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Essays on
Denationalisation of Money

      "The truth is indeed that legal tender is simply a legal device to force people to accept in fulfilment of a contract something they never intended when they made the contract. It becomes thus, in certain circumstances, a factor that intensifies the uncertainty of dealings and consists, as Lord Farrer also remarked in the same context, 'in substituting for the free operation of voluntary contract, and a law which simply enforces the performance of such contracts, an artificial construction of contracts such as would never occur to the parties unless forced upon them by an arbitrary law.'"

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

We chanced upon a special offer from Laissez Faire Books on the Amazon.com marketplace in which the LFB folks were pleased to sell us a 3rd Edition of Hayek's famous treatise on the Denationalisation of Money. We'd read an earlier edition and lent it to some scoundrel book borrower who has seemingly not seen fit to return it.

So, for the next few weeks, excerpts from this important work should make up the free market money discussions for our newsletter. This week we begin with simply the first comment sufficiently noteworthy to dog-ear this paperback book. (After several weeks, it may be appropriate to hunt up the comments and context in which Herbert Spencer advocated throwing open the coinage of gold to competition, which Hayek mentions a few pages later.) One of the first ideas that comes up is to note that Hayek points out how any legal tender law would violate that provision of the constitution forbidding laws to impair the obligation of contracts - forbidden to the states, not specifically delegated to the national government, and therefore a power reserved to the people.

Now, the USA does have a sort of legal tender law, in that the government printing office is authorized to print on Feral Reserveless Nothings the text, "this note is legal tender for all debts public and private," but does not have anything like the legal tender laws of yore that, for example, placed the necks of many Paris merchants under the guillotine. Of course, passing such a law would be fairly trivial with a Congress that finds no way to avoid passing the RealID act, continued funding for further massacres in Iraq, and socialist wealth-redistribution aid to tsunami victims from victims of theft (taxes) all in the same omnibus bill. To be sure, there is no clear power to authorize Congress, even in emergencies, to make any money legal tender.

Indeed, the same article of the constitution which prevents the states from making any thing but gold and silver coin a tender in payment of debt is unmatched throughout by any delegation of a related power to the national government, which means that no power to make anything else a legal tender exists. We'd expect this provision to be as infrequently noticed in the 21st Century as it was in the 20th.

In the coming era of hyperinflation, economic collapse, real estate bubble bursting or lapsing, stock market frenzies (hyperinflation may make some prices rise dramatically as dollar-holders seek value; many stocks would likely collapse), and a collapsing dollar, what sort of reaction should we expect from the crud that oozes out of government offices? Capital controls, certainly. And what more thoroughly exemplifies capital controls of the worst sort than legal tender laws combined with wage and price controls?

Not from Republicans? Remember the 1970s? It was a Republican administration under Nixon that instituted wage and price controls most recently. It was a Republican administration under the elder Bush that unfroze government regulations so every rule changes three times a decade. It is a Republican administration under the younger Bush that has imposed tariff barriers on steel, lumber, and many other products.

Sure, there's a clever side show going on with Deep Throat being exposed. No doubt many Nixon apologists are lining up to explain why everything they did really made sense at the time, and still does. You know, like the secret wars in Laos and Cambodia, the vets exposed to Agent Orange, the POWs and MIAs left behind, the whole Pentagon Papers episode, the Watergate break-in, the stonewalling and cover-ups. Perjury. High crimes. Good old-fashioned dictatorship.

It is a sort of pretty idea to suppose we might expect better from Americans. Revolutionary France under the Directorate exposed some of the dark underside of humanity. Merchants and shopkeepers dragged from their homes, hauled to prison for daring to inquire whether sales might be consummated in specie or fiat money. A "Law of the Maximum" that set such idiotic prices for basic foods that no farmer could afford to sell food into the major cities. Army troops sent on expeditions from the cities into the provinces to round up any livestock, grain, or edibles - even the seed for the next season's planting. And the guillotine, again and again and again, chopping off heads, splattering the crowds with blood. Not just noble heads, royal heads, or bureau-rat heads, but merchant heads, tradesmen heads, the butcher, the baker, the candlestick maker. A reign of terror that truly sent that thrill of terror deep into the psyches of ordinary French people everywhere.

But we won't get better results with Americans running things. Look at the fiasco of the Continental. Look at the Confederate paper money. Look how close Lincoln's sycophants came to hyperinflation with the Greenbacks. Given the puppet nature of the government of South Vietnam, the disaster with the piastre was the responsibility of the USA government. Someone says it couldn't happen here? It has, several times. What is the Federal Reserve System but a system for inflating a paper currency?

Hayek's comments on the need for free market money to save civilization are a good topic for a future issue. There is yet time to save civilization, or build a better one. It is far too late to stop the paroxysms of economic strife, difficulty, and widespread collapse. There shall be blood in the streets, many days of reckoning, riots, wars (and rumors of war), rebellions, the brutal crushing of rebellions, and a great many travails. Free market money may save you, your family, much of your wealth, and perhaps enough knowledge to establish a better civilization based upon more rational principles.

The difficulties cannot be avoided. They may be planned against. Move upstream, and consider hip waders against the days when the tide of blood in the streets is exceptionally high.


