Discussing Interest and Gold with the Daily Bell
The Daily Bell responded to an article on the Banker’s love for Gold, published on Henry Makow’s site.
They make a number of important points, which I will address one by one for clarity’s sake.
But first allow me to address a few minor issues:
Daily Bell: “From what we can tell, Mr. Migchels is something of what might have once been called a “greenbacker” – in US parlance. What that means, near as we can tell (regarding Migchels), is that he wants money to be publicly issued without interest”
This is only partly true. I’m not sure that Government is the best entity to provide the money supply. In fact, I believe a free market for currencies, with or without the Government partaking in it, is probably the best approach.
I am, however, completely convinced that if the Government insists on a monopoly, it should never ever surrender this monopoly to a Private Central Banking Cartel.
I’m also firmly convinced that if Government insists on printing money it should do so either in the form of debt free units, or interest free credit.
Because, and that is the basic discussion, Austrian Economics ignores redistribution of wealth from poor to rich through interest. They only see how inflation allows the Plutocracy to rob the middle classes.
I am not “generally dismissive” of Austrian Economics. I think it makes a great case for Free Markets. Austrian Economics has been indispensable in exposing Fractional Reserve Banking. These are wonderful accomplishments.
I do believe ignoring the problems of interest and explaining it away as a normal free market pricing operation is wrong, as discussed further below.
Followed by:
“Nonetheless, we admire Mr. Migchels’s imagination and courage in setting up an alternative monetary system that is actually gaining traction in the Netherlands. We simply and profoundly disagree with the concept.”
I assume they disagree because the Daily Bell believes I’m creating interest free currency for or through Government. I’m not. The Gelre is a privately controlled currency, competing with Euro in the marketplace. As long as one doesn’t break the law, it is not illegal to float your own currencies. Not in Europe, not in the US, see the Berkshares.
So the Gelre is a purely free market solution to the problem.
Furthermore, I do have a problem with the Greenbacker thing. Not because I consider the term derogatory, I don’t, but because the Greenback was a certain system. Debt Free paper money spent into circulation by Government.
This is probably the worst approach available to Government, although it still is much better than allowing a Private cartel to monopolize money. The Greenback is better because it is interest free, saving the taxpayer the 700 billion per year the Federal Government currently loses to debt service.
But it is far from perfect. Government will inflate, Austrian Economists are right on that. Furthermore, Government will use it’s prerogative to spend it into circulation to finance wars and other Plutocracy pet projects.
That’s why Social Credit is much better. It is a Greenback, spent into circulation by the people, not Government. The people know better where to spend the money. Most importantly, the Government no longer has an incentive to inflate the money supply: they would not be able to spend it themselves and the people are fully compensated for inflation by the fact they spend the inflationary cash themselves.
Public Banking suggests an interest free credit money supply. So not the debt free Greenback.
Bill Still is probably the most famous ‘real’ Greenbacker. But I would only support him as the lesser evil, although it was his brilliant film “the Money Masters” that got me into this business.
Now, to the main issues.
Interest
Of course, the Daily Bell is right to say that people have a right to ask for interest, as much as they have a right to either accept interest on a loan they want. Nobody is suggesting we should outlaw it. The challenge for interest free currency is to make it superfluous. By providing interest free credit. Nobody will ‘choose’ to take out a loan with interest, if they can get one without.
The Daily Bell concludes: “And so we would ask, in closing this article, what does the issue of interest matter if one is determined as Mr. Migchels and Ms. Brown are to put the issuance of money in human hands? It is not interest that will prove the ultimate problem but the VOLUME and VALUE of money itself.”
This is the basic discussion. The volume is an issue. We agree that the Money Power uses the boom/bust cycle and inflation to rob the middle classes. The matter of volume not that of interest: the boom/bust cycle and inflation are results of manipulating the quantity of money. Interest is also a means to that end, but not the most important one.
