Nathan Baker

Llewellyn H. Rockwell, Jr. has posted another great article over at mises.org. Here are a few excerpts.

Regarding the current recession Rockwell states:

“You can detect the absence of sound theory in the terms used to debate the policy response. On the one hand, everyone seems to agree that reckless lending is the source of the problem. On the other hand, they are proposing more reckless lending as the solution to the problem. It is as Hayek said: proposing to cure a poisoning with more poison…

…But one thing that government cannot do, and very obviously cannot do, is stop prices that want to fall from falling, all else remaining equal.

A government that wages war on the price system is a government itching to lose a fight.”

One the basics of the Austrian perspective of economics Rockwell states:

You understand nearly all of it if you absorb the following insight: Money is a commodity like any other commodity. It should be produced and managed under competitive market conditions, the same as shoes, eggs, or computers. Banking too is a market service that should be managed by the market order, with no government involvement, and so subjected to the discipline of market forces, including the restrictions against fraud…

…It is time that the world return to the one school of economic thought that predicted this current crisis, explains its origins and source, and offers the only plausible way out. It doesn’t matter that some of their writings date back more than 100 years, or, in the case of our predecessors, even up to 800 years. Economic science teaches timeless truths. Sound money is an immutable need always and everywhere.

Read the entire article.

As the money supply in the market increases the purchasing power of all previously existing money tends to decrease over time. This generally results in an increase in prices for goods and services as the market slowly adjusts to the new money. Those who have access to the new money first experience an increase in wealth. They have money to spend before the market adjusts and prices rise. But as they spend this new money and it is distributed throughout the market, those who do not have access to it experience a decrease in wealth. They find themselves paying higher prices while their personal money supply remains the same.

It is obvious that money is beneficial to society. Everyone understands that money provides a common medium of exchange which allows us to more easily acquire the things that we need. Due to this fact, the moneymaker/minter finds himself in a most advantageous situation. Not only does he benefit from the production of new money due to his proximity to the initial source (himself), but he also benefits from the fact that he produces what is arguably the most sought after commodity on the market - money.

It is stated in the book, The Ethics of Money Production by Jorg Guido Hulsmann (http://www.mises.org/books/moneyproduction.pdf):

“There is no economic reason not to allow every private citizen to enter the minting business and to offer his own coins”.

While it is obvious that if everyone entered the minting business we all would surely starve, it is worth noting that in a free market, we would all be a lot closer to new money.

Our modern day dollar is no longer backed by anything of real value. The dollar we use today has been ordained valuable by the government by inacting laws that insist the public accept it as the sole medium of exchange for goods and services. This, otherwise, worthless piece of paper is even used to back more certificate monies as if it’s a valuable commodity like gold or silver. This piggy-backing produces a value base that can only be sustained by force. If the dollar’s value was determined by a truely free market without governemt intervention, it wouldn’t take long untill it was viewed as worthless paper. No one in thier right mind would work for it or accept it for products if we were not forced too.

Thomas Jefferson and Andrew Jackson understood “The Monster”. But to most Americans today, Federal Reserve is just a name on the dollar bill. They have no idea of what the central bank does to the economy, or to their own economic lives; of how and why it was founded and operates; or of the sound money and banking that could end the statism, inflation, and business cycles that the Fed generates. Dedicated to Murray N. Rothbard, steeped in American history and Austrian economics, and featuring Ron Paul, Joseph Salerno, Hans Hoppe, and Lew Rockwell, this extraordinary new film is the clearest, most compelling explanation ever offered of the Fed, and why curbing it must be our first priority. Alan Greenspan is not, we’re told, happy about this 42-minute blockbuster. Watch it, and you’ll understand why. This is economics and history as they are meant to be: fascinating, informative, and motivating. This movie could change America.

Watch Money, Banking and the Federal Reserve at Google video.

Over the past months I’ve been delving into the philosophic waters of the economic system and possible monetary solutions to our current financial problems. I’ll be the the first to admit, “I’ve been in over my head most of the time.” I’d also add, “So what!” Based on the current state of things, it seems that those in charge of the financial system don’t have a clue either.

By taking an interest in the core problems that we as Americans are facing I’ve found a new sense of freedom. I’ve begun to understand and respect what the founding fathers had in mind. I’ve seen that as the people of America grow more complacent, those who wish to stifle our freedoms have found it much easier to do so.

Most of the time, rather than having real answers, I’ve been filled with the most perplexing questions. Questions like: What monetary policy would actually work? What is money? Where does it come from? Why are we all so perpetually in debt. Why is the wealth of our this world in so few hands? Is it possible that these current events are not taking place by mere happenstance? Is someone or some group of people behind it all? It just doesn’t make sense and it leads to a tense, fearful state of existence.

But armed with my fears and my curiosities, I’ve begun to research these matters. In doing so, my eyes have been opened, my heart has been saddened, my fears have been intensified and my goals have been elevated. You see, I have started to become one of the many who have stepped back from the daily grind to understand that it does not have to be this way. More importantly, it was not supposed to be this way.

We are all so deeply entrenched in the muck that is our state of affairs that we don’t even know we are stuck. We are spinning our wheels and we are not getting anywhere. Working hard every day to pay off our debts. Arguing over why the bills didn’t get paid last month. Worrying about if they’ll be covered in the months to come. Believing that this is just the way that it is. All along missing the big picture; we hold the power. The constitution has provided the framework for our liberties. We don’t have to blindly follow. We can actually take part in producing freedom by making sure our elected officials are adhering to the laws set up by our forefathers.