6 June 2005

      "The threat of the speedy loss of their whole business if they failed to meet expectations (and how any government organisation would be certain to abuse the opportunity to play with raw material prices!) would provide a much stronger safeguard than any that could be devised against a government monopoly. Competition would certainly prove a more effective constraint, forcing the issuing institutions to keep the value of their currency constant (in terms of a stated collection of commodities), than would any obligation to redeem the currency in those commodities (or in gold)."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

Well, there you have it. Thirty years ago, Hayek predicted that the governments would play with the price of gold. Amazing man.

So, who keeps their currency constant in terms of a stated collection of commodities? Well, in 1972 the Schumacher Society, Robert Swann, and Ralph Borsodi created something called "the Constant," which was a currency they established to remain constant in value against a basket of commodities. An intriguing form of free market money, indeed, and with a New Hampshire connection, we gather.

Of course, nobody has heard of the Constant except perhaps Bernard von NotHaus and a few other rare monetary architects. Why not? Because of the ingredient missing in Hayek's analysis. Acceptability plays the key role.

Sure, as he points out, it would be cheaper to simply issue a currency and keep it constant in terms of various commodity prices. Lots cheaper than paying to store silver and gold. But, who would accept such a currency?

Eventually? Maybe anyone would, eventually. But at first? Nobody. Nobody is going to trust the Schumacher Society or the Schumpeter Society or Joe's Grocery Store and Diner to issue currency. Therefore, any novel, new, intriguing, excellent currency, to be accepted, must have some practical use.

Wal-Mart, Borders, and many other retailers issue gift cards that are like old-fashioned gift certificates. You may spend them like money at the retailer. So, if the retailer has locations where you are, or where you want to send value, great. That works. There's something practical to do with the currency, so you can buy into it. If someone you know likes to go to Bed, Bath & Beyond, and you buy them a gift card, they may be very appreciative.

For a general currency, though, how do you get acceptance? If you don't design for acceptability, nobody is going to accept your currency, perhaps for a long, long time. Then what would you do?

So, redeemability is not just a nice idea. It isn't just an alternative to keeping the value of a free market currency stable in terms of a designated basket of commodities. Redeemability is the basic practical thing you can do with a general currency if none of the stores in your area would accept it. If you can turn the currency into gold or silver, then it has an inherent practical use. So you may feel free to accept it because you know that there is something to do with gold or silver. Gold and silver have always had value, are very likely always going to have value, and represent money to nearly everyone on the planet. So acceptance is widespread.

Really, without acceptance, constancy is just a theoretical construct. What does it mean to keep the value of the money constant if nobody accepts it? The day before someone accepts the money, the value of the commodities in terms of the new money is infinite - no amount is enough to get anyone who has some of the commodities in question to part with any portion of them. The day that person accepts the new money, at some rate, for some set of commodities he's willing to sell, the value of the commodities drops to some finite figure. And, frankly, who knows what happens when more and more people find the currency acceptable. Prices fluctuate.

Gold and silver cut through this problem. The currency provider gains immediate acceptance. People know about gold and silver, know that there is a value to these things, and accept the new money because it has an intrinsic practical use. Moreover, the test of constancy is a complex economic equation, the more so depending on how many commodities are in the basket. The test of redemption is simple. If I follow the process, does gold or silver change hands?

Yes, ultimately, other things are going to be available as free market money. People are free to accept and use anything for money they like. Cigarettes, silk hose, and chocolate have been money in recent decades. People may become used to the idea of valuns or constants and use them, or even issue them. After all, they got used to Ithaca hours - in Ithaca, New York, anyway. But gold and silver have an edge over these other things. They've been money before. They are understood to have value. They've held value pretty well for a few years now. So, the market accepts them as money.


20 June 2005

      "It seems to me to be fairly certain that
      (a) a money generally expected to preserve its purchasing power approximately constant would be in continuous demand so long as the people were free to use it;

      "(b) with such a continuing demand depending on success in keeping the value of the currency constant one could trust the issuing banks to make every effort to achieve this better than would any monopolist who runs no risk by depreciating his money;

      "(c) the issuing institution could achieve this result by regulating the quantity of its issue; and

      "(d) such a regulation of the quantity of each currency would constitute the best of all practicable methods of regulating the quantity of media of exchange for all possible purposes."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

Let's examine the constancy of purchasing power. One ounce of gold has been identified with the purchase of a man's suit, shoes, and belt for several centuries. It is said that an ounce of gold would buy those things at the end of the American Revolutionary War, at the end of the War for Southern Independence, at the end of the First World War, and at the end of the Second World War. Certainly those things are available for the same price today as a one ounce gold coin would fetch. Author G. Edward Griffin in The Creature from Jekyll Island goes further and claims that an ounce of gold would buy a man's toga, sash, and sandals at the time of Emperor Augustus, two thousand years ago.

By way of comparison, consider how many German marks it would take to buy an ounce of silver in January 1919. The price was twelve marks to the ounce of silver. Then the implementation of the Versailles Treaty forced a terrible hyperinflation on the Weimar Republic, and the mark became worth less and less, until eventually it was worthless. According to author Bernard von NotHaus in his 2003 book The Liberty Dollar Solution to the Federal Reserve that same ounce of silver cost 543 billion, 750 million marks in November 1923, about the time a guy with a funny mustache jumped up on a table in a beer hall in Munich and announced the revolution would be led by his Nazi party.

