From: starr@genie.slhs.udel.edu (Tim Starr)
Subject: Re: gold standard
Organization: UDel, School of Life & Health Sciences
Date: Mon, 12 Oct 1992 23:56:01 GMT

In article <1992Oct9.154644.1@ssrl01.slac.stanford.edu> tcox@ssrl01.slac.stanford.edu (Tony Cox - (415)926-3105) writes:
}> There's a high search cost that prevents most people from discovering how
}> worthless FRNs are, that is, they have to learn about the theory of money and
}> credit from a non-Keynesian or Monetarist or neoclassical source, but from
}> the Austrian school of economics.  This cost is going down, but not fast
}> enough.
}
}   Tim. You really cannot believe that!
}
}   FRNs (Federal Reserve Notes) DO HAVE VALUE. If you, with your
}   knowledge, have reached that conclusion, then I suggest that you
}   send me all of yours right now! Get your friends to do the same!

Don't get me wrong.  I didn't specify how worthless FRNs are, I pointed out
the fact that transaction costs lead most to believe them more valuable than
they really are.  That many economists claim that there's no problem with
inflation so long as the rate is known is testimony to this fact.

}> Alright.  The reason to base currency on a commodity is that promissory
}> notes have to be promises of SOMETHING, as opposed to promises of nothing,
}> which is what future U.S. tax revenue may well be.
}
}   Well, I'll agree that they have to be a promise of something, but
}   that something doesn't have to be a commodity.
}
}   I believe (and noone has contradicted me so far) that the promise
}   of todays money is _merely_ that it can be used to settle accounts with
}   the government.
}
}   Such a promise is not based upon what future US tax revenues may
}   actually be, but upon what tax levies they may attempt to grab from
}   us. The fact that the government in- and out- flows are such a vast
}   component in todays economy, dwarfing all other trade, makes it by
}   far the most dominant mechanism of exchange. So the promise is
}   real, and substantial enough to lend credence to the monetary
}   system.
}
}   You and I may not like this, but it is a fact.

This hardly explains why FRNs are used in the informal, or underground,
economy.  Tax protesters, black marketeers, etc., tend to use FRNs, and they
tend not to "settle accounts with the government," at least not by means of
FRNs.  FRNs aren't even necessary for this.  The IRS will be content to seize
your property under civil asset forfeiture in lieu of FRNs.  I don't see this.

}   You obviously havn't been checking out those hot video's on MTV ;-)

Nope.  Don't get Empty-Vee.  Boy, am I glad!

}> }   We do now, and we will under Libertaria, have a government. This
}> }   government requires financing. Unlike any private party, WE ARE
}> }   REQUIRED TO TRADE WITH THE GOVERNMENT. Private parties may decide
}> }   that they will only trade for gold money (I'd probably only accept
}> }   the Madonna script), but everyone must trade with the government
}> }   and so we have a slight problem.
}> 
}> I part company with you on requiring trade with the government.  My concept
}> of limited government excludes such coercion.
}
}   I would suggest that your counter-argument looses its vitality if you
}   take that track. It is a fact that trade with the government is a
}   coerced requirement at the present time. My proposal comes out of
}   the real world.

But the fact that the USA deals with its subjects under duress is no less
time-dependent than the Federal Reserve System.  I see no reason why the
abolition of the first must come after the second.

}   Look, it has taken us 70 years for the government to get from being
}   6% of the economy to being 40%, and even if a Libertarian government
}   was established tomorrow, it would take many years to get back to
}   the 6% (or lower) without severe economic disruption and civil unrest.
}
}   Face the fact that the government will be a significant part of 
}   the economic life of this nation for the rest of our lives at least!

I don't buy this.  We're facing a Greater Depression SOON, at which time
we may have the opportunity to dismantle the State greatly, perhaps even
enough to have the job finished by the time I'm 50 (I'm 21 now).

}> How can the size of the economy be measured without a commodity-based
}> monetary standard?  I don't think it can be.  If this is impossible, then
}> your whole scheme falls through.
}
}   You are right. If the size of the economy cannot be quantified,
}   then the proposal fails. My argument hinges upon this, and so I'd
}   better do a good job of convincing you, so here goes.
}
}   How is the size of the economy measured now? Well, it is measured
}   by looking at the total output of all goods and services within the
}   nation. Not actually by monitoring each and every trade, of course,
}   but by statistical means. If the country produces 500,000 cars each
}   year, sells them for $10K each, you have a measure of the 'car'
}   component of the GNP. Sum this over all products, commodities and
}   services gives you a measure of economic activity.