Even now Europeans are doubting the free market and are favoring a global solution. Let’s show them and the world that the market is not to blame for our current state of affairs. Let’s shine the bright light of freedom and liberty on the true culprits; the greedy few that have gained control of the monetary system allowing them the privilege of controlling our government. Rally behind the Ron Paul movement and the ideals of our forefathers. Help ensure that tomorrow holds true to the notion of liberty and justice for all.

In a recent interview with Ron Paul, Allison Kugel, Senior Editor at Pr.com asked Dr. Paul about the Gold Standard. Ron Paul: Washington’s True Maverick Talks Bailouts, the United States Constitution and Re-Making the US Dollar

PR.com: You obviously speak a lot about the U.S. dollar and about it no longer being backed by the gold standard as a source of our problems. But, wasn’t the gold standard done away with in the 1970’s?

Ron Paul: Well, that was the last nail in the coffin of the gold standard. The gold standard was relatively good in the 19th century but it was abused a lot then. So, we had booms and busts then because they abused it. One of the worst episodes was during the civil war period when they went off the gold standard completely. The gold standard was undermined systematically since 1913 with the introduction of the Federal Reserve System. They kept lowering requirements, and then when we had the Bretton Woods [system] after World War II, we couldn’t own gold since the depression time, but foreigners could turn in 35 dollars and get an ounce of gold from us. So, we were on a gold exchange standard. The dollar was supposed to be as good as gold and foreigners could hold us in check by every once in a while sending their dollars back demanding gold. In the 1960s we got furious with [French President Charles] de Gaulle because that’s what he was doing. After foreigners realized we were printing so much money and we didn’t have that much gold, there was a run on our gold and we had sold off almost 500 million ounces of gold at a price that was below the market, at 35 dollars an ounce. In 1971 is when Nixon declared that in a couple of days we’re not going to have an ounce of gold left.

I admire Dr. Paul a great deal and he is without doubt a pillar of light in Washington. He gives me a great deal of hope for our future in what seems to be a very dark period in our history. After reading this interview, however I am left with a lingering question.

What would a return to the gold standard get us if we don’t own the gold to back it up? Wouldn’t it be silly to base our monetary system on something we don’t have?

Wouldn’t a gold standard in essence put us at the mercy of those world powers who have the gold. Many have speculated on the amount of gold that still exists within Ft. Knox. If indeed the vaults are empty, a return to the gold standard is most certainly not the answer.

“One of the worst episodes was during the civil war period when they went off the gold standard completely” - Ron Paul

Here Dr. Paul is pointing out a time in history at the onset of the Civil War. President Lincoln, in order to finance the war without going into debt to the banks, began to print interest free money known as Greenbacks. The Greenback was a great success as been explained in the movie Money Masters.

What is money: Where does money come from?

Paul Grignon’s 47-minute animated presentation of “Money as Debt” tells in very simple and effective graphic terms what money is and how it is being created.

The following is a quote from an article posted today on cnn.com entitled “1st steps on U.S. rescue plans.”

In yet another move to inject liquidity into global markets, the Federal Reserve announced Monday that it will offer an unlimited amount of dollars to three other central banks. In the unprecedented action, the U.S. central bank will lend dollars at a fixed interest rate to the central banks of England, Switzerland and the European Union, according to a joint statement from the banks. October 11, 2008 - money.cnn.com

How crazy is that!?

Here are some insightful videos by Paul McKeever in an article entitled “Inflation, the Gold Standard, and Fractional Reserve Banking.”

Here is post I wrote on Ron Paul’s blog replying to a question about the gold standard. View the original post.

“So would pegging the dollar back to gold fix the problem?”

I don’t believe that “money” needs to be backed by anything. What??, you proclaim! I know it sounds crazy. Read on please.

I believe that once a group of people have agreed upon a standardized form of tender, without the overhead of interest and without the banks practicing fractional lending, it will work. You see without interest and fractional lending the system is no longer built on debt. It’s built on savings.

A system that isn’t established to create wealth for the few, but rather to create stability for the many, is the ideal system. The greenbacks of Lincolns day proved this ideal. Not for the first time either. It worked before. Do your research.

Money and it’s creation doesn’t have to be, nor should be restricted by anything other than the markets necessity to facilitate fair and equitable trade for consumer goods from the manufacturer to the consumer without the overhead of interest.

For example, If my small town decided that it was fair to trade our own free currency for goods and services, but limited the currency to only what was needed, dictated by the natural flow of supply and demand, we could sustain ourselves inevitably. Without interest payments on loans and with a conscious effort to limit the creation of money to only what is needed, any fiat monetary system could work much better than what we have now.

The gold standard of days gone by was better than our current system because inflation was controlled by the amount of gold in the reserves. But, the problems of interest payments on loans and fractional reserve banking still existed. The system was still based on the prosperity of the few rather than the masses.

The individuals throughout history that have gained control of a large percentage of the worlds wealth shake in their boots when they see that an average person like me understands that their only power lies in their ability to 1. create money from air via the fractional reserve system and 2. their ability to lawfully charge interest on loans. Without those two things the system would be fair. We could pay off our debts and no one other than the common citizen would prosper.