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The Daily Bell tolls for another round in the debate

by on January 31, 2012

In an ongoing debate the Daily Bell rehashes the ‘free market’ version of the Gold Standard and defense of the indefensible: deflation. In these matters another problem of Austrian Economics comes to light: too much reliance on deduction, blinding them to the obvious practical issues.

“I tremble for the reputation of my subject, after reading the exaggerated claims that used to be made in economics for the power of deduction and a priori reasoning.”
Nobel Prize winning economist Paul Samuelson on Austrian Economics

Of course, Samuelson as a Mainstream Economist had some problems of his own, but here he makes a valid point.

It is a recurring theme in the discussions with Austrian Economists that they have their ideological reasons for preference for a ‘free market’ and deflation.

Their predilection for deflation is especially amazing in the face of the experience of the Great Depression. When Churchill as the then Chancellor of the Exchequer reinstated the 1925 Gold Standard Keynes wrote “The Economic Consequences of Mr. Churchill, arguing that the return to the gold standard at the pre-war parity in 1925 (£1=$4.86) would lead to a world depression”.

So even then, the depression was expected. The horrible deflation with the impoverishment of the masses and the rise of totalitarianism as a result.

But 80 years after the fact the Austrians are still trying to make the obvious go away.

I’m not interested in intellectual reasoning or nifty logic built on unprovable or provably false axioms. I’m focused on the direct consequences of each proposal. In terms resulting asset positions and power positions. Who is gaining, who’s paying. Is power centralized or decentralized.

Here are a few more examples:

The Daily Bell: “Migchels makes the point that a Gold Standard would be “an unmitigated disaster” that would lead to excruciating deflation. But what is wrong with deflation? Murray Rothbard was fond of pointing out that in a full-gold-standard environment, goods and services would become more affordable as technology brought down their provision.”

The question in the real world is: to whom will ‘Goods and services become more affordable’?

To those who see their wages slashed? Losing their jobs in the horrible contraction? Or to those few controlling Capital, who are picking up real assets for pennies on the dollar?

Continuing: “The point, apparently, according to Mr. Migchels, is that “Deflation is a horror for debtors, who see their debts and the interest they pay over them grow worse in real terms.” But in a deflationary environment, those who held commodity money would see their assets appreciate, even if their debt did as well.”

Is the Daily Bell really suggesting here that ‘those who held commodity money’ will also be the ones in debt? Isn’t it more likely that the vast majority will be in debt and only a few will have ‘commodity money’?

Isn’t it absolutely blatantly obvious who will gain from the price rises of Gold associated with its return as currency? True, most Austrian Economics will have some gold themselves and they likely consider themselves part of the 99%. But the 99% don’t own Gold. The 1% do. In fact, the 0,0001% do. The ones who own the Central Banks, who own 15% of known Gold Reserves.

Emphasizing known Gold reserves. Because the reported 150.000 tonnes is just a guess. Nobody knows how much Gold there is. The Rothschilds have a decisive stake in the market, they control the mining industry, have done so for 150 or 200 years. We are relying on their reports on production.

So nobody even knows how much Gold there is, how bad their domination is. It’s bound to be huge. Otherwise they probably wouldn’t be moving toward Gold as currency.

And then there is this point:
“In a free money system, it would be difficult to control a money marketplace. If one wanted to try to manipulate markets, one would have to issue out money metals – or hoard them – at which point the price would go up … or down.”

This is another common argument form Austrian Economics. It says the monopolist will be forced to sell when the price goes up.

Nonsense. A monopolist does not clean out his vaults when the price is right. He let’s the market set the maximum price it can bear and continues to rape us at that extortionate level.

Deflation makes money more valuable and so it is clear it is favorable to those who control money. And the Money Power controls and owns money. It is the Money Power that subjugated Government with interest on Gold loans way back. Imagine, it controlled Gold then already. The idea it does not today is naive in my world.

It forced it to surrender currency monopolies  to its Central Banks. That’s what it’s all about.

So the Money Power controls Gold and a ‘free market’ does not correct that problem. Of course, I’ve argued elsewhere (here and here) that in a truly free and mature currency market Gold would play absolutely no role. Gresham’s Law and interest free mortgages and business credit guarantee that. But the Daily Bell prefers to stick to its guns.

