How do we “value” anything in the marketplace? By what someone is willing to exchange for it.
I think there are too slightly different groups of pseudo-thinkers which advocate against the Federal Reserve.
A “populist” group sees the Federal Reserve as the tool of big banks and, perhaps of a coven of (Jewish?) super-rich. Some of these people might prefer the government to control money supply and interest rates directly. If the FRB resists Trump’s calls for inflationary policies to keep the good times rolling, this group may find its voice.
A “libertarian” group sees the Federal Reserve as the tool of government (and again, perhaps a possibly-Jewish coven). These people want interest rates and money supply to be set by “the free market.” Some want to return to gold-as-money. Others might like new currencies, e.g. Bitcoin. Some would be happy to accept gold and/or Bitcoin as the market sees fit — anything but the government-controlled FedRes dollar.
While the first group might be happy to let inflation erode the value of the dollar as long there is full employment with rising wages, the second group is especially concerned with inflation. But their concerns show extreme confusion.
In 1792 it took $19.39 to buy an ounce of gold. During the Civil War Lincoln’s greenbacks were traded at a discount but the government eventually redeemed these greenbacks for gold and in 1932 gold could be purchased of $20.67 — almost the same price as 140 years earlier! The dollar-to-gold ratio was the epitome of stability. But with the establishment of the FedRes, gold-as-money fell into disuse and American citizens were even restricted from owning gold. After Nixon finally ended the gold standard, the price of gold rose rapidly and is now $1243.
Expressed in terms of gold, the net annual inflation rate of the dollar from 1792 to 1932 was less than 0.05%. From 1932 to 2018 that rate was 4.88%. Is that inflation good, bad, or indifferent?
Libertarian gold bugs would have you believe it is very very bad. Every year the banks (or gnomes? or members of a non-Christian cabal?) steal, on average, 4.88% of your money and … (do what with it exactly?) If your life-savings were $1,000,000 in 1932 and you converted it all into paper dollars and put it under your mattress you could buy only $16,600 worth (reckoned at the 1932 price) of gold today. The government has cheated you out of $983,400 !!
Of course anyone who has the slightest clue of how money works knows this is absurd. For starters, in 1968 when inflation was 4% and rising, the yield on AAA bonds was 6% and rising. Real people don’t keep their cash under their mattress. In 1981 when inflation was almost a whopping 11%, the AAA yield was more than an even whoppinger 15%.
One give-away to learn how much respect to give a commentator: His webpage will have a graph showing, e.g. the price of gold over time. Look at the scale of dollars on the vertical axis. If someone is trying to educate you the vertical axis will always use a logarithmic scale. If they’re trying to exploit your ignorance and frighten you the vertical axis will use a* linear scale**.*
Looking at that list, none seem to have their own currency. I saw Euros, USD or Australian dollars used by those (very small) countries. So there are central banks involved, just not domestic ones.
The Fed caused the recession and the one before it by manipulating interest rates and facilitating artificial credit expansion.
That wouldn’t be a problem. In the past, even during primitive capitalist economies, there have been clearinghouses, and I’m sure modern entrepreneurs can handle it today.
Corporate bonds are a medium of exchange? Nah.
True, but it’s necessary in tandem with his other proposals which would drive government money out of circulation. If legal tender laws stood, it would lead to a Gresham’s law situation.
That was the first thing I thought of… you’d need to be able to instantly convert and keep track of all the exchange rates and fluctuating values, which mind you, would probably fluctuate with the stock prices of the issuing companies/organizations, or with the public perception if they aren’t traded openly.
It would be a high tech version of “I’ll give you three chickens and an old toothless goat for your five jugs of wine, 3 jugs of olive oil and a loaf of bread.” type situation.
It’s always wise at this point to take a step back and remember that no country in the world has gone back to hard money since abolishing it. None. Not the strongest dictatorship under a crazy leader who could do whatever he wanted and damn the consequences, not a country enduring dire inflation or depression, not a modern country employing the most advanced economic thinking, not even supposed libertarian paradises like Singapore.
Depending on how well you cared for your mattress, though, the numismatic value of those 87 year old bank notes could be more than face value. Especially if it was in the form of a two hundred out-of-print $5000 bills.
To the contrary, there probably wouldn’t be a lot of currencies. Gold and silver would probably resume their duty as the worldwide money in some form or another.
Yes there is no incentive for a government to relinquish its hold on money. Similarly, no government has decided to stop taxing its populace or borrowing to finance various schemes.
If this is the defense of fiat currency and the Fed, I think I’ll just take a nap.
The idea that each monopolistic geographical entity should have their own little bank and own little pieces of paper with dead people on them is so 20th century provincial nationalism. Libertarians envision a global monetary integration under an unmanipulated currency. Very metropolitan, chic, and forward-looking.
There is nothing wrong with walking around with bits of gold and buying stuff with it. Actually I have heard of people doing just that at Renfairs and such.
You can print out WillFarnaby certificates all you want. The Fed won’t stop you. All you have to do is convince all the hard-working Americans to take them and use them as a store of value.
Some years ago I recall some trade being done via barter. That does not require any sort of currency, just someone to keep track of value traded. Not sure if it could work on a large scale, but on the other hand, most of this country’s money is already just numbers on hard drives.
Seems to me that that was not a defense of the Fed, but an explanation why the Libertarian criticism of the Fed is not based on reality.
And that to me shows that the Libertarian idea here is worth less than many ideologies that actually made their views become reality; the libertarian idea here is DOA, many times over already.
Like bitcoin or any one of a dozen crytocurrencies? Sure, nothing stopping anyone from doing so. Apparently not as many people want these “unmanipulated” currencies as Libertarians seem to think.
That’s because people want money to be boring. They want it to be stable. They want to know that what the money have will basically be worth tomorrow the same’s it’s worth today, and they want to know that things cost exactly what they say the cost. Currency is nothing more than a tool, a means of converting labor to goods and services. I don’t think how decentralizing and deregulating it will make things better.
Yes, “governments” are obviously hermetically sealed packets dropped down from space by aliens who have no connection to the rest of society. That’s why no one objects when governments of every conceivable kind manage to resist a policy that would make everything about the world better.
The EU thought a smaller version of this. It seems to have some problems. Nothing that couldn’t be cured by eliminating all nation-states as individual entities, of course. You just have to think big. If everybody in the world thought exactly alike, libertarianism would work wonderfully.
But so would anything else.
No. There are impediments to using gold in exchange on a large scale. Taxes for one.
Yeah, they are also subjected to taxes besides probably being inferior to gold and silver.
Well, I haven’t read any of the responses so far, but my take is that there would be two issues that some libertarians would have. One is with fiat currency, which is part of what the Federal Reserve manages. The other would be with a government agency managing ANY aspect of the US banking system, especially using things like interest levels to turn up or cool down the economy. Libertarians HATE that sort of thing and, instead, want market forces to dictate how things progress. If we get a huge recession or even a depression, well, that’s a correction that will inform later investors to not do the sorts of things that got us into that in the first place. A lot of libertarians put things like the Great Depression or corporate monopolies squarely at the feet of the government and see something like the Federal Reserve as another lever used to incorrectly manipulate part of the economy by the government.
That’s my take on why some don’t like it, FWIW.