The manipulation of the quantity of money must end. There are two ways of doing this and they should both be pursued. The first is, that the middle classes are wrong to hoard paper assets. They never should. Paper is a good means of exchange, but a very bad store of value. If the middle classes understood this, they would not be destroyed by inflation. The second path is more obvious: the manipulation of the volume of money must end. And yes, the free market is probably the best guarantor of that.
However, the idea that the volume of money is THE problem is completely wrong. If there is a THE problem, its interest, with the volume being a good second.
And real monetary reform, if it is to end the slavery to the Money Power, must solve both.
I comprehensively dealt with the interest issue here, here, and here. It is concise, but too long to repeat here.
The basic problem is, that interest is a wealth transfer from poor to rich.
The rich have money and lend it out to the poor, who pay interest to the richer classes.
The poorer you are, the greater the part of your income you lose to interest.
It transpires that the poorer 80% pay more interest than they receive. The middle classes are to a large extent compensated for their losses to the rich from what they receive from the poor. But the poor suffer horribly from interest: when you own zero net assets, you lose 45% of your income to interest. Because of capital costs included in prices. Just think about that, it’s huge. And invisible.
At this point 50% of Americans own zero net assets or less. Globally the situation is even worse, and interest truly is a Global phenomenon.
Only the richest 10% receive more interest than they pay.
But even they pay considerable amounts to the richest 1%. And even within the richest 1% the redistribution continues: the poorest 0.8% pay interest to the richest 0.1%.
This is what explains the incredible centralization of wealth at the top of the food chain. This is the interest drain.
And all this money over time inexorably ends up at the absolute top of the pyramid.
All this was established through research by Professor Margrit Kennedy, a leading interest free currency activist and intellectual leader of the German RegioGeld (Regional Currency) Movement. There are dozens of regional currencies in Germany, they have sprung up since the Euro was introduced. They all aim to reduce capital costs and capital scarcity.
The Problems of Gold in a Free Market
Because of the interest issue, it should be clear that Gold is absolutely unacceptable as a currency monopoly. If Gold is the only allowed means of exchange, interest free credit would be impossible.
The Daily Bell is not in favor of a Gold monopoly. Neither is Gary North.
The ‘Why Bankers Love Gold’ article was aimed against a Gold Monopoly and the Daily Bell recommends a free market for currencies, which they expect to be dominated by metal backed currencies. Of course, in practice it would all be paper, plastic, and bits and bytes. The question is, what is backing these tokens.
However, they are surprised by the notion that Gold would not hold up in a free market for currencies. In response to a comment by Memehunter, quoting my article on Gary North, they elaborate on why they think I might be wrong.
They suggest that Gresham’s Law does not apply: “As we pointed out before, this is a misconstruing of Gresham’s Law. Gresham’s Law only applies to tender manipulated via government compulsion: ” ‘When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.’ It is commonly stated as: “Bad money drives out good”, but is more accurately stated: “Bad money drives out good if their exchange rate is set by law.”
However, the source for this info is Wikipedia, and I don’t believe the Daily Bell will blame me for not accepting that as Canon Law.
It may be true that this was the situation at Gresham’s time, but it is clear that his observation is true always when different units circulate side by side and one of them is overvalued. Or losing value.
Its simple to establish. What will you pay with, if you have a choice: Federal Reserve Notes or your Gold Coins?
I think everybody knows the answer to this question.
But then the Daily Bell says it is not the payer who matters, but the seller, and he’ll prefer Gold:
” It is not a question of what people will prefer to PAY with. It is a question of what the SELLER DESIRES. Migchels would seem to have it reversed. If you want to make a purchase in a free-market economy, absent monetary coercion, you will need to accommodate the wishes of the seller. And we would argue that any seller would likely be more comfortable selling his goods or services for for notes that are backed by gold or silver rather than notes that are simply backed by the issuers stated willingness to pay. It seems like common sense to us.”
But is this really so? I’d suggest firms accepting only Gold would have a major problem in the face of competitors accepting both paper and Gold. The initiative is with the consumer and the firms accommodating them will prevail.