And in the ‘free market’ that Austrianism is suggesting, Gold will be king. Because Gold will be the standard in the banking world, in international trade, it will be legal tender, in the sense that it will be required to pay tax in Gold. The academic world will churn out paper after paper explaining why it never thought of it before and that it’s such a revolution. The media will proudly report every day that Gold has gone up yet again.

Meanwhile there will be a horrible depression, a destruction of the middle classes who are way over their heads into debt and underwater mortgages. The Government’s debt will explode in real terms, as will the massive $700 billion per year lost to debt service.

That’s how these things are organized. We’ve seen it many times before.

Comprehensive reform
The problem is not Government per se, although it clearly is also quite a menace at the moment. The problem is that the Money Power controls all money supplies, including Gold. It rapes us with interest and the boom/bust cycle.

The fundamental goal is to minimize cost for capital to society. Capital takes almost half of our disposable income by interest passed on in prices. We are Interest Slaves.
This must end.

The Government created and then surrendered this monopoly to the Money Power and it is in our interest that it takes it back. It would then produce interest free money, saving us all trillions in interest per year. It would prevent the wealth transfer through deflation. It could create the money either as Social Credit, through Public Banking or as Mutual Credit. The last option is probably best, but the other two would constitute a major breakthrough.

But it is certainly also true that Government itself also must be considered a threat in itself. There is no need for a Government monopoly. The Government should allow competition in the market. Also for Gold coins. It should accept tax payments in all units with sufficient trading volumes. Local government should accept regional currencies. These would be Mutual Credit based.

In this way Government denies a private monopoly while setting a basic standard that is at least much better than what we have today.

Cost for capital to society would be drastically diminished. In a mature currency market they should not be more than 1% of GDP. That’s all the financial services industry would amount to.

Capital would be abundant, anybody owning assets would have access to cheap liquidity. There would be no need for savings, which is just a relic of fractional reserve banking requiring capitalization. We can create all the money we need based on our real assets.

Anybody fearing inflation has a very simple solution: buy some Gold. Or invest in your business, education, pay your suppliers up front, invest in cost cutting measures, things making you more independent from Transnational suppliers.

Just don’t hoard the means of exchange!

Money is not meant to be a store of value. It exists to facilitate specialization and to transcend the limits of barter.

There are far better ways of storing wealth for future use.

And storing wealth is overrated as it is.

With a fair and stable money system, without the redistribution from the many to the few through interest, deflation and the boom/bust cycle, without Usurious Usurpation we will have real economic security.

Based on Natural Law, where the access of the individual to the Common Wealth is guaranteed and where the Money Power can no longer prey on the heritage of future generations.



Usurious Usurpation
Discussing Gold and Interest with the Daily Bell
the Daily Bell: Wrapping Up
What Gary North is not telling you about Interest
Why Bankers Love Gold
Phoenix Rising, the Return of the Gold Standard

Previous Articles by the Daily Bell:
Response to Anthony Migchels regarding Gold at Henry Makow’s Website
Austrian Economics, Religion and Devils

Joseph Farrell also wrote on this debate

  1. > Anybody fearing inflation has a very simple solution: buy some Gold. Or invest in your business, education, pay your suppliers up front, invest in cost cutting measures, things making you more independent from Transnational suppliers. Just don’t hoard the means of exchange! Money is not meant to be a store of value. It exists to facilitate specialization and to transcend the limits of barter.

    Very eloquent. Do you see some convergences with FOFOA’s “freegold” concept?

    Best regards

  2. Reblogged this on Recovering Austrians and commented:

    For a third time in a row the Daily Bell responded to an article I wrote for Henry Makow’s site about Gold as Currency. Here’s my response to that.

  3. Please don’t overlook “Direct Credit” or Lawsonomics of the 1920-1930s period. Mr. Lawson has been written out of history just like some other really important Americans. The Direct Credit movement was quite well established, like several other economic ideas, until WWII hysteria dissolved intellectual thought in the USofA. Thanks

Trackbacks & Pingbacks

  1. The Daily Bell calls it quits… | Real Currencies
  2. The Daily Bell: Usurious Commercial Banking is Freedom, Interest-Free Government Money is Tyranny | Real Currencies

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