Was Hayek right? Of course! Gold has retained its purchasing power. So long as people have been free to own it, they have demanded it. Even when gold was being confiscated, something like three-quarters of all gold coins in the country were never turned over to the government. Gold has always been usefully dense in terms of value, so hiding gold coins is easy compared to hiding a military pattern battle rifle and a thousand rounds of ammo for the same.

In 1817, David Ricardo reached a similar conclusion to that of Hayek cited above. He wrote, "Though it [paper money] has no intrinsic value, yet, by limiting its quantity, its value in exchange is as great as an equal denomination of coins, or of bullion in that coin." Great. So, keeping the value constant by limiting the quantity of a certain currency in circulation would be possible. But, Ricardo continues, "Experience, however, shows that neither a State nor a Bank ever have had the unrestricted power of issuing paper money without abusing that power;...the issue of paper money ought to be under some check and control; and none seems so proper for that purpose as that of subjecting the issuers of paper money to the obligation of paying their notes in either gold coins or bullion."

Regulating the quantity of gold or silver money issued by a given currency provider is as simple as offering bailment and redemption. Exchangers bail in more gold or silver as needed. Users redeem currency for gold and silver as they please. The amount of currency in circulation follows the needs of the market.

Hayek's final observation cited above is that free market money is the best possible money at the best possible price. Where issuers and users are free to choose, they make the most effective choices. Where a monopoly is imposed coercively, choice is eliminated, and everyone's wealth is imperiled.


27 June 2005

      "It seems to me that the decisive factor that would create a general preference for a currency stable in value would be that only in such a currency is a realistic calcuation possible, and therefore in the long run a successful choice between alternative currencies for use in production and trade. In particular, the chief task of accounting, to ensure that the stock of capital of the business is not eaten into and only true net gains shown as profits available for disposal by the shareholders, can be realised only if the value of the unit of account is approximately stable."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

Let's see what we can make of the unit of account called the dollar. I dismiss out of hand the tri-metallic definition of a dollar in the 1792 Mint Act as outmoded. It might be nice to use the weight in silver or gold given in that act as a definition of a dollar, but that is not the definition as used now.

The dollar as a unit of account would seem to have inflated by 1,844% from January 1914 to May 2005, based on the Inflation Calculator we found at InflationData.com. What does that mean?

Well, 100% inflation would mean that it takes $2 now to buy the same thing that $1 would buy then. So, 1844% inflation means that it would take $19.44 now to buy what $1 would buy then. On average, there has been 20.26% inflation per year in the period from 1914 to 2005.

Briefly, the dollar as a unit of account is terrible. It is very hard to compare figures from one year to the next, because of inflation. A far more stable unit of account would be the troy ounce of gold.


11 July 2005

      "Certain special problems would arise where present sales practices are based on the general use of uniform coins of a few relatively small standard units, as, e.g., in vending machines, transportation, or telephones. Probably even in localities in which several different currencies were in general use, one set of small coins would come to dominate. If, as seems probable, most of these competing currencies were kept at practically the same value, the technical problem of the use of coins might be solved in any one of various ways. One might be that one institution, e.g. an association of retailers, specialised in the issue of uniform coins at slightly fluctuating market prices. Tradesmen and transport and communication undertakings of the locality might join to sell, at market prices and probably through the banks, a common set of tokens for all automats in the locality. We can certainly expect commercial inventiveness rapidly to solve such minor difficulties. Another possible development would be the replacement of the present coins by plastic or similar tokens with electronic markings which every cash register and slot machine would be able to sort out and the 'signature' of which would be legally protected against forgery as any other document of value."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

The man's profound grasp of economics is astounding. In a few deft strokes, Hayek lays out all the tasks before free market money entrepreneurs. These aren't magical functions that must be consolidated into the hands of some powerful government. Coining money is a simple technical matter. It needs to be done a certain way, and various obvious parties are going to be in a position to take charge.

Look at his idea for electronic markings. There's no need for these signatures to be legally protected. Digital signatures should provide even better security. It should be possible to design tokens with encrypted and digitally signed indicators that are very hard to forge or even correctly duplicate.

There are now several developments in the issue of free market money specie. The eldest of these non-national currency issues of gold and silver would be the dinar and dirham coins from the Islamic Mint, circa 1992. In 1998, the Liberty Dollar began issuing silver specie, and subsequently developed a gold piece.

While there are numerous medallions privately issued by all sorts of mints, including gold and silver rounds, these don't qualify as specie as they lack face values. Prior to the Islamic Mint and their one dinar and one dirham coins, specie had been the province of national mints. The Silver Liberty and the Gold Liberty bear face values of $10 and $500 respectively, and have endured for many years as circulating currency.

The Liberty Dollar has also minted two ounce silver pieces with $20 face value and half ounce silver pieces with $5 face value, although we've only seen these in brilliant uncirculated condition.

Another new currency on the near horizon is the Phoenix Dollar from web hosting entrepreneur, robotics enthusiast, and bon vivant Gordon Hayes. Gordon has developed his digital silver-redeemable currency for online use, along with one ounce silver specie (bearing a P$10 face value) and a paper version called SilverBacks. We plan to profile this new online currency in a future issue of The Indomitus Report.

Au-Gold offers a pre-paid card with a scratch-off PIN, similar in function to a pre-paid telephone calling card. These cards draw value from the e-gold.com system. Presumably the owners are gaining a huge number of e-gold account "progeny" and attendant referral fees.