Let’s also keep in mind that very few people own Gold.
So the seller won’t be able to dictate the means of exchange. Only in the endgame of hyperinflating currencies could he plausibly not accept them.
Another crucial aspect to consider is the price of credit, interest. Clearly, if in a free market where Mutual Credit Facilities offer mortgages at 0% interest, it would be difficult both for Gold and Banking currencies.
Concluding
The goal of monetary reform, as I see it, is to free people and the commonwealth from the enslavement to the Money Power.
Interest is the biggest issue, followed by the boom/bust cycle. Both must be addressed to free people from economic slavery. And this slavery is real, as witnessed by the incredible fact that people who own nothing, which is the vast majority of the globe’s population, lose 45% of their disposable income to capital costs included in prices we pay for our daily needs. All this money is inevitably all sucked up by the absolute top of the pyramid.
It is because Public Banking and Social Credit profoundly dampen the interest drain to the Plutocracy that they are such important models, vastly superior to the current ways.
Even better is a combination with a free currency market. In it Gold will play a role as a store of value only. It will not finance many transactions and will therefore not be very important for the economy at large.
Update 1/1/2012: Go here to find out how it all ended.
Trackbacks & Pingbacks
- Daily Bell: wrapping up « Real Currencies
- Austrian Economics correctly identifies the manipulation of the money supply as the cause of the boom/bust, a.k.a business cycle. This is the kernel of truth necessary to give credibility to the rest of the disinformation. However, they completely ignore
- Usurious Usurpation « Real Currencies
- Who is Ed Griffin? « Real Currencies
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- The “Catholic” Arm of Libertarianism « Real Currencies
- The Austrian ‘Free Market for Currencies’ Hoax « Real Currencies
- Reply to the Daily Bell: Gold porn, lies, and misrepresentations « Real Currencies
- Answering Tom Woods « Real Currencies
- The sulking Elves from the Woods of the North | Real Currencies
- The Daily Bell calls it quits… | Real Currencies
- A Response to RealCurrencies | Economic Sanity
Aha, I see that you have refreshed the look of your blog…
I added some comments on the DB’s thread, including a few interesting quotes from the “Faux Capitalist” blog (which I know you also read) that were relevant to the discussion. I think it will be easier to continue the discussion over there.
You may not consider yourself an ‘expert’, a_reader, you certainly seem to have done some very diligent soul searching on the monetary.
Your conclusions are similar to mine, regarding the means of exchange/store of value thing.
Thanks for the input, I’ll keep an eye on FOFOA too.
Was a very interesting conversation with the DB people.
DB to Anthony Migchels: “We don’t find it amusing. And you are contributing to misinformation if you continually advocate the use of government force to solve the problems of Money Power. Absent Money Power, the elites you mention would not exist. Starve them of government power and they will not have the requisite force at hand to move ahead with their agenda. If you advocate the use of government violence as you seem to, you are using their tools and mechanisms.”
Welcome to the Dark Side of the Daily Bell, Anthony! In many ways, it’s a great website and one can actually discuss many topics, including the most extreme “conspiracy theories”, in an open manner. Unfortunately, as soon as you write something that actually threatens the Zionist Money Power structure (and clearly interest is very dear to the Zionist bankers, much more so than the gold standard/fiat currency issues as you have shown yourself), you become an enemy of the Daily Bell. I speak from experience… You probably already know a bit about the DB’s “Dark Side” from your visits on the Faux Capitalist blog.
Yes, it always comes to this. They avoid it and explain it away lightheartedly if they cannot get away with avoiding it.
But how can they say they want to fight inflation in the name of the middle classes, if they do not want to do the same with interest?
It does seem that inflation is just an excuse to get Gold, for whatever reason. Perhaps their portfolio’s are part of the picture here.