Note that this means of measurement includes commodities.

}   It remains an imprecise measure, as it is denominated in that
}   wretched dollar. So you cannot then say that, if next year 500,000
}   cars sell for $12K each (and so on across all the other sectors)
}   that your economy has grown by 20% - of course not.
}
}   What you would do (and what is done now), is to look at what
}   comparable cars sell for next year (and for all sectors,
}   naturally). If there are 550,000 such cars, your economy has grown
}   by 10% in that area. You use that worthless $ to keep the RELATIVE
}   score on how the different sectors are contributing to the whole.

Yah.  There are 10% more COMMODITIES.

}   This all becomes part of the algorithm which is used to inflate (or
}   deflate) the money supply. I'll agree that it is imprecise (please
}   dont use Ill-defined again!), but if it is published and adhered to
}   over a long time period, it would provide a good basis for currency
}   stability.

The challenge was to exclude commensuration to a commodity.  Your proposal
includes commodities.

}   There are two 'checksums' which indicate how your algorithm is
}   doing. The first is the inflation rate, which should drop towards
}   zero, but would also be modified by peoples perception as to the
}   utility of the currency wrt. other `promissory notes'. The other is
}   the value of the currency on the world markets.
}
}   I believe that the monetary policy of Germany ties money supply to
}   inflation rate (measured again as an ensemble average), without the
}   backing of a commodity. This is apparently rather successful, and
}   indicates that my proposal is by no means _off the wall_.

Ensemble of what?  Commodities.

}> }   Well, I wouldn't claim that all the factors influencing the
}> }   inflation rate can be quantified or predicted - clearly one facit
}> }   of this is mass psychology. I can no more predict how people will
}> }   feel about the utility of money than I can how they will react to a
}> }   new kind of shoe. However, if these factors are taken as a
}> }   constant, you know pretty well how the system will respond to an
}> }   increase in money - if you add 10% to the money supply, prices will
}> }   increase by 10% if the economy is the same size.
}> 
}> But there are no constants in the social sciences, because man has volition.
}> Thus taking factors to be constant is false.
}
}   And YOUR system is based upon peoples perceptions as to the
}   utility of Gold! These factors affect both our proposals equally!

I've been descriptive, you've been prescriptive.  In the recent past, in cases
most like the present First World, when the gold standard was permitted, people
tended to base their currencies on it for reasons that haven't changed.  The
only thing that has changed is that it isn't permitted any more.

}> My point was that you seemed to be implicitly condoning this transfer from
}> currency haves to "owes".
}
}   I pointed out that now only foolish people keep currency in any
}   quantity. The market has responded to the inflation. I am
}   observing, not condoning.

This seems rather condescending!  Many people are too poor to keep much wealth
in any form other than FRNs.  They're being robbed blind.

}> I "spoke" without malice.  It just seems that your case is basd upon
}> measuring the unmeasurable, a classic positivist fallacy.
}
}   I know :-). "Measuring the unmeasurable?" You really do have Buddhist
}   leanings, don't you?

It's probably just from being born and raised in the Squatters' Paradise of
the Berkeley.

}   Now, on what basis would you mandate such a change then? I think
}   that that opens the door for political influences to take control
}   again, dont you? If the reds get their hands on all that Taiwan
}   gold, you could probably get the political momentum up in this
}   country to transfer to the Helium standard (of which the US has a
}   clear advantage).

Mandate?  Money is a spontaneous order.  No one would mandate it, it would
happen as the unintended consequence of individual actions.

}> Let's put it this way: you get an A+ when you can show me how to measure the
}> size of an economy without a commodity monetary standard :-).
}
}   So you have accepted the rest of my analysis! Phew!
}
}   I got an A+! I GOT it!!! Wheeeeee!!
}
}Regards, Tony Cox, Stanford, CA

Not quite.  You're still hung up on the point of showing how goods and services
can be measured monetarily without a commodity to serve as a standard of
measurement.


Tim Starr - Renaissance Now! - Think Universally, Act Selfishly
starr@genie.slhs.udel.edu

"True greatness consists in the use of a powerful understanding to enlighten
oneself and others." - Voltaire
Newsgroups: alt.individualism