Wednesday, May 7, 2014

Property Of The State?

Applause to David De Gerolamo of NC Renegade for pointing me to this Atlantic piece:

Some part of Federal Reserve Chairman Ben Bernanke must be a little disappointed that Rep. Ron Paul (R-TX) will retire after his current term. No other congressperson may ever challenge him the way Paul, who currently chairs the House subcommittee on monetary policy, has over the past several years. In a hearing today, yet another amusing exchange occurred between the two. The topic was one of Paul's favorite: gold. The discussion got heated when Paul asked Bernanke whether gold is money.

Here's the exchange (video below, for those who prefer to watch instead of read):

Paul: Do you think gold is money?
Bernanke: (pregnant pause) No.
It's not money?
It's a precious metal.
Even if it has been money for 6,000 years, somebody reversed that and eliminated that economic law?
Well, it's an asset. Would you say Treasury bills are money? I don't think they're money either, but they're a financial asset.
Why do central banks hold it?
Well, it's a form of reserves.
Why don't they hold diamonds?
Well it's tradition -- long-term tradition.

Bernanke, a dyed-in-the-wool statist banker, knows better but will not be cozened into admitting it. The author of the Atlantic article, Daniel Indiviglio, might know better but will receive the benefit of the doubt for the moment.

"Gold is money,
and nothing else is."
-- J. P. Morgan --

Money is a commodity chosen by traders to serve as a medium of exchange and a store of value. Even the great Ludwig von Mises got this one wrong, adopting the statist-preferred definition of money as merely a medium of exchange. The ability of a commodity to store value over time is a prerequisite for its adoption as a medium of exchange. Those who enter the marketplace will not employ a particular commodity as a money if it has little or no ability to store value over time. The inflations of revolutionary France, Weimar Germany, Chiang Kai-shek's China, Peronist Argentina, and Zimbabwe under Robert Mugabe all testify to this fact.

Behind that point lies a more important one:

Money is not the creation of governments.

Governments covet control over money, and will seize it whenever they can do so. ("Whoever controls the volume of money in any country is absolute master of all industry and commerce." -- James A. Garfield) But it is always the active traders in the marketplace -- producers, consumers, and middlemen of all descriptions -- who decide what the money of a time and place really is.

The evolution of money to ever better media is the refutation of Bernanke's notion. Whenever a commodity became available that was better qualified than the prevalent money commodity, it displaced the "reigning" money and became dominant in the marketplace. The monetary virtues:

  • Easily recognizable;
  • Durable over long periods of time;
  • Difficult or impossible to counterfeit;
  • Uncommon and relatively stable in quantity;
  • Divisible into very small quantities without degradation;
  • Valued for its intrinsic properties, rather than for legal reasons.

...have been as they are since people first began to trade goods and services.

Bernanke, like all statist bankers, would like to encourage Americans to think of money as the creation of the State, and therefore the State's property. The State would therefore have both the absolute right to control the volume and circulation of money, plus unchallengeable first call on its use. If the dollar is regarded as a money rather than a currency -- i.e., a proxy used in place of a genuine money commodity -- those conditions are in force at this time.

Cui bono? Who gains from the current, politically decreed destruction of the dollar, at one time the soundest currency in the world? Who, as this process has gone forward, has done measurably better than the rest of us?

Isn't it too obvious for words?

If you want to remain the slaves of the bankers and pay the costs of your own slavery, let them continue to create money and control the nation's Federal Reserve credit. -- Sir Josiah Stamp

The large banks and financial houses that Washington took under its protection after the contractions of 2008 and 2009 are prospering to an extent few industries have ever seen. After the federal government itself, which of course gets the first use of newly created dollars, the major financial institutions are the great beneficiaries. Their ability to issue interest-bearing notes and loans swells under the deluge of new currency. Small wonder that such institutions are the staunchest backers of the engine that's progressively degraded the dollar toward wastepaper status: the Federal Reserve system.

However, ordinary Americans are souring on the dollar, precisely because it no longer stores value reliably. Anyone who's shopped for foodstuffs these past several years can testify to that fact. The Obama regime has assaulted the dollar with unprecedented fury, such that its purchasing power is barely half today what it was in 2008. Thus, savings denominated in dollars have fallen into disrepute among persons alive to the dollar's steady deterioration. Virtually any other method of saving is preferred to a bank account with dollars in it.

And that has the federal government, and many a state government, scared white.

The precious metals, particularly gold and silver, function better as money than any other commodities known to Man. Most relevant to this discussion, their ability to store value over time is very high. Despite the efforts of the Fed and other central banks to depress the price of gold and silver in dollars, they've remained relatively steady at the current levels for some time. Thus, as Americans seek instruments other than the dollar for saving, they're adopting gold and silver in increasing numbers.

The consequences are manifold. In particular, gold and silver are slowly reacquiring medium-of-exchange status. The dollar, of course, is still in use; the legal tender laws guarantee that. However, gold and silver are re-emerging as media in which transactions, especially large transactions, are being conducted. That gives such transactions a character that governments find particularly distasteful: They cannot be tracked nor traced, and are therefore outside the State's control.

Note that several states have attempted to place exchange controls on the precious metals, requiring that traders in gold or silver report every transaction above a statutory dollar-price threshold. Such laws are inherently unenforceable. They require the willing cooperation of the traders, which, given the business they're in and the priorities of their customers, is highly unlikely. As the volume of that trade swells, governments are feeling a proportionately increasing fraction of the national economy slip out of their grasp. The "underground economy," estimated to be about 30% of all domestic economic activity before the Obama ascension, has risen still further. It has a fair chance of rising to parity with the "above-ground" economy in the foreseeable future.

He who cannot control a thing cannot claim to be its owner.

The moral should be clear. He who desires to retain the maximum degree of freedom of commerce should eschew the State's preferred medium. Alternatives to the dollar exist. Some are better than others; some are in only local or limited use; some have been made the targets of legislation. Americans, under the vulpine pressure of inflation, are thus reinventing money from first principles.

No, it's not always possible to avoid dealing in dollars. But give any available alternatives serious consideration if you wish not to be made as much the property of the State as the dollar itself.

For other, earlier discussions of money and money matters, consult these essays:

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