They do of course support the free market, but the danger is that by suggesting Gold would be important in such a market they actually serve the paper-gold dialectic. If a Gold monopoly is in the cards, many libertarians would think ‘ah well, Gold would have won out in the market anyway’.
Ah well, the point of it all is to have a good talk and let the reader decide.
The debate is still alive on the DB (though I imagine you probably prefer to let it go at this point…). To be clear, I am not sure that I completely support your positions if it’s true that you favor heavy government intervention (but I personally did not get this impression when reading your work), but I agree that they haven’t given a convincing response on the topic of interest.
Moreover, the DB elves still haven’t explained how they would ensure that the precious metal backing is honest and stable in a completely free-market situation (you are right that this may end up as a government-controlled gold standard, but of course they don’t want to admit it).
It is impossible to have full guarantees if you don’t use the coins themselves.
But I also don’t believe this is really necessary. Market players could provide good transparency. For the State it is more difficult: it would always have the means to put up a charade.
The important thing to accept is: guarantees in life don’t exist, bar one.
As a consumer, one should never bet on one horse. In this case: never put all your money in one bank.
The fact that a watertight system is logically impossible is just another strong argument not to hoard a means of exchange, particularly if it is paper based, or even gold based with paper tokens.
It is not right to only talk about the system: it is also necessary to discuss what kind of behavior invites victimization.
You don’t send your pretty 15 year old little girl into a Trucker’s café alone, wearing only her sexiest dress, do you? Not because she doesn’t have the right to be there, but because something might happen to her.
Same with your money: don’t trust some vultures with your life’s savings. People need to get a little streetwise too, it’s certainly not just the Adversary’s fault it’s gotten so much out of hand.
DB is a great site sometimes with a tendency to shoot and then ask questions. I have concluded that they also seek answers and current confusion can make them impatient. Your ideas would require a time consuming analysis to evaluate and it is easier to pull an Austrian dogma and shoot with it.
One thing I could not get an educated response from them was that the rumored Rotschild fortune. They claim it to be 500 Trillions at least. However, adding all wealth of the planet, does not yield that much worth. Do you have a better idea as how could that be?
Thanks Joel, I agree.
The whole thing is a little uncomfortable for them as they probably had not come across this line of thinking yet. I have no problem with it, the main reason I set out to discuss these things is to learn from the feedback it gets me.
About Rothschild: 500 Trillion is maybe a little much. The idea is this: it is known they controlled a 50 billion fortune in 1850’s.
50 billion growing with 5 percent per year over 160 years would amount to something like 150 Trillion. With 7 or 8 percent, it would have grown to 500 trillion.
So it’s an educated guess and should not be taken too literally.
It does show what interest can do for you, if you’re sitting on the top of the food chain. It reminds us of who we are dealing with here.
And how necessary it is to get rid of both them and interest.
Gesell was very much against the gold standard and its relationship to interest:
Here is a comment I found on the DB:
http://thedailybell.com/3420/Staff-Report-Catherine-Austin-Fitts-on-Wall-Streets-Corruption-the-Austrian-School-and-Whos-Really-in-Charge
“Due to its rarity, gold is hoarded. As it can be stored in hoard indefinitely, it is possible to ask for premium on its use, which leads us to interest. This, in turn, leads to an economic system where the largest owners of gold can easily concentrate the remaining gold in circulation, and thus power. This is the point of Silvio Gesell.”
I was reading some Gesell and indeed he does not take a kind view of gold (personally, I don’t think that gold itself is the problem, btw, but it was the keystone to the usury system according to Gesell) .
Very interesting. A nice way of stating the basic case against Gold.
It’s good to keep in mind that Gesell lived under a Gold Standard. He saw what it really meant fist hand.
