Economic Principles Examined

Economic Principles Examined

I received some feedback disagreeing with me on whether there could be a feasible fiat money system.

I know there are two groups that are very attached to the gold standard, The first are what we might call fundamental constitutionalists who feel it was inspired of God. The second are fundamentalist Mormons, who also believe this about the Constitution.

I personally have found that to see to greater heights the first thing a seeker needs to do is to drop the infallibility mindset that is so prevalent toward religion, prophets, the founding fathers etc. Then one must look at each issue from the viewpoint of the soul and the application of principles which is the language of the soul.

I have moved through both of these camps and understand their thinking. Because gold and silver is mentioned in the Constitution as a basis for money these groups feel that fiat money is blasphemy and cannot work anymore than Satan’s plan can prevail against God. I find that it is difficult to have a discussion with such people where the possibility of anything but a gold standard is even analyzed with any independence of thinking. I keep getting cliches for arguments that I have heard for many years, but the cliches are not analyzed.

One thing that strict constitutionalists do not mention is that the Constitution forbids any state from using anything but “gold and silver coin” as payment of debt. Technically this would even make paper money illegal and certainly would prohibit fractional banking.

Instead of making money contrary to the Constitution we should have amended it to give the country the flexibility it has illegally taken.

A reader who disagrees with my views on democracy says this: “Democracy leads to the ‘have-nots’ stealing through votes what they want from the haves until the ‘haves’ quit producing.”

JJ: We’ve never had a true democracy in the history of the world so one cannot say this is true from any observation. The most democratic process we have had in recent years are various initiatives that all are allowed the vote on and overall the results of these have been much more enlightened than what comes from our elected officials. Our representative republic has done an exceptional job of taking from the haves and giving to the ‘have-nots’ – and this is not close to a true democracy.

The reader thinks that my ideas on money would create too much centralization of monetary power.

In many ways there were more problems with decentralized banking on the gold standard than centralized banking today on the fiat system.

The most decentralized banking in our history was the Free Banking Era from 1837-1862. During this time there were hundreds of banks issuing their own money. Yes, they competed against each other, but every dollar was not worth a dollar. A dollar from one bank may be worth 80 cents and another 90 cents and still another $1.10. It was a nightmare keeping track of exchange rates then and would be even worse today. Could you imagine living in a country were no dollar was a dollar? One man who is with Bank of America goes to Macdonald’s and has to pay $5 for his meal and another with DL Evans Bank has to pay $6.00. The clerks there have a tough enough time making change for a dollar let alone working with a confusing system from the past.

Even if you paid in gold during the free banking system a twenty-dollar gold piece would buy different amounts of product in different times and situations. Between 1837-1843 prices dropped 37% and between 1849-1854 prices rose 32%. Yet during al this time the price of gold was artificially set at around $20 an ounce. Some fundamentalists think that because the price of gold stayed at $20 then it always bought $20 worth of product, but the truth is the amount of purchasing power gold had varied considerably.

Even von Mises admitted that adding gold to the system had the same effect as adding fiat money.

During the free Banking Era “the average lifespan of a bank was five years; about half of the banks failed, a third of which because they couldn’t redeem their notes.” Reference Link

This chaos with such diverse banking methods, the confusion, the instability, the short lives of banks were just some of the reasons that we were almost forced into a more centralized banking system.

The system we have now is far from perfect, but it is much better than we had in the 19th century.

All things centralized are not bad and all things diverse and unregulated are not good. A judgement call always has to be made.

The free banking system didn’t work either. As I said the banks were so unstable the average lifespan was only five years. The Mormon bank in that era only lasted a few months and Joseph Smith had to flee for his life when it crashed.

Decentralizing the money supply has not worked in the past. I think a much better plan can be put together than has existed in the past, for everything we have tried has had its flaws. We must examine them and learn from them and not repeat the mistakes of the past by doing the same thing over and over.

The reader was adamant that we have hard asset based money but again, we have the problem pointed out in the parable. You have to expend tremendous time and labor to secure the assets which wind up doing nothing but sitting in a vault. The time could be much better spent growing tomatoes, if nothing else.

Because of the Law of Economy this gold backed system is doomed to pass away as it is not the most efficient of all possible methods.

Because, however, physical assets in storage are recognized tender in this present world we may of necessity use them for a period of time in certain situations.

I have received criticism of my economic plan when I have not even presented one, but have so far just broadly presented principles. One day I intend to create a plan then it can be justly criticized. I think most here will find it interesting and unlike anything done before.

In the meantime, I will soon present a plan in my book on fixing the economic problems in this country.

Note the book is now written and is available HERE

The bird of paradise alights only on the hand that does not grasp. —John Berry

March 8, 2008

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