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Regarding the regression theorem, can the grandson also be
the great-grand father? Ideas can only be overcome by other ideas and words
proffer the instruments to meaning. The ability to wield words concisely,
accurately and orderly is essential for communication and persuasion. Much of
discourse, particularly from court economists, has devolved
into sophistry and incomprehensible babbling.
Can The
Grandson Also Be The Great Grand Father?
FOFOA’S QUESTION
In an extremely verbose and conflated article the pseudo-anonymous FOFOA asks, “Does anyone have any evidence that silver
is still money today?”
I find a few of FOFOA’s assertions fairly odd, especially for a
voice in the gold niche. For example,
Money is debt, by its very nature, whether it is gold, paper, sea
shells, tally sticks or lines drawn in the sand. (Another shocking
statement?) Yes, even gold used as money represents debt. More on this in a
moment. …
First, money. Money is always an overvalued something. Usually a
commodity of some sort. But it can be as simple as an overvalued line in the
sand, or a digital entry in a computer database. But the key is, it is always overvalued relative to its industrial uses!
That’s what makes it money! …
Did you hear him at 6:35? “Only one metal in the world that fits
the bill for money, and that’s gold!” That’s right Joe!
Good job from the “Silverfuturist”.
There can be only one!
Mish has chimed in on many of FOFOA’s
fallacies.
There is a reason Chapter One of my book The Great Credit Contraction is
titled Word Games. In that chapter, I present the two competing theories of
money, market versus Chartalism, along with an
example of the regression theorem and then distinguish money, money
substitutes and illusions which can all function as either currency or legal
tender or both. What is so odd about FOFOA’s fallacious assertions is
that they contradict basic principles of monetary science.
SCALPEL PLEASE – DISTINGUISHING TERMS
The conflation of the terms money,
money substitutes,
illusions, currency and legal tender is one of the
greatest problems in understanding monetary science. Let’s examine
each.
Legal tender by government decree must be accepted if offered in
payment of a debt. Currency
can be examined either broadly or narrowly and in its narrow examination it
is the medium of exchange most commonly used in ordinary daily transactions.
Illusions are figments of people’s imagination and for
our discussion we will consider them negotiable instruments that promise nothing.
Staying within this same discussion, money
substitutes are negotiable instruments that promise the payment
of money.
Therefore, it
follows that gold cannot be debt and is obviously a form of currency that is
no-one’s liability.
THE REGRESSION THEOREM
This exchange between Dr. Ron Paul and Dr. Alan
Greenspan centered the issue on the definition of money.
Congressman Ron Paul: So it is hard to manage something you cannot
define.
Dr. Greenspan: It is not possible to manage something you cannot
define.
First, it should be noted that Greenspan implicitly
admits the faulty argument behind Chartalism. Second, a fairly basic
theory of monetary science is the regression theorem, one of many
contributions by Ludwig von Mises, and answers the
question why do illusions, money substitutes or money have purchasing power?
For those unfamiliar with the regression theorem, before continuing, you may
want to read Bob Murphy’s short article.
What is Mish’s response? “Like
FOFOA I believe gold is money. However, unlike FOFOA I think money is
whatever the free market says it is. The problem is,
we do not have a free market we only have government decree mandating the use
of dollars, Pounds, Yen, Renmimbi, Euros, and
Francs as money.”
This answer from Mish regarding the competing theories of money is the
only reasonable and rational response.
But I disagree with Mish’s assertion
that a free market does not exist. Individuals are sovereign and
‘endowed by their Creator’ with rights. The free market existed
first and then the State was created. This is the same reason Chartalism is philosophically flawed.
Sure, the Statetrix
is
extremely strong today but most individuals still have freedom of movement
which allows people to vote with their feet. Until the free will of mankind
is completely violated worldwide through the establishment of a new world
order or one world government then a free market will exist. A new world
order is not likely because of the failed fiat currency fractional reserve banking conspiracy. The Great Credit Contraction has
begun and there is no stopping it.
Despite what most people think or feel; the State is dead,
intellectually, morally, spiritually, financially and economically. Sure,
some individuals in certain geographic areas, like North Korea or the United
States of America, will face threats of collateral damage as the gigantic
rotting corpses tumble to the ground causing great destruction.
But for a sovereign individual in a free market
the management of political risk is just like managing any other
risk; weather, contract, counter-party, performance, etc. I devote
Chapter Six to Personal Practical Implementation like the five flag theory
for managing political risk, geographic diversification and even second passports.
MISH’S MASSIVE MISAPPLICATION
But the regression theorem answers the question on how a medium of
exchange can come into existence; it explains the origin of money.
Here Mish makes a critical misapplication of monetary theory.