Also on the horizon is a gold certificate project that we've learned about. The developer isn't ready to reveal the details, but the project is moving forward. The gold certificates would be available in at least one denomination originally, and be tied to a stored value online gold system. Such certificates and the Au-Gold cards are a convenient way to send gifts of gold to friends or family who may not have an online gold account.

For that very reason, we first encountered the gold certificate concept at the 2003 New Orleans Conference. Jim Turk and Anthem Blanchard were there providing one gram certificates to attendees. The blank certificates were included in the registration packets of all attendees, many of whom would stop by the GoldMoney booth to receive a payment key for a GoldMoney goldgram™. No doubt these payment keys motivated the opening of quite a few new holdings.

In the future, it may be possible to tie stored value cards into an ATM network, so that local currency would be provided in exchange for digital gold. Stored value cards such as the scratch-off PIN card might be usable in pay phones and vending machines. Even plastic or metal tokens tied to digital gold accounts might become practical as the industry grows.

And back in 1976, Hayek saw these ideas on the horizon. He may not have realized all of them, but his seminal work on denationalizing money was the start of many important developments. For one thing, he proposed a European free market for currencies and banking which led, mistakenly in his view, to the development of the European monetary consolidation under the euro.

We'll continue our focus on Denationalisation next week.


18 July 2005

      "By referring to different kinds of money, we have in mind units of different denomination whose relative values may fluctuate against one another. These fluctuating values must be emphasised because they are not the only way in which media of exchange may differ from one another. They may also, even when expressed in terms of the same unit, differ widely in their degree of acceptability (or liquidity, i.e., in the very quality which makes them money), or the groups of people that readily accept them. This means that different kinds of money can differ from one another in more than one dimension.

      "It also means that, although we usually assume there is a sharp line of distinction between what is money and what is not - and the law generally tries to make such a distinction - so far as the causal effects of monetary events are concerned, there is no such clear difference. What we find is rather a continuum in which objects of various degrees of liquidity, or with values which can fluctuate independently of each other, shade into each other in the degree to which they function as money.

      "I have always found it useful to explain to students that it has been rather a misfortune that we describe money by a noun, and that it would be more helpful for the explanation of monetary phenomena if 'money' were an adjective describing a property which different things could possess to varying degrees. (Machlup for this reason speaks occasionally of 'moneyness' and 'near-moneyness.') 'Currency' is, for this reason, more appropriate since objects can 'have currency' to varying degrees and through different regions or sectors of the population."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

The other night, I was out with a couple of five-gallon water jugs at a Windmill Express filtered water station. These are places which provide 24-hour access to much-improved tap water in just about any quantity you might desire. They are to water what after-market auto accessories are to sports cars. If you have ever stood before a vending machine which accepts one dollar bills or coins, having in your possession nothing smaller than a five dollar bill, you understand this concept of a given unit of currency having widely varying usefulness or acceptability. Even though the five is expressed in the same unit - the dollar - it is not as useful nor as widely accepted as a single.

Similarly, an ounce of gold, or a warehouse receipt for an ounce of gold, may prove to have an extremely liquid market - as in the case of e-gold - or a fairly limited market. Neither GoldMoney nor e-Bullion seem to have nearly as many users nor as much ready liquid demand as e-gold, though both are markedly more liquid than Pecunix. Yet, all four of these currencies are in fact gold. They differ both in the size of their respective user bases and the velocity with which they move through the economy.

Hayek explains the theory behind the fact that any number of articles can be useful in different situations as money. For example, cigarettes have often been used as money in various economic situations. Tales of prison and war time economies often invoke the cigarettes-as-money phenomenon. Similarly, chocolate bars, silk hose, nylons, animal skins, tulip bulbs, and many other objects have been money in various places at different times. The key dimension along which objects take on enhanced "moneyness" is acceptability. Batteries turn out to be especially prized in some lesser developed countries, and may be included in quantity in luggage to...facilitate...border corssings. Even objects which are not especially interchangeable nor even fungible, such as livestock, may be regarded as money if they are sufficiently acceptable in the market.

Finally, Hayek's idea of currency being the better term, since an object may have currency to a greater or lesser extent, leads inevitably to my idea of currencyism as the new contemporary philosophy to replace "modernism." Modernism has been tainted by association with socialism, so another term for contemporary thought is preferable, and postmodernism is comparatively silly.

We'll continue our focus on Denationalisation next week.


25 July 2005

      "It seems to me that the decisive factor that would create a general preference for a currency stable in value would be that only in such a currency is a realistic calculation possible, and therefore in the long run a successful choice between alternative currencies for use in production and trade. In particular, the chief task of accounting, to ensure that the stock of capital of the business is not eaten into and only true net gains shown as profits available for disposal by the shareholders, can be realised only if the value of the unit of account is approximately stable.

      "...in the long run at least, the effective choice between competitive offers of currencies will be the usual one of competition. The currency that will prevail will be the one preferred by the people who are helped to succeed and who in consequence will be imitated by others."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

It is very helpful to have a stable unit of account, because with such a unit, comparisons between past performance and present performance may be made swiftly and easily. The problem with inflating dollars is chiefly that such comparisons are difficult, at best.

