichsbank. But the entrenched hard-money ideology of the time restrained all of them. The Bank of Russia, for example, which once required 50 percent to 100 percent gold backing of all notes issued, possessed the second largest gold reserves on the planet at the turn of the twentieth century.

“The countries that were tied together in the gold standard system represented to a not inconsiderable degree a community of interest in and responsibility for the maintenance of economic and financial stability throughout the world,” recounted Aldoph C. Miller, member of the Federal Reserve Board from 1914 to 1936, in The Proceedings of the Academy of Political Science, in May 1936. “The gold standard was the one outstanding symbol of unity and economic solidarity which the nineteenth century world had developed.”

…click on the above link to read the rest of the article…

A Funny Thing Happened To Oil Prices When Nixon Killed The Gold Standard | Zero Hedge

December 21, 2014

A Funny Thing Happened To Oil Prices When Nixon Killed The Gold Standard | Zero Hedge.

For the past 150 years, crude oil prices have varied between around $10 per barrel and around $120 per barrel. For many decades, oil prices were relatively “stable” but a funny thing happened in the early 70s and everything changed – whether coincidental or causative the linkages between the oil crisis andNixon’s Gold-Standard-busting of Bretton Woods are clear in the chart below. Goldman expectscontinued high oil price volatility with risks skewed to the downside as the market searches for a new equilibrium… and a period of macroeconomic adjustment to structurally lower oil prices. Is oil adjusting to a new ‘gold-standard-esque’ normal?

“Stabilitee”

As Goldman noted back in July…

…click on the above link to read the rest of the article…

Debunking Keynesian “History”: The Gold Standard Had Nothing To Do With Panics And Busts | David Stockman’s Contra Corner

December 12, 2014

Debunking Keynesian “History”: The Gold Standard Had Nothing To Do With Panics And Busts | David Stockman’s Contra Corner.

One of the main reasons that detractors of the gold standard contend it is a “barbarous relic” (in John Maynard Keynes’s phrase) is that it was implicated in so many financial panics and economic busts back in its heyday in the 19^th century. As the New York Times’ pet Internet troll once put it, sarcastically, “under the gold standard, America had no major financial panics other than in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933. Oh, wait….returning to the gold standard is an almost comically (and cosmically) bad idea.”

Looking at the 19^th century, before the gold standard became a ghost, a dead-letter in the early era of the Federal Reserve from 1913-33, there is no evidence that the good old thing was implicated in any panic or bust. Certainly not in 1873, when the United States was still contemplating returning to the gold standard that it had abrogated in the civil war the decade prior.

Certainly not in the other famous panics of the 19^th century, every one of which had at its root some form of extensive government meddling in the economy.

Not the panic of 1819—caused by the misallocation ofcapital owing to the U.S.’s printing, during the War of 1812, of fiat paper currency (some of which was so transparently desperate it paid interest). Not the panic of 1837, caused by undue speculation in land sparked by Congressional goading following “Indian removal.” Not the panic of 1857—caused by a collapse in railroad shares on the basis of over-investment encouraged again by federal policy.

…click on the above link to read the rest of the article…

from the archives: “they teach people ignorance” | the irresistible fleet of bicycles

November 19, 2014

from the archives: “they teach people ignorance” | the irresistible fleet of bicycles.

Todays post is the text of an opinion piece written by William C Gehrke and published in The Kansas Union Farmer on April 16, 1936! Gehrke does an incredible job of articulating the benefits of organizing farmers, the challenges posed by hegemonic education, and the insufficiency of “rugged individualism and the gold standard.” His remarks are stunningly insightful and relevant to our situation today.

Union Farmer Editors: The following article by Mr. Gehrke contains so much that is good that we feel it is worthy of a front page position.

“They Teach People Ignorance”

William C. Gehrke

I am taking up the suggestion of A.W. Ricker of Minnesota by giving my personal reflections in the following comments.

Having lived on the farm for 27 years, only absent long enough to take my four years of college work, I still feel my interests are just as strongly with you. However, any views I hold I do so in the interests and welfare of all concerned, rather than just our particular class. I feel highly honored to be a member of the Farmers Union because of the principles for which they stand and the democratic procedure that governs the organization. In the Unions [sic] workings and philosophy, I can see the more abundont life so many desire yet I can see many of the shortcomings that prevent this attainment. I sometimes marvel at the faith, patience, and endurance of the leaders and its members knowing what the odds are against them. In spite of these known odds they struggle on slowly gaining those things necessary for the abundant life. I wish we had a better way to get more people including the farmers to see all our problems from a social viewpoint. By that I mean that every action of ours should be tested in the light as to how it will affect our fellowmen rather than the selfish motive that prompts each individual to get the better things at the expense of someone else.

…click on the above link to read the rest of the article…

The Gold Standard Did Not Cause The Great Depression, Part 2 » The Cobden Centre

November 16, 2014

The Gold Standard Did Not Cause The Great Depression, Part 2 » The Cobden Centre.

As noted in my previous column, AEI’s James Pethokoukis and National Review‘s Ramesh Ponnuru — among many others — appear to have fallen victim to what I have called the “Eichengreen Fallacy.” This refers to the demonstrably incorrect proposition that the gold standard caused the Great Depression.

Pethokoukis proves exactly right in observing that “Benko is a gold-standard advocate and apparently doesn’t much like the words ‘Hitler’ or ‘Nazi’ to be in the same area code of any discussion of once again linking the dollar to the shiny yellow metal.” “Doesn’t much like” being falsely linked with Hitler? Perhaps an apology is more in order than an apologia.

My objecting to a demonstrably false implication of the (true) gold standard in the rise of Nazism does not constitute a display of ill will but rather righteous indignation. To give Pethokoukis due credit he thereupon generously devoted anAEIdea blog to reciting Peter Thiel’s praise for the gold standard, praise which triggered a hysterical reaction from the Washington Post‘s Matt O’Brien.

Pethokoukis’s earlier (and repeated) vilification of gold was followed by a column in the Washington Times by a director of the venerable Committee for Monetary Research and Education Daniel Oliver, Jr., Liberty and wealth require sound money. In it, Oliver states:

– See more at: http://www.cobdencentre.org/2014/11/the-gold-standard-did-not-cause-the-great-depression-part-2/#sthash.U1Yzkw5v.dpuf

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