30 September 2012

No Such Thing as Honest Money


If you think using gold, silver, or some other precious metal will prevent debasement of the currency, then you do not know history.  All precious metal does is change the METHODS of currency debasement, nothing more; it does not prevent it.  Let me explain...

Back in Ancient Rome, copper was a precious metal.  The Romans used it in their money, the As.  After all their foreign adventurism and burgeoning social programs at home, they ran short of money; they needed to-gasp-PAY for all their government boondoggles!  So what did they do?  The HALVED the amount of copper in the As, thus DOUBLING the money supply overnight.  Using a precious metal didn't prevent debauching the currency; it merely changed the methods employed to do so.

The same could happen if we had our money still backed by gold or silver.  Also, the same could happen if we used nothing but gold and silver for our money.  If we were using gold and silver to back our paper money, all that would need to be done is reduce the amount of gold and silver backing each bill out there.  If we were using gold and silver as money, then we could simply do as the Ancient Romans did; we could simply reduce the amount of gold and silver in our money.  In either case, the money supply is expanded, is it not?  Can gold, silver, or other precious metal prevent debasement of a nation's currency?  No, it cannot.

Gold and silver aren't any more 'honest' than paper money.  That phrase, 'honest money', really burns me up.  There is no such thing as honest money!  The form that money takes isn't important.  What is important that those administering the money supply do so with honesty and integrity.  THAT is the key, the key that everyone forgets.  Since we have a bunch of crooks in government (including those administering the money supply), we will have crooked money-no matter what form that money takes.



Anonymous said...

Wow, talk about missing the forest for the trees.

If you halve the amount of precious metal in a coin, then as soon as the market figures out what has happened, it will take approximately twice the number of coins to purchase the same goods as before. In other words, the same metal amount still has the same purchasing power, and there is nothing the authorities will be able to do about that. This is what is meant by "honest money," not the fiat packaging that governments can and always will try to manipulate.

Unless and until governments can figure out a way to void Gresham's Law (bad money drives out good), then the market will always be able to discern what is honest money and what is not.

Erik said...

That's why you use precious metal by weight - not by coin.

sth_txs said...

We would still have recessions and depressions with commodity money. The difference would be is that if it is chosen by the market/the people is that less likely to be manipulated (I'm sure a private entity could attempt this, but at least we would not be forced to use it.)

The other core issue is whether as free people do we the right to choose what we use as money and is that our property? That is where we have lost.

I would encourage anyone to look up the case of the Liberty Dollar and read Allan Greenspans essay from the 1960's on gold and economic freedom.

Ping Jockey said...

"If we were using gold and silver as money, then we could simply do as the Ancient Romans did; we could simply reduce the amount of gold and silver in our money..."

We already did that, even with the penny: where it now says "Federal Reserve Note" on our present paper money, there used to be paper money marked as being either a "Gold Certificate" or a "Silver Certificate". This paper money marked as such was redeemable on demand at a US bank in gold or silver coins (as appropriate) for the face value of the paper bill. Both of these Certificates were withdrawn from circulation -- Gold Certificates in 1933 (when private ownership of gold was made illegal by the government), and the Silver Certificates in 1964 (when the value relationship between our money and silver was severed).

Also, our dollar, half-dollar, quarter, and dime coins USED to contain 90% silver until 1965, when all silver was removed from them (with the exception of the half-dollar coin, which had a 40% silver content from 1965 to 1970). The post-1965/1970 versions of these coins have a composition of copper and nickel ('nickel', meaning the metal, not the 5-cent coin).

The penny used to be made of solid copper until 1982, when the new penny was introduced into circulation; it has a copper-plated zinc core composition.

Anonymous said...

Y'all need to read Martin Armstrong sometime. He has said it doesn't matter what is used as a money standard, whether it is gold or silver or fiat or something else because given enough time, it will always be abused and mismanaged by the government. This happened with the Romans; Armstrong writes about them extensively.

Elusive Wapiti said...

The real problem is dishonest weights and measures (Lev 19:35), not necessarily the medium of exchange which, as you say, only changes the techniques used in debasing it.

We (collectively) tolerate crookedness in our banking system...but it's okay so long as we get our freebies, right?

There is always a reckoning. Helicopter Ben can only float things so far before the scales are balanced.

"That's why you use precious metal by weight - not by coin."

Exactly. And the abolishment of legal tender laws to go with it. Otherwise, "bad money will always chase out the good".

Anonymous said...

Wait till the carbon credit based money scam takes hold.
The rich will pull "money" out of thin air,and joe consumer will pay a tax on every from of carbon based energy.

It's in the works.

sth_txs said...

Great lecture. The guy is also energetic despite what many would consider a boring topic:

"What is Constitutional Money?" with Edwin Vieira -- Ron Paul Money Lecture Series, Pt 2/3


I bet few academic economists are aware of this topic.

Anonymous said...

The difference with using the metals themselves is that if the government mints new coins with less gold, say, in each coin, it is only those coins that lose value. The solid gold coins are still made out a solid gold, they still have the same value.

Anonymous said...

Marky, anything can be debased but which is more likely to be? Gold, which has been considered valuable for a very long time and where there is a somewhat limited supply or paper with some ink on it issued by the government of some country? That paper can become completely valueless as in Germany in the 20's but gold will always have some intrinsic value.In fact gold (like industrial diamonds) has more use today in industry and manufacturing than it did in antiquity where it was just used for jewellery or decorations.
Let's suppose that we are using the same paper currency today that was used 100 years ago as an example.You find a $100 in paper among some of your grandfather's things he left behind. It would still only have a face value of a $100 even though money was worth 20x more in his day.
Now, suppose he left 10 $10 gold pieces worth $100 in his day, same value as the gold back then. They had almost 1/2 an ounce of gold in each one so you'd have almost 5 ounces of gold worth about $8k today, as opposed to the $100 in the paper money which is still worth the same today even though it was like $2k in his day.Even if it were possible to debase the value of gold by 90% through manipulation and flooding the market or some large gold deposits were found (none of this is actually possible and I'm just using this example as an extreme case)your grandfather's gold coins would still be worth $800 as opposed to the paper that still only has a face value of $100.

Anonymous said...

Let me just add this, I don't think it would be good to use the gold for everyday money. The reason being, if a coin had a face value of $100 and had that muh gold in it by today's market pricce of gold if the gold prices increased where the gold value was higher than the face value people would start to melt the coins down to make a quick profit and sell the bulk gold.So perhaps gold should just be held privately and not be put into circulation as a medium of exchange.

djc said...

I've always said you can't eat gold. When the shit really hits the fan, the valuable stuff will be food, shelter, and the guns to protect both.

Anonymous said...

I assumed that you already had the basics. Now, you need something that has a history of being vbaluable.

Anonymous said...

Very interesting. Money is a concept. It gets you what you want or need. So did shells. So can bartering.

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