Since we now know that the government is lying about inflation, changing the method of calculation as well as the items being calculated, it is necessary either to have a stable unit of account, or to have an independent source for information on inflation. The easiest, cheapest, and therefore most likely solution is to adopt a stable unit of account.

Then the question becomes, which unit? It should be a unit of account which is unregulated, undistorted, and therefore subject to market forces. Given the long history of its success, the troy ounce of gold or its more recent variant, the metric gram of gold, would be likely units of account. And, all other things being equal, we should like to adopt these units of account.

Unfortunately, gold seems to have been manipulated in recent years. Central banks have apparently been playing fast and loose with their own accounting, lending out gold while keeping it on their books, and selling gold into the market without regard to delivery. Paper gold at several of the major markets combined with this absurd practice of lending gold without regarding it as a reduction in assets have tended to suppress the price of gold. If such official actions are distorting the market, and the evidence given by GATA.org and many others suggests such distortions are significant, then it would be wise, at least in the interim, to use another unit of account.

An obvious alternative is silver. Silver has as much longevity as gold in terms of its historical use as money. There is some evidence that China may have official stocks of silver to use to distort the market, but these are not nearly as substantial nor as proportionately significant as the official stocks of gold.

We anticipate seeing SilverMoney from the good folks who brought us GoldMoney.com sometime later this year. It would be nice to see some of the charts that have populated the Founder's Commentary of GoldMoney's web site re-worked to switch from grams of gold to ounces of silver for the accounting. For example, it might be nice to see the price of oil denominated in ounces of silver over the last century or so.

Two other possible units of account might be worth examining in the near term. One is the ounce of platinum, which has remained elevated in price amidst considerable turmoil in the price of gold. The other is the pennyweight of copper.

A pennyweight is a twentieth of an ounce troy, or 24 grains. Thus, it is approximately 1.555 grams. The 1792 Mint Act had the temerity to define the dollar in three metals simultaneously, and one of these was copper. It may be that pounds (avoirdupois) of copper would be the better unit in contemporary times.

Assuming we encounter a useful database of price information, we'll endeavor to make available some comparisons in these various units of account. Meanwhile, our analysis of gold performance against silver since May 1999 suggests that gold is the most stable unit of account.

We'll continue our focus on Denationalisation next week.


1 August 2005

      "A competition the chief merit of which is that it keeps the products of the competitors dear raises various interesting questions. In what will the suppliers compete once they have established somewhat their reputations and trust for keepng their currencies stable? The profits from the issuing business (which amounts to borrowing at zero interest) will be very large and it does not seem probable that very many firms can succeed in it. For this reason services to the enterprises basing their accounting on a bank's currency would be likely to become the chief weapon of competition, and I should not be surprised if the banks were practically to take over the accounting for their customers."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

It has confused me ever since reading it. Profits are very large. Unless competition were regulated or extraordinary barriers to entry were imposed, why wouldn't "very many firms" succeed? One would expect that where profits are high, many companies would compete successfully.

The point Hayek makes about accounting proves to be completely correct. All the web based currencies are now offering basic accounting functions and account history information in various useful formats. Some, like 1MDC.com are offering delightful mechanisms for unusual spends, bulk spends, monthly recurring spends, money order spends, special checks with various useful features. You should check it out.

Friend Gordon Hayes is developing a new Phoenix Currency which should be out this month. It has all kinds of accounting features that provide for invoicing and purchase orders, as well as various ways of looking at your account history.

Once again, Hayek proves to be nearly prescient in his vision of free market money. It works, he understood why it would work, and there is no longer any reason for fiat money. There is only the power-mad purposes of those who control fiat money and send it out into an unwitting world.

We'll continue our focus on Denationalisation next week.


8 August 2005

      "The whole difference of approach between the dominant 'Keynesian' school and the view underlying the present exposition rests in the last resort on the position taken with regard to the phenomenon of rigid prices and wages. Keynes was largely led to his views by his belief that the increasing rigidity of wages was an unalterable fact which had to be accepted and the effect of which could be mitigated only by accommodating the rate of money expenditure to the given rate of wages. I have maintained ever since that such an adaptation of the quantity of money to the rigidity of some prices and particularly wages would greatly extend the range of such rigidities and must, therefore, in the long run, entirely destroy the functioning of the market.

      "All inflation is so very dangerous precisely because many people, including many economists, regard a mild inflation as harmless and even beneficial. ... Not only has inflation allowed the ordinary errors of judgement to accumulate which are normally promptly eliminated and will now all have to be liquidated at the ssame time. It will in addition have caused misdirection of production and drawn labour and other resources into activities which could be maintained only if the additional investment financed by the increase in the quantity of money could be maintained."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

Here, then, is the key advantage of competition in currency. With a monopoly, the monetary authorities have the power to temporarily eliminate much unemployment now, even at the cost of even more unemployment later. Without a monopoly, a given monetary authority in competition with others must perish in the face of failing to keep their currency dear.

It remains possible in such a competitive environment for an individual or company to maintain a high price for their services or products. However, they can only do so in consequence of a loss of sales volume.

The key advantage of a competitive currency environment is the absence of monetary inflation, because the inflating currency must fail to compete in the marketplace of currencies. The absence of inflation means that the misallocations of resources which always attend on inflation are ended. In other words, those who invest foolishly in education or training to do some outmoded job, or who form cartels (unions) to force the acceptance of their outmoded services or products, are unable to compete. They would keep the price of their labor high only at the risk of losing volume.