But you’re right of course. Even Gold can be made a decent means of exchange:
Just use it to back some notes and slap a 20% demurrage on it.
i don’t like the idea of gold as even a free market currency. if you want to use gold as a store wealth, the person should be required to pay rents (a tax) on the gold to hoard it. gold is a natural resource. it is common wealth to all. it is a precious and rare natural resource at that with other practical applications. to monopolize gold is a crime against humanity, who can make better use of such a rare natural resource. a tax on gold would make gold more affordable. there would be penalty to use it and only those who can really put it to good use would pay a tax on it.
a demurrage on gold would be like a land value tax on gold.
a few points…
you’re right that gold wouldn’t win in the free market. it is a horrible as a means of exchange since the supply is very limited and you’d rather keep it than use it. also, it isn’t even that good of a store of wealth. the market for gold goes up and down. it is also expensive to mint into coins and store in a warehouse. it is also expensive to get a miner to go find more for the growing population. also, the gold owners and gold mine owners are stealing economic rent from the public, which is a huge injustice according to natural law. inflation might be interest or an ideal progressive tax under a greenback system. however, it isn’t theft and isn’t destructive unless the origination is commodity-based on debt-based or is at an uncontrolled rate. deflation is pure theft and purely destructive. if the rate is 0%, you can’t have growth. the economy would stagnate. a slight inflation rate of 1-3% is ideal since it is necessary to allow and encourage economic growth.
mutual credit would also be bad in the free market. the mutual credit would be used and abandoned in the free market.
once government accepts any currency for payment of taxes, the free market in currency is corrupted. there is no way around it. money is a legal instrument whose value should be regulated, and thus, the government should create the legal instrument.
also, you don’t really want multiple legal tender floating within the same region since the wealthy would manipulate a currency common in one area to be inflationary while it makes another deflationary.
the inflation from printing greenback is put into check by wealthy interests lobbying against printing. these are the same people who lobby now for deficit spending since they collect interest on treasury bonds and who lobby for inflation since they are the bankers collecting the interest on the origination of money supply. if government ceases to borrow and starts to print, the people who successfully lobby for wasteful spending would successfully lobby against government printing.
you can issue a citizen dividend alongside a greenback to make it social credit. you can make it full reserve with some ability to loan beyond reserves in a limited way if managed from a central reserve to fine tune inflation and prevent boom/bust cycles.
Multiple legal tender: I prefer no legal tender at all.
It is true that the Money Power will try to manipulate the diverse currencies. But as long as the managers of the system are not naive, it will be easy to prevent.
For instance: in my own system I have very few conditions. I hate unnecessary rules. One that cherish is this one: both parties (accountholders and myself) can end participation without further notice or explanation. Of course outstanding obligations must be met, but they will be equitably settled.
In this way you can just kick out anybody you feel is messing with your system.
Another rule is that it is illegal to hold a large percentage of outstanding units.
are you saying if a person has a negative 1000 units, they still have to make monthly payments? to whom? when are they obligated to return to a zero account?
It all depends on the contracts. There can be ongoing credit, of course, but also credit for investments that need to be payed off. So that new credit can be given to others.
The payments would be to the ‘Multi Credit Facility’.
But of course it’s all zero sum bookkeeping. That’s all.
a legal tender is necessary for payment of taxes and for current credit obligations. one method of taxation actually has a fan club, land value taxes. if you have taxation, you must have a currency that the government will recognize to collect land rents. instead of the government picking a free market currency, they could be the manager of a mutual credit system. i really don’t see mutual credit working unless there is interest and conversion for credits into the legal tender. otherwise, people are going to use up their credits and use another currency. with most lets, the participant borrows the credits at interest or pays for credits in the legal tender. the lets also will usually allow one to convert back to legal tender with a fee. even if they operated non-profit, they would still need to do this, just the fees and interest would not be as high.
therefore, the government would have to manage the non-profit let as make it legal tender so that the let wouldn’t depend on conversion to a legal tender or interest. the government also gives representation, in theory any way.
i don’t mean to discredit mutual credit. there are things to learn from such a system. for example, provide citizens with an interest-free credit limit at a public bank, considering they have no credit or have adequate credit (a job) and aren’t already in default at the public bank, or offer social credit, a citizen dividend to citizens based on origination of new units of legal tender. this would also allow for higher order organization of credit lending.
i mentioned before that just paying off national debt with public debt-free notes would free up a significantly large amount of money for investment in bonds and cash deposits. i stated incorrectly that rates would rise. rates would actually fall if national debt is paid off since there would be a lot of money chasing interest on cash deposits. there would be a huge increase in supply of reserves at lending institutions, which would be necessary anyway since reserves are being brought to full reserves since banks could no longer issue credit out of nothing.
