Why Does Fiat Seemingly Work?

Fiat is a perversion of value, it may act as a medium of exchange but it is conceived in deceit, backed by violence and reliant on the apathy, ignorance and insouciance of the slave population. There are no surviving long term fiat currencies that hold or behave as a store of value, they all have a 100% mortality rate in the long term but gold and silver on the other hand…as Mark Twain said: ‘It is easier to fool someone than convince them that they have been fooled’.

To clarify Gresham’s Law below that ‘bad money’ drives ‘good money’ out. By looking to the work of Carl Menger on hoarding and marketability, one can achieve a greater understanding of the errors in Gresham’s Law and by definition, bad and good are dualisms and bad money is not money! Courtesy of Peter Tenebrarum @ Acting Man:

Introducing Money

Imagine three men living on a small island. Toni is mining the local salt mine, and apart from him there are Pete the fisherman and Tom the apple grower and their families. They have a barter trading system set up: Toni exchanges his salt for Pete’s fishes and Tom’s apples, who in turn exchange fishes and apples between each other.

One day Pete says: “I have an idea. Instead of fish, I will from now on give you pieces of papyrus with numbers marked on them”. Papyrus grows in great quantities nearby, but has so far not been of practical use to any of the islanders. Pete continues: “One papyrus mark will represent 1 fish or 5 apples or 2 bags of salt (equivalent to current barter exchange rates). This will make it easier for us to trade among ourselves. We won’t have to lug fishes, apples and salt around all the time. Instead, we can simply present the pieces of papyrus to each other for exchange on demand.”

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John Law at a young age – the world’s first Keynesian economist

Painting by Casimir Balthazar

In short, Pete wants to modernize their little island economy by introducing money – and he already has one of those new papyrus notes with him, which he is eager to trade for salt. However, the others would immediately realize that there is a problem: the papyrus per se is not of any value, since none of them have found a use for it as yet. If they were all to agree on using the papyrus as a medium of exchange, its value would rest on a promise alone – Pete’s promise that any papyrus he issues will actually be “backed” by fish, which would make Toni and Tom willing to accept it in exchange for salt and apples. Continue reading

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Gold and Philosophy

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Courtesy of David van der Linden @ New Austrian.org:

A recent article one came across presented an interesting analogy. It was stated that “unconscious thought is like fluid gold, streaming down the side of a mountain towards a deep chasm”[1]. Placing moulds along the mountain saves the gold from flowing into the chasm, just as increasing one’s vocabulary allows one to capture thought and express ideas. The conclusion of the analogist was that the study of philosophy is of value, since one learns to explicate unconscious thoughts, just as capturing gold on the side of the mountain allows one to capture value.

The analogy as it stands is of limited use. Rather than to view gold merely as an object of value, one might learn more by heeding the unparalleled marketability of coined gold. To state that simply capturing gold is a useful endeavour seems to be an objectification. Gold is not valuable in and of itself, rather it is valued by individuals. Capturing gold in moulds does not directly imply one is capturing value, unless one first assumes gold is a valuable substance in and of itself. The minting of gold into coin on the other hand, is useful since one increases the marketability of the substance. To return to the analogy, one can say that broadening one’s vocabulary -the goal of which is to be able to explicate thought- may increase the marketability (or exchangeability) of one’s ideas. Thoughts and ideas are not valuable of themselves, yet it is useful to increase the exchangeability of the same so as to be able to debate, discuss and develop them. Continue reading

Why The “1%” Hates The Gold Standard

Courtesy of  Zerohedge: By now everybody knows that the primary consequence, one which we originally predicted back in 2009 – and many have since agreed – was completely intended, of the past 6 years of unprecedented monetary policy has been to push wealth inequality to record levels, not just in the US but across the world. What may not be so clear is precisely when this period of unprecedented wealth disparity started. The answer, as the following handy chart from NPR shows, is that long before QE, the wealth gap for the 1% really started in the early 1980s, courtesy of none other than Greenspan’s “great moderation.”

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More importantly, and what is certainly not known, is that between 1930 and 1970, it was only the “bottom 90%” that saw their incomes rise, as can be seen on the next chart.

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This is how the NPR qualified this dramatic variance in wealth gaps, the first of which benefited most Americans, especially the middle-class, and which ended with a thud in the early 1970s, and the second which was unleashed in the early 1980s:

In the first phase, known as the great compression, inequality fell. Incomes rose for people in the bottom 90 percent of the income distribution, as the postwar boom led to high demand for workers with low and moderate skills. Continue reading

Economic Aspects of the Pension Problem – Part 2

Appears Sixty Years Later

Part Two: Productivity Theory of Interest Revisited

Antal E. Fekete

In Part One I discussed the clear and present danger to pension rights: deflation as manifested by the interest rates structure that has been falling for thirty years, while most observers think that the real danger is inflation. In this second part I carry out a deeper analysis of the pension problem, looking at the marginal productivity of labor and capital and its relevance to the theory of interest.

Courtesy of Professor Fekete @ Professor Fekete.com:

Higher marginal productivity: boon or bane?

There is a lot of loose talk about productivity. Paul Krugman is expecting miracles to start happening after an increase in a mythical productivity, provided that government spending is increased to the level matching or exceeding that during World War II.

However, as Mises pointed out, productivity is a vacuous concept unless its meaning is fixed, such as that of marginal productivity of labor. Then, and only then, can one state the pension problem. According to Mises, the only means to increase permanently the wages and benefits payable to workers is to increase the per capita quota of capital invested in the methods of production, thereby raising the marginal productivity of labor. (See References, Planning for Freedom, p 6.) This is certainly true so far as it goes. It is also true that, if we project this observation to the world at large, then we can conclude that in order to have a progressive world economy and receding poverty, global capital accumulation must accelerate relative to increase in population. The greater the quantity and the better the quality of tools, the greater will be the output of the marginal worker, that is, the greater will be the marginal productivity of labor.

In reading Mises one may get the impression that an increase in marginal productivity is always beneficial to society ― as indeed it would have been under the conditions he envisaged. However, in the case of a monetary system that admits both large swings and prolonged slides in interest rates, this is no longer true. If the matter were simply increasing marginal productivity, monetary policy would be a valid means of “turning the stone into bread”. All it would take is central bank action to keep raising the rate of interest indefinitely. This would force the marginal producer whose capital produces at the marginal rate of productivity to fold tent. His marginal equipment and plants would be idled. His workers producing, as they are, at the marginal rate of productivity of labor would be laid off. Marginal productivity would increase. Indeed, the marginal productivity of both capital and labor automatically rises as a consequence of a rise in the rate of interest. However, in this case the rise in productivity, far from being a boon, is a bane to society, as it makes output and employment shrink. The trick is precisely to make marginal productivity rise along with rising output and employment.

Gold standard: a safeguard against deflation

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ISIS Unveils Its New Gold-Backed Currency To Remove Itself From “The Oppressors’ Money System”

Just waiting to be put on a no-fly list and classed as a non-violent extremist but there’s no mention of bills of exchange…there is hope, though bare in mind that the ISIS psyop is doing well. I wonder who is buying their oil and thus funding the ‘terrorists’. Courtesy of ZeroHedge:

It appears the rumors are true. Islamic State is set to become the only ‘state’ to back its currency with gold (silver and copper) as it unveils the new coins that will be used in an attempt to solidify its makeshift caliphate. ISIS says the new currency will take the group out of “the oppressors’ money system.”

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As Zaid Benjamin notes, ISIS releases details of its new currancy with golden 1 & 5 dinar, silver 1, 5, 10 dirham and copper 10 & 20 fils

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