The Gold Standard in Threads

Note that this doesn't mean that government backing can't be used to create money. Indeed, the whole argument is that such currency systems are inherently exploitative and redistributive. Government currencies are economically sick from the very beginning, and get worse over time.

Even the Babylonians had government mandated standards for money (weights and purity of precious metals used as money). Your argument then is that every single currency ever used has been "economically sick", even the commodity based ones, because government was involved? I'd be interested in seeing an example of an economy based on an unregulated commodity currency.

Robear wrote:

I'd be interested in seeing an example of an economy based on an unregulated commodity currency.


Jayhawker wrote:
Robear wrote:

I'd be interested in seeing an example of an economy based on an unregulated commodity currency.





edit: I should retract this one though since the Crimson Caravan actually did send the Courier to smash the counterfeit bottle press.


I can see advantages to a system in which all laws must be easy to chant.

The Waterworld wins!

Jayhawker wrote:
Robear wrote:

I'd be interested in seeing an example of an economy based on an unregulated commodity currency.


Cavemen didn't have money or barter. They had gift economies.

The word Potluck comes from an Indian word Potlatch which is described below.

A potlatch[1][2] is a gift-giving festival and primary economic system[3] practiced by indigenous peoples of the Pacific Northwest Coast of Canada and United States. This includes Heiltsuk Nation, Haida, Nuxalk, Tlingit, Makah, Tsimshian,[4] Nuu-chah-nulth,[5] Kwakwaka'wakw,[3] and Coast Salish[6] cultures. The word comes from the Chinook Jargon, meaning "to give away" or "a gift"; originally from the Nuu-chah-nulth word p̓ačiƛ, to make a ceremonial gift in a potlatch.[1] It went through a history of rigorous ban by both the Canadian and United States' federal governments, and has been the study of many anthropologists.


Needs more flying fat man.


Does a gold standard encourage war? If the money in a country is just fiat pieces of paper tied to the confidence people have in the government, that's a bit of a Poison Pill--conquer the country and take possession of all the paper you want, it'll be worthless. As long as countries have to have enough gold on hand to back their money, you can always just conquer a country, take the gold, and go back home.

Rothbard's pamphlet (What Has Government Done To Our Money, 5th Edition) starts out with some interesting assertions, in which the entire world is wrong and he's right. Check this out:

To explain the role of money, we must go even further
back, and ask: why do men exchange at all? Exchange is the
prime basis of our economic life. Without exchanges, there
would be no real economy and, practically, no society.
Clearly, a voluntary exchange occurs because both parties
expect to benefit. An exchange is an agreement between A
and B to transfer the goods or services of one man for the
goods and services of the other. Obviously, both benefit
because each values what he receives in exchange more
than what he gives up. When Crusoe, say, exchanges some
fish for lumber, he values the lumber he “buys” more than
the fish he “sells,” while Friday, on the contrary, values the
fish more than the lumber. From Aristotle to Marx, men
have mistakenly believed that an exchange records some
sort of equality of value—that if one barrel of fish is
exchanged for ten logs, there is some sort of underlying
equality between them. Actually, the exchange was made
only because each party valued the two products in different

This is a strange assertion. It removes the idea of "need" and replaces it with "voluntary exchange". There's no concept of either party acting because they *have* to, and no possibility of abusive pricing in the exchange due to factors beyond the control of one party or the other. All economic exchange is voluntary on both sides. This has some ramifications for social policy that should be obvious.

Likewise, in the next section, he discusses barter, but only in the context of objects. He notes that barter is inefficient because it's hard to find enough objects at the right time to make an exchange. However, he completely neglects labor! He doesn't even discuss the possibility of trading labor for goods. Talk about stacking the deck.

He then discusses money as something created *only* by the market. It's a medium of exchange simply because it's "marketable", easily divisible and frequently traded.

A most important truth about money now emerges from
our discussion: money is a commodity. Learning this simple
lesson is one of the world’s most important tasks. So often
have people talked about money as something much more
or less than this. Money is not an abstract unit of account,
divorceable from a concrete good; it is not a useless token
only good for exchanging; it is not a “claim on society”; it is
not a guarantee of a fixed price level. It is simply a commodity.
It differs from other commodities in being demanded
mainly as a medium of exchange. But aside from this, it is a
commodity—and, like all commodities, it has an existing
stock, it faces demands by people to buy and hold it, etc. Like
all commodities, its “price”—in terms of other goods—is
determined by the interaction of its total supply, or stock, and
the total demand by people to buy and hold it. (People “buy”
money by selling their goods and services for it, just as they
“sell” money when they buy goods and services.)

And yet money *is* all of those things - currency is a "useless token"; bank account balances are abstract units; currency *is* a "claim on society" for goods or services to be rendered upon request; and a standard rate of exchange *does* help maintain fixed price levels. In various circumstances, all these things are true. But for Rothbard, for the second time in one chapter, the entire world is wrong, and he's right. Why? Because he says so.