Mutual Credit cannot be abandoned. There are contracts and collateral. People will be liquidated if they think they can mess around.
Keep in mind that the account function and the means of exchange function can be separated. Most regional currencies use the account function of the National Unit. It’s done by just decreeing 1 Unit = 1 Dollar. Practice shows this is accepted.
gold should remain in the free market where it is now. the government should never accept any commodity for payment of taxes. it creates a free lunch for the commodity provider at the expense of the producer of goods and services in the free market since it artificially increases demand for the commodity. the government should not be commodity traders. money is unique and quite different from commodities. commodities should vary in price according to supply and demand. with money, you want to adjust the supply to meet a stable price for the demand.
I can go along with that, although I would allow Gold as currency. As you know I don’t believe many people would pay with it anyway.
Thanks for your time Keith, most instructive.
Reblogged this on Recovering Austrians and commented:
A discussion with the Daily Bell which I much enjoyed. Most major issues of Austrianism were discussed
Hello
I am an aficinado of AE, but I am not hostile to the desire for interest-free currencies as long as they are founded under voluntary terms. I do also consider gold/silver/commodities as “interest-free” money as long as there is no fractional-reserve banking, as I see differences between honest lending and the “magic” hunksterism of banksters.
“But is this really so? I’d suggest firms accepting only Gold would have a major problem in the face of competitors accepting both paper and Gold. The initiative is with the consumer and the firms accommodating them will prevail.
Let’s also keep in mind that very few people own Gold.”
The point for Austrians, is that if legal tender was revoked and taxes withdrawn the need to hold FR-notes would be reduced. Furthermore then, gold debit cards could legally be established and a person COULD use that debit card just like any other card with no need to hold FR-notes, EVER.
That would either stabilize the dollar or vicerly eradicate it from the face of the planet if the FED ever expanded money and credit like they have the last 10 years.
It is not legal tender laws that cause high taxation, but interest. In fact: it was the need to cover debt service for the national debt that made income tax ‘necessary’. It is not for nothing that the IRS was founded just after the FED.
If Ron Paul’s proposal would become law, absolutely nothing would change: you would never pay with your gold if you could dump your fed notes and people distrusting paper already save specie, not paper.
However: the real goal of the law is to pave the way for more ‘choice’: the ‘choice to borrow at 5,4% at this Gold outlet, owned by Rothschild son no3, or at 5,5% at that Gold outlet owned by Rothschild son no 7.
We’ll call it: a free market with CHOICE.
Sorry, but I can’t understand how interest-free money would be sustainable. Please follow my hypothetical example:
There is source of interest-free money. There is ‘real interest’ (cause of time preference – if we have resources sooner, we can turn them to actives sooner and gain more value). It becomes wise to borrow as much as we can as soon as possible and turn the new money to actives, since there is no cost on borrowing. The race for actives (bought for dirt cheap borrowed money) would lead more and more disharmony between money quantity (or circulation speed) and real goods -> inflation or hyperinflation.
So, there must be limit to the money entering the circulation -> interest would re-emerge wheter on official or black market.
I think you also forget that even though the rich man gets profit on interest rate, the borrower also gets profit on ‘real interest’ (the extra profit from tools/resources bought for the loan). If he won’t he should not borrow!
On top of that in non-fiat economy, the market interest rate would be giving valuable counter-cyclic price signals on agregated savings (more savings – low interest, low savings – high interest).
Am I wrongly interpreting the interest-free idea?