“While theoretically possible, in today’s world silver has one
huge drawback that gold does not have: Silver is used up. Gold is
not. Silver is widely use in industrial applications”
This is the exact opposite of why the market has chosen gold and
silver as money. The theory is already being applied. The reason gold is money
and currency, a medium of exchange, is because people first valued gold for
its commodity uses because they attached increased value to gold based on its
expected purchasing power and the reason they were willing to hold cash
balances in gold.
Under the theory of market determined money astute traders in a barter
environment settle on a particular commodity or commodities that are
currently trading in the marketplace as money because of their increased
degree of saleableness,
saleability,
liquidity or marketability.
SILVER PRICE IMPLICATIONS
But silver is also valued for its industrial applications. The market
searches for a cash balance medium with the lowest transaction and storage
costs. As the silver price discovery occurs there
are two large demand drivers: (1) industrial and (2) monetary.
In this case, silver is widely used in industrial applications. Many
of these are essential for the current standard of living for humanity such
as medical, automation, high tech and etc. while small amounts of silver are
actually used in each application so this results in the inelasticity of
demand being fairly low.
Additionally, silver is valued for these reasons and is fungible,
divisible, scarce, non-corrosive, portable and definable. A problem is the
high ratio of about 50 ounces of silver per ounce of gold which along with
the lower density results in higher storage costs for silver relative to a
substitute good, gold.
Taken in totality these properties make silver extremely efficient
economically to be used as a medium of exchange.
As The Great Credit Contraction continues
holders of capital will continue seeking safety and liquidity. As the
monetary demand for silver increases then industrial and consumer prices will
likewise have to increase or firms will face bankruptcy because they cannot
sell for less than their costs and remain profitable. This can be
particularly helpful in figuring out the implications between inflation or
deflation.
But these individual preferences expressed through human action and
being revealed through the current silver price does not constitute evidence
of silver being overvalued as FOFOA asserts. That assertion rests on there
being a proper valuation for silver. A proper valuation set by whom, the
State? Chartalist! Plus, I would love for FOFOA to
explain what types of industrial applications a digital entry in a computer
database has.
Applying
monetary science to Internet technology is not a simple task.
CURRENCY EVOLUTIONS
Being able to predict future market innovations from entrepreneurs is
the work of often wrong science fiction authors. Could anyone predict a
Ferrari in 1880? No, they thought about ‘horseless
carriages’. Could anyone have predicted the Internet fifty years
ago? Fifteen years ago Google did not exist. YouTube and Facebook
are barely over five years old.
The fiat currency fractional reserve banking system that has evolved
out of a five hundred year old money substitute system is fundamentally
unstable and everyone
knows it. The lifeblood of the State is dead and decaying
through failing quantitative
easing. The 2008 financial crisis shook the financial community and
worldwide population to the core. The search for a viable replacement is on
like Donkey Kong.
Applying monetary science to Internet technology is not a simple task.
The first ‘horseless carriages’, like GoldMoney, have begun to develop. Remember, what the
telegraph company and IBM told Alexander Graham Bell and Bill Gates. GoldMoney allows gold, silver, platinum and palladium to
circulate as currency in ordinary daily transactions while immunizing the
holder of capital from both counter-party risk and illusion risk, the risk
that the illusion currency unit will become worthless because of loss of
confidence by market participants (hyperinflation).
CONCLUSION
Just like it is logically inconsistent for the grandson to also be the
great grandfather so likewise it is logically consistent for the FRN$ to be
currency with purchasing power only because gold or silver are money with
industrial demand. When you apply the regression theorem it reveals that
silver and gold were valued as commodities in the state of barter as a result
of sovereign individuals making choices based on human action.
Therefore, it follows that gold cannot be debt and is obviously a form
of currency that is no-one’s liability. Sure, a money substitute like a
gold certificate is debt but a money substitute is not money anymore than the
GLD ETF is gold just like a FRN$ is not a
US$ and a dollar is defined as
371.25 grains of fine silver. Silver and gold already possess currency market share
though far inferior to the FRN$, Yen or Euro.
Evolutions in currency like the FRN$, credit cards, GoldMoney, frequent flyer points, gift cards, Yen, bitcoin, etc. will continue and hasten as we further
transition to the Information Age. To stimulate innovation and increase the
standard of living through a more efficient currency market we should support
Dr. Ron Paul’s H.R. 4248
– Free Competititon In Currency Act of 2009.
The Internet is a relentless process
of decentralization and like a rising sun the inefficiencies in the
worldwide free market are being dispelled with the collapse of massive currencies
like the broken Euro or FRN$ and their issuers
which speaks to the currency market opportunity for entrepreneurs and
resulting transition to a new world. There will no more be one currency to
settle them all than there will be one world government to rule them all.
Trace Mayer
RuntoGold.com
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