Note too, earlier, barter was only for items. Labor - services - was not discussed at all, presumably because the Labor Theory of Value would come into play. But magically, once he's established *money* as superior to barter, and descended from it's exchange of *goods* only to mutual benefit - rather than an exchange of *value*, which could be involuntary due to need; magically, services (labor) reappears as something money can buy.

In mainstream economics, the effort required to produce a good factors into it's value, but not necessarily it's price (that is, what it can be exchanged for). This is important. A lumberjack may work very hard to produce logs, but if the lumber mills decide to only buy logs at a certain price, then the value of the exchange does not represent the actual value of the goods involved. The lumberjack can be exploited, because he *needs* to sell his wood more than the mill *needs* to buy it (there are more lumberjacks than there are mills). But in Rothbard's account, the lumberjack *must* be satisfied with the transaction, because he made it. Each side benefits more than the other, in this account.

The problem here is that Rothbard is just blithely assuming that if the lumberjack does *not* like the price offered, he can sell somewhere else. And that's not usually, or even often, the case in the real world. The system Rothbard is setting up in his first chapter is an idealized one that does *not* represent the real world. He's deliberately ignoring elements of economic activity - need, exploitation, the value of labor - and going with the idea that everything must be tied to *objects* at it's base. But then he sneaks labor (services) back into the picture when money comes around, like they'd been part of his discussion all along.

No wonder he's complaining that the rest of the world thinks of money differently, because the rest of the world actually considers more elements than he does in his analysis. It's really kind of bold, saying you're re-thinking the big things and then leaving out important elements to make your argument work.

And no, I didn't crib this from anywhere, so any mistakes are my own. Maybe he'll backtrack a bit, but I'm disturbed by his initial assumptions. Money *is* a commodity, yes; but it's not fairly priced by just the market alone; that's where labor theories of value would let him down, so he just ignores them. It's hard to argue that someone in normal circumstances would sell an ounce of gold for much less or much more than the market value, but it's not at all hard to look around and see people laboring at wildly varying rates of exchange for their work. In fact, he avoids having to explain why the poor have to sell their labor more cheaply than the middle class or the rich; he can stick to the high ideals, that all exchanges are *like* those of commodities, objects with essentially fixed values exchanged for each other, and just abstractly treat labor as another object priced to advantage the laborer as well as the employer. This also has the neat side effect of allowing him to retain his Libertarian and Anarchist ideals, since he can assume that at their core, everyone is equally advantaged in life. Or should be, anyway.

Under Rothbard's theory, *every* employee and *every* employer is - must be - *entirely* happy with their pay rates; they could not be otherwise, because they would not engage in the transaction if they were not each feeling they had the best part of the deal! That's his basis for exchange; everyone is *always* happy with an exchange, or it would not happen. I *hope* that the flaws in that approach are obvious; it does not reflect the real world or the nature of the labor market at all. His discussion of money rests on a broken assumption about how the world works.

So far, his theory works only for the exchange and purchase of objects, not labor. Disappointing to say the least. But it's a nice rhetorical trick. We'll see where it goes. (And indeed, in the next section, he carefully maintains that currency is *not* counters, or units of value, and prices are not measures of value, but rather just an *expression* of value. The difference is, once again, that Rothbard's money *must* be based on object values, or his whole system is wrong. And yet we've seen that it *can't* be solely based on the principles of exchange of objects; that's literally too little to describe the real world of exchanges of value.)

State-backed currency is the only currency that ever happened. Why else there be so many ideas of what currency is if it doesn't always come back to what government or proto-government says "this is currency."

The gold standard is state-backed through treaties or agreements.

Many things have been tried as currency - that's actually one of the arguments for gold, since almost everywhere it's been available it eventually became used as money. It is preposterous, however, to argue that state-backed currency was the only acceptable currency. Take, for example, the use of manilla bands throughout Africa in the 18th and 19th century. Where were the treaties and governments that enforced that currency? There were none - it was whatever the locals would accept.

Similarly, what state governed the Phoenician trade with Britain or Morocco? Phoenicians originally used cattle as their currency, which were accepted anywhere but were unwieldy. What government mandated that, and what treaty made that valuable? And when they switched to using metallic coins, all independently produced by the various city-states, what government treaty made those coins valuable on the other side of the world? Did the tribes in Britain or the residents of Sicily have agreements with each of the Phoenician city-states?

Robear wrote:

Even the Babylonians had government mandated standards for money (weights and purity of precious metals used as money). Your argument then is that every single currency ever used has been "economically sick", even the commodity based ones, because government was involved? I'd be interested in seeing an example of an economy based on an unregulated commodity currency.

I've given you several examples above. From what we know of Babylonian standards, they were a relatively mild influence, merely establishing a weight and quality standard (the shekel was simply a specific weight of relatively pure silver). Note that the Babylonians did not establish that system - they merely codified it. And from the very beginning coinage was subject to abuse - for example, the Ptolemaic decree that banned foreign coins and forced the use of debased local coins, which forced the use of other commodities for foreign trade. Very few of the Ptolemaic coins have ever been found outside Egypt while Greek and Phoenician coins have been found al around the Mediterranean, which demonstrates a government-backed currency that was unacceptable to the market with or without treaties. In fact, it's the long history of government coinage abuse that leads me to disagree with Paul on government-issued coins.