How do these misallocations hamper an economy based on an inflating fiat currency? The extent of the cost to economic development is so extreme, its measurement may require an investment of years of time - something that only a non-inflationary economy could afford. Every investment is misallocated in the face of an inflating currency, for nobody has the ability to predict from one moment to the next nor from one week to the next what inflation will do to their money, what losses to their store of value they must make up, what mania they must sound out early to gain the upper hand, and what interest rates will do to them. Only those in monetary authority have the ability to accurately measure inflation - and they clearly have no willingness to share accurate data on this topic. Only those in monetary authority have the ability to guess in advance what interest rates would be.

So, at stake in this contest between fiat national currencies and competitive, free enterprise, free market money is the essential matter of whether there would be a privileged class of wealthy and powerful, self-selected to rule and reign, or whether there would be a widespread freedom to seek, gain, and hold wealth. On the one hand we have fixed markets, corrupt practices, graft, greed, authoritarianism, control, and the most disgusting displays of power-mongering. On the other hand we have free markets, free enterprise practices, soundness, ambition, libertarianism, freedom, and the absence of centralized power to abuse.

With free market money we have the opportunity to be masters of our own destinies. Without it, we are necessarily subjects, either in control presently or out of control until some time near at hand. The choice is up to the individual to choose what money he would accept, to choose what money she would tender. The consequences of those choices are much greater than most people realize.

We'll continue our focus on Denationalisation next week.


15 August 2005

      "The supposed chief weakness of the market order, the recuurence of periods of mass unemployment, is always pointed out by socialists and other critics as an inseparable and unpardonable defect of capitalism. (Footnote: The long depression of the 1930s, which led to the revival of Marxism (which probably would have been dead today without it) was wholly due to the mismanagement of money by government - before as well as after the crisis of 1929.) It proves in fact wholly to be the result of government preventing private enterprise from working freely and providing itself with a money that would secure stability."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

Externally imposed, coercive government is the enemy of freedom. Any individual who does not see this fact is deluded or asleep. Freedom itself is served by self-government or what some might name self-control. The most essential tool of self-control is the deliberate personal acceptance of self-responsibility.

Once you accept responsibility for yourself, for your actions, for your successes and failures, and for your future, you begin to see the benefits of cooperation with others. Cooperation with others may be based primarily on either one of two general strategies. These are the strategy of exchange of value and the strategy of violence. It is difficult to mix the two strategies to good effect, because they are necessarily at odds in a great many cases.

It would be mistaken to say that violence never solves anything. Rather, violence is a very old, very comfortable response to stimuli. Flight is another, which is why people enjoy having safe places to go and wide open spaces in which to breathe. Fighting is a comfortable response to stimuli, and violence is a solution. It is, however, not the only solution, and often brings with it unintended negative consequences. Since we started out by accepting personal responsibility for our actions, we now have to conceive of a method of testing for whether violence is a suitable strategy to apply. Let's develop that test after we examine the other strategy.

Exchange of value may mean any number of things. The essence of the market is the exchange of something which I value less for something which I value more. If I have many grapefruit, perhaps an entire orchard of grape fruit trees burdened with fruit, some of which I harvest every day for weeks, then I would not value grapefruit very much. Left without alternatives, I might eat grapefruit three meals a day, and be quite sick of it. So, therefore, I would gladly exchange grapefruit for honey. Indeed, I might value honey so highly that I would exchange a bushel of grapefruit for a pint of honey. Honey happens to be well suited to the sweetening of grapefruit, and by making this exchange with some beekeeper, I would be better off. Given the cloying sweetness of honey, the beekeeper would likely reason that he is also better off, having now less inventory of honey and some tasty grapefruit. Having now arrived at a solution that satisfies both parties as superior to their situation before the exchange, the exchange itself is made.

Barter is only one way to achieve an exchange of value. I may seek gold, silver, or some other medium of exchange for my grapefruit, owing to the flexibility such a choice would have for me in making other purchases. I may seek to exchange intangibles, such as good will, love, happiness, a smile, joy, the feeling of prosperity, or satisfaction for other intangibles, or, through mechanisms resembling altruism, for things such as grapefruit. I may provide grapefruit to harvesters in exchange for their labor and some measure of loyalty. Owing to the nature of intangibles, someone may prefer to work for me for grapefruit rather than for someone else for gold owing to the remarkable decency and honesty with which I treat them. These are aspects of the exchange of value that are difficult to measure, but no less real for being intangible. People take choices. Left to their own choices, they very often choose wisely and well.

Violence and the threat of violence may be coercive, and would tend to break up wise choice taking. People would be forced to accept a particular choice owing to the threat of violence, or the application of violence. However, there is a class of violent behavior which is not coercive, but defensive. Force which is applied for the purpose of preventing loss, preventing death, defending against coercion, is meritorious. It is worth undertaking because it supports free choice and the non-coercive exchange of value. Thus, individuals who seek peace and prosperity should prepare for war. Having the means and the skills to defend oneself is essential to the operation of free market commerce. So, the test we seek is very simple. If violence is applied for coercive purposes, in an aggressive way to bend others to your will, then force is inappropriate, unethical, bad, and wrong. If it is applied for defensive purposes, in a limited way, to prevent others from bending you to their will, then it is appropriate, ethical, good, and proper.