"Merely" establishing a weight and quality standard? That's the hard core of regulation, right there. The market can't do that - standardization has to come from an agreed-upon authority, or each producer will adjust it to their advantage over time. It also establishes an objective system to figure out whether someone is ripping you off with shaved or non-standard coins and the like.

Cattle are not currency; they are barter goods. Even Rothbard accepts that; the value of the cattle is inherent, it's not symbolic. Manilla bands are also barter goods, without a fixed value in exchange. What you're describing is Rothbard's barter system - exchanging one thing for another, where the value is inherent in the thing itself, rather than what it represents. You're not describing *money* as it is usually defined - a symbolic representation of value.

Even the Babylonian system, which was intended to regularize barter by introducing small, standard units of value as trade items, was regulated by government. Without that, well, arbitrary systems can exist, but for how long? Why are Manillas no longer used? If they are so virtuous in nature, why did they go out of favor? Why are we not trading cows every time we need to buy something? Even Rothbard describes money as an improvement over barter, due to it's *symbolic* nature (as I read it, early in the book, of course.)

Yes, coinage is subject to abuse. But without imposed standards, the abuse is *worse*. That's seen over and over again. Despite it's flaws, government regulation is better than absolute free market deregulation, because it reduces the *opportunities* for abuse and increase confidence in trade.

One thing that's intriguing me is that the use of gold in the system you describe, Aetius, is kind of a sub-currency. By tying it's value directly to it's weight, it removes some of the possibilities for manipulating the money supply, but it also as a consequence puts back in principles of barter. Not enough gold to go around? Your economy will slow or stall. With it's strengths come serious weaknesses; I'd love to see you address a few of those, or even admit they exist. Although I suspect somewhere in Rothbard's 112 pages I'll find a wave-hands solution. Hopefully it's more substantial than the bait-and-switch he uses in the first chapter to get past problems with his anarchist principles.

Make no mistake - Rothbard's goal is to *remove* government from the picture. Not because that's an inherent by-product of a gold standard - it's not perfectly self-regulating and beneficial without regulation - but because his bias is against government on all fronts.

Hmm. The more I think of it, the whole self regulating commodity economy sounds more and more like.....


Participants can be counted on to validated weight and purity, the commodity is fungible, and its supply and consumption has actually made it relatively stable (though slightly deflationary).

Perhaps this is the standard Libertarians should be shooting for.

Validated weight and purity?! In your dreams, maybe... In reality, the term "stepped on" applies, multiple times.


An example of the market policing itself.

One thing at a time. Hopefully the Chartalist document does not start out explaining why every other economic theory gets it *completely* wrong... (Hint - when your theory starts that way, it's well to consider why that might be before investing too much time in it...)

On the surface of it, though, your extract makes sense.

Robear... here is the chartalist (state-backed/debt based) view of money written in 1913 by English economist A. Mitchell Innes. Think of it as the anti-Rothbard view.

It is long.

Here is something written a couple days ago, that also explains money does not come from barter, but rather preexisting debt/credit relationships.

More alarming still is that surveys show that societies where barter was a predominant form of transaction in certain sectors of the economy are astonishingly small: just three “primitive” economies where barter was predominant have been found (Crump 1981: 34, who mentions pre-Colonial Mexico, the Congo basin, and the northern coast of New Guinea and its adjacent islands, but in all of these barter was essentially an activity in long distance trade transactions). Barter does exist frequently of course, but often as a marginal activity or “in a corner of the economy,” and is often despised by people as being somewhat disreputable (Humphrey 1984: 49). It is often confined to foreigners or long distance trade. The notion that human beings have some natural propensity to “truck” or “barter” is itself questionable (Humphrey 1984: 50).

The gapping hole in the imagined origin of money by Adam Smith, Carl Menger, Ludwig von Mises and many modern neoclassical economists is that barter spot transactions can be mostly unnecessary in a money-less human society.

The sequence of historical development imagined by most economists is as follows:
barter > money > credit.
In reality, other sequences are more plausible:
Debt/credit relations (gift economies) > minimal/peripheral barter > moneyless society with debt/credit transactions and minimal barter.

Debt/credit relations (gift economies) > minimal/peripheral barter > wergild social practices > emergence of a unit of account through reckoning of relative values for compensation by legal codes > money.

Debt/credit relations (gift economies) > minimal/peripheral barter > emergence of a unit of account through reckoning of relative values in planning by influential socio-economic agents in society (e.g., priests, temples, kings) > money.
If an economy is dominated by debt/credit relations, where the debts are vague and non-enumerated, then there is no significant double coincidence of wants dilemma: and no need to invent money. There were presumably numerous human societies that never invented what we would call money, because they never needed to.