This word, proper, relates to property. Private property is the sine qua non of individual liberty. Without private property, free enterprise is unable to operate.

Money is a tool with three functions. It is a store of value which consequently is a medium of exchange. A medium of exchange breaks barter into separate transactions with the store of value bridging the gap, so that barter from one person to another is not stymied by the person with a surfeit of good A being uninterested in any of good B. Money is the good that everyone seeks, and it is sought because of its usefulness as a medium of exchange and store of value. If a medium of exchange is used which is not a good store of value, because it devalues, then the market is distorted as everyone tries to shed the poor store of value and exchange it for something that stores value better. It is possible for a medium of exchange to be a poor store of value. It is inevitable that a good store of value becomes a medium of exchange. And, as a result of storing value over time and being useful in exchange, money is a unit of account. As a unit of account, money provides an essential tool for planning, budgeting, forecasting, anticipating, saving, and organization.

Socialism is a set of policies which denies individual liberty, free enterprise, and free markets have any benefits. Instead, socialists, who may also be called thieves and murderers, insist that violence is appropriate to all human interactions, and refuse to adopt the test for the proper application of force. Whether they delude themselves that they have superior knowledge and therefore should be authorized to use force to demand compliance, or whether they are simply evil is a superfluous examination of motives. It just does not matter. Whatever reason thieves have for stealing, whatever reason violent murderers have for killing, whatever excuse the state gives for its betrayal of liberty and its destruction of life and property, is irrelevant. We don't ask vermin to explain why they spread disease, attack livestock, or pilfer storehouses, we simply make ourselves impervious to their predations by killing them, blocking them from our property, and maintaining a watch against their return.

Employment, like all other exchanges of value, is best pursued under free enterprise conditions. Thus, every dictator must guard his borders against his own people getting out. Money flows over borders and around obstacles to create exchanges of value where none seemed possible. Thus, dictators seek to control the choice of money and its movement, especially over borders. Again, dictators or socialists may excuse their coercive behavior with all manner of rationales, and it is irrelevant. They add prevarication to theft and murder. When dictators prevent the free operation of the market, especially when the interfere with the operation of the singularly useful tool of money, they eliminate flexibility and, necessarily, degrade stability. It is no surprise that they then blame the free enterprisers for the difficulties which the dictators have created.

The state is a tool of socialism. It is a weak tool compared to free enterprise. It is unable to plan effectively, organize cleverly, surmount difficulties, behave flexibly, or provide stability. All the state has going for it is force, so, like a three-year-old with a hammer, everything becomes a suitable target for force. When force fails to motivate exchanges of value, the state applies more force, deception, and arrogance to disguise its failures.

On 8 June 2004, Walter Maestri, emergency management chief for Jefferson Parish, Louisiana, told the New Orleans Times Picayune, "It appears that the money has been moved in the president's budget to handle homeland security and the war in Iraq, and I suppose that's the price we pay. Nobody locally is happy that the levees can't be finished, and we're doing everything we can to make the case that this is a security issue for us."

Needless to say, we anticipate considerable deception to be the Bush administration's response to this obvious flaw in their casual approach to allocating resources. Sometimes, it seems that Bush is unconcerned because he's just doing what he's told, and isn't taking any personal responsibility for his actions. Doug Casey at the recent Eris Society conference mentioned that Bush seems unaffected by the presidency. Whereas other presidents age a decade in their first term, Bush hardly seems to have matured a bit.

One thing that seems mistaken in Hayek's essay is this notion that Marxism would have died out were it not for government mismanagement (or deliberate malfeasance) which led to the Great Depression. Very likely, that's mistaken because Marxism has always been a deception funded by the banking cartel and those with vested interests in creating a power structure that is encouraged to strip private property from individuals. While it is clearly foolish for anyone to think they would long remain in control of such a tyranny, it is clear from the evidence that schemers in power always imagine themselves immune to the brutal monstrosities they create.

Marxism as a putative branch of economics is drivel. It has no substance, no predictive usefulness, and has been repeatedly shown to fail to describe actual economic processes. Marx as an author was tedious, devoid of wit, and apparently determined to emulate all the narrative excitement of ... Hegel. Marxism has to be seen as tool useful to some power hungry thieves. There's simply no other explanation for such horrid mendacity to be studied decades after being revealed as useless and turgid. The only explanation that makes any sense is that Marxism serves the purposes of some group who insist that it be propagated into the future.

We'll continue our focus on Denationalisation next week.


29 August 2005

      "Once governments are given the power to benefit particular groups or sections of the population, the mechanism of majority government forces them to use it to gain the support of a sufficient number of them to command a majority. The constant temptation to meet local or sectional dissatisfaction by manipulating the quantity of money so that more can be spent on services for those clamouring for assistance will often be irresistible. Such expenditure is not an appropriate remedy but necessarily upsets the proper functioning of the market."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

Inflation harms everyone by suspending the "effective working" of the price mechanism. It is worse for those with fixed incomes or depending on external aid. What's more, there's no need for it. It is a form of political largesse that accompanies politically manufactured scarcity.

There's an interesting point, now, about majority rule. In fact, it isn't majority so much as plurality. Those in power need only satisfy the clamoring of a plurality to work their will. And, of course, that's only to the extent that the votes are actually counted.

Inflation has already been increased to pay for the war with Iraq combined with the attendant high trade and budget deficits. The lies about consumer price indices and the like from government have become harder to swallow with Katrina and her damage to refineries and oil terminals in Louisiana. Inflation is being ramped up further to pay for all the costs of militarily occupying Afghanistan, Iraq, and now New Orleans.

Majority rule and democracy cannot function as anything but tyranny. The tyranny of the majority soon gives way to military dictatorship or totalitarian authority. Inflation is one mechanism by which democracies fail. Clamoring for bread and for circuses is another.

Much of the country has already apparently given up on freedom. They have traded in all their liberty for a little image of pretended security. So, they willingly allow unlawful searches and seizures on a routine basis throughout the country, in spite of the fact that the Fourth Amendment may not be suspended, either.

Inevitably, the current conditions will lead to rebellion, revolution, and new countries. The timing of these future developments is uncertain, but their prospect is quite assured.

We'll continue our focus on Denationalisation next week.


12 September 2005

      "The rate of interest, like any other price, ought to record the aggregate effects of thousands of circumstances affecting the demand for and supply of loans which cannot possibly be known to any one agency.... The whole idea that the rate of interest ought to be used as an instrument of policy is entirely mistaken, since only competition in a free market can take account of all the circumstances which ought to be taken account of in the determination of the rate of interest."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

Monetary policy is a fraud. The notion that central bankers have even a modicum of the information necessary to set interest rates intelligently is unsupportable. There is no hypothesis here, there is no supporting evidence, there is only a bizarre notion and determination.

The bizarre notion is that some committee could possibly have enough information at its disposal and be provided with adequate analytical tools to identify an interest rate appropriate to three hundred million free enterprisers and their overseas business associates. The determination is the usual one: those who have a bit of power are determined to hold onto it and exert influence with it, despite endless evidence that their behavior is destructive, their results harmful, their thwarting of free enterprise dangerous, and their ideology evil.

It would be desirable to develop a parallel economy where interest rates were found by free enterprise mechanisms, where free people would engage in profit making enterprises, including lending money at interest or paying interest on deposits without let or hindrance. If such an economy did not already exist, it would be necessary to invent it.

Fortunately, there already exist many essential elements of such a system. There are alternative currencies, many of them now based on gold or silver, there are alternative exchanges such as PVCSE.com, there have been companies which have reliably paid on corporate bonds, and new techniques are being developed to extend upon these systems. Indeed, one correspondent recently described a prospective system which would not compete with the digital gold revolution "but complete it."

It won't be necessary to lay hands upon the fiends of the Federal Reserve. They are making abundantly clear to everyone their inability to effectively "manage" the global economy. There would more than likely be a plentiful supply of volunteers in the next few decades to seek out these vile men and women and remove them, but, it may yet be that an alternative system would be in place before the old system collapses. Transitions are rarely easy or painless, but there is some promise now of such a possibility.

We'll continue our focus on Denationalisation next week.


19 September 2005

      "Historically, it is true that all the money that preserved its value for any length of time was metallic (or money convertible into metal - gold or silver); and governments sooner or later used to debase even metallic money, so that all the kinds of paper money of which we have experience were so much worse. Most people therefore now believe that relief can come only from returning to a metallic (or other commodity) standard. But not only is metallic money also exposed to the risks of fraud by government; even at its best it would never be as good a money as one issued by an agency whose whole business rested on its success in providig a money the public preferred to other kinds."

      - F.A. Hayek, Denationalisation of Money - The Argument
      Refined: An Analysis of the Theory and Practice
      of Concurrent Currencies
      , 3rd Edition, 1990

Gold is an anchor, and any anchor is better than a money left to the "discretion of government," Hayek continues. Of course, we all know that government hasn't discretion so much as various levels of indiscretion. What Hayek points out is exactly what I've said above about other business enterprises. Competition among agencies that issue free market money on a commercial basis is a better way to arrange things than having any government or set of governments issue money.

The issue power does not belong in the hands of government, EC Riegel pointed out in 1946 in A New Approach to Freedom because government is not a free enterprise. It is a coercive enterprise, so it on the one hand demands money at gunpoint and, sometimes, issues money and makes it legal tender, forcing it into circulation at gunpoint.

The only people morally fit to issue money are free enterprisers, individuals and businesses operating in the free market. Why? Because, if a free market business issues money, it is always going to provide services for which that money would be acceptable. Therefore, it creates a market for the money it issues. It does so non-coercively, which is the whole point of cooperating in the free market.

We'll continue our focus on Denationalisation next week.

Recently, we had an opportunity to see something new in the digital gold market. It is an exciting new approach, and we hope to be able to share the announcement of its availability in short time.

Meanwhile, two of our friends, Bernard von NotHaus and Doug "Sky" Conway have joined forces to develop films for freedom. The trailer and a web page about the project are now available here. Creating a culture for freedom is a vital project, which Neil Smith has written about repeatedly in his online magazine The Libertarian Enterprise. Films and television are useful media for this culture war.


26 September 2005

Publication Note: Further essays on this topic are contemplated for several more weeks to come. We thought to provide the first baker's dozen in the series.


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The essays above appeared in The Indomitus Report beginning 30 May 2005. Each subsequent essay appears below the date it was first published. All these essays are copyright © 2005 by Free West Trust. All rights and liberties reserved.