I am just curious. From an economic standpoint, money is a device engineered by the free market, only since then has government tried to get in on the action to truly regulate the economy by printing or coining its own medium of exchange and declaring that it must be used instead of whatever commodity the people choose, be it gold or cattle. I would think that Objectivism would want money to be a free market thing, but I have never witnessed any lecture or chapter of a book reference it.
Objectivism demands a complete separation of state and economy. I hope that answers your question.
Objectivism demands a complete separation of state and economy. I hope that answers your question.
I’m curious how that effects government-related contracts. For example, defense contracts to build weapons and planes. How is that addressed? Is it such an insignificant part of the market that it’s insignificant? Or does that not count as a separation of state & economy?
I’m curious how that effects government-related contracts. For example, defense contracts to build weapons and planes. How is that addressed? Is it such an insignificant part of the market that it’s insignificant? Or does that not count as a separation of state & economy?
It doesn’t count. Separation of state & economy means that the government may not control, regulate, or attempt to direct the economy. Obviously, in order to function, the government must participate the economy.
Don Watkins
Obviously, in order to function, the government must participate the economy.
Well put! 
Proper money should be an objective value, i.e. gold. For information on why the gold standard is important, please refer to Alan Greenspan’s essay “Gold and Economic Freedom” in Capitalism: the Unknown Ideal.
Paper money is properly referred to as “bank notes”; it is a claim check on a specific quantity of actually existing gold. The government should not print bank notes any more than it should operate banks.
So, paper money and coinage should not be manufactured by the government.
Paper money is properly referred to as “bank notes”; it is a claim check on a specific quantity of actually existing gold. The government should not print bank notes any more than it should operate banks.
It used to be, our paper money used to have printed on them “redeemable on demand” in a defined weight of silver or gold, depending on the note, and coins used to actually be a specific weight of silver or gold - now it’s all only make believe. I wish Greenspan would re-read his own essay.
From Francisco’s “Money Speech” in Atlas Shrugged: "Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. " It’s one of the best summarizations of what Money is and why; you can read the whole speech online at Capitalism Magazine
So, paper money and coinage should not be manufactured by the government.
How right you are.
Proper money should be an objective value, i.e. gold. For information on why the gold standard is important, please refer to Alan Greenspan’s essay “Gold and Economic Freedom” in Capitalism: the Unknown Ideal.
Paper money is properly referred to as “bank notes”; it is a claim check on a specific quantity of actually existing gold. The government should not print bank notes any more than it should operate banks.
So, paper money and coinage should not be manufactured by the government.
I have read that essay, and Greenspan argues for a gold standard, not a complete separation of state and money. He says state dollars should be backed by gold, when really I think the state shouldnt print dollars, and should not even determine that gold will be the commodity to back up the currency. If the market decides that cattle will be the medium of exchange then so it should be.
I have read that essay, and Greenspan argues for a gold standard, not a complete separation of state and money. He says state dollars should be backed by gold, when really I think the state shouldnt print dollars, and should not even determine that gold will be the commodity to back up the currency. If the market decides that cattle will be the medium of exchange then so it should be.
How would that work? Wouldn’t the lack of a national currency cause potential chaos? Even more so internationally?
I have read that essay, and Greenspan argues for a gold standard, not a complete separation of state and money. He says state dollars should be backed by gold, when really I think the state shouldnt print dollars, and should not even determine that gold will be the commodity to back up the currency. If the market decides that cattle will be the medium of exchange then so it should be.
What Greenspan was trying to say was that gold has always been recognized as a standard. He goes to great lengths to point out that tobacco, shells, etc have been used at one time or the other. What he argued though was that the banks should be required to hold gold in reserve and issue notes based on their gold reserves. The Fed would act like a clearing house or traffic cop.
With someone like a “Fed” backing the deliverability or in brokerage terms, a clearing house, for currency then that would answer Nate’s concern as to international concerns over the stability of our currency.
Downside is, anyone who has ever traded commodities, dealing with deliveries is a bear and insanely inefficient. That is why the futures markets were created to make the whole physical delivery side of the market easier to plan and smooth out.
I know I’m pretty much alone here in not being a fan of the gold standard per se, but physical deliverables are a really inefficient system. It’s the single reason bonds and preferred stocks no longer exist in physical form.
As much as inflation is an issue, the pain in the butt of having to perform phyical deliverys of the commodity is real reason why central bankers hate the heck out of physical backed currencys. It’s the clearing. It’s a nightmare logistically and it’s expensive. If the brokerage industry could wave a magical wand and give up it’s collective left ball to get rid of stock certificates it would. They are dinosaurs that are more trouble than they are worth.
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In order for trade in commodities to occur, you have to deliver the commodity to someone somehow. 
You can sell grain futures all you want, but if that grain never goes anywhere it’s completely moot. My understanding is that futures trading means that you have to transport it fewer times, because you know where it’s going by the time it’s ready to move.
With banks holding gold reserves and issuing bank notes, the gold standard need not be awkward or expensive. Any money backed by an unshakeable value in commodities is inherently stable, and if it is backed by a homogenous, divisible, luxury good (gold) which is universally acceptable everywhere, you don’t need to worry about international trade problems.
The reason everyone always argues in support of a hard backed gold standard is that it would be inflation resistant when compared to current fiat currency. Actually I was just reading Gold and Economic Freedom (p 89 1st Edition, 3rd paragraph) and Greenspan actually does take a very Austrian view of currency.
He states effectively that each bank would keep a reserve of physical gold based on their experience. They would then of course loan some out and issue notes based on the total of the gold that they have on their books. So ostensibly the banks would be able to issue more notes than they have physical gold to cover. So, in the marketplace, as Hayek suggested with the “competitive central bank” idea, the value of the currency would fluctuate by the value of what people actually put on it.
Interesting. Citibank could issue paper with less gold but I’d trust them more than paper issued by say some bank I’ve never heard of that promised it’s backed fully by deliverable gold, so I’d demand 100% payment in Citibank dollars but 200% in Bank of Sharpstown. Again, this could go right back to the argument where the government gets back into regulating the ratio of gold to dollars and we are right back to square 1.
So ostensibly the banks would be able to issue more notes than they have physical gold to cover.
Yes, but they could not issue more notes than they have promised gold (i.e. the total of their reserves and loans outstanding) to cover, and they still have to be able to pay out actual, physical gold on demand.
Nothing and no one can prevent currency fluctuations. The idea is that if one bank is mismanaged, you might have a bank crash and a small area might suffer some problems temporarily. If a CENTRAL bank crashes, the entire country’s money system goes in the crapper.
Just thinking about a world bank gives me the screaming Mimis.
The reason everyone always argues in support of a hard backed gold standard is that it would be inflation resistant when compared to current fiat currency.
Inflation resistant? I understood that, since inflation is caused by the existence of fiat currency, hard currency would be inflation immune.
Yes, but they could not issue more notes than they have promised gold (i.e. the total of their reserves and loans outstanding) to cover, and they still have to be able to pay out actual, physical gold on demand.
Why would they [have to]? Is the government going to enforce this?
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What he argued though was that the banks should be required to hold gold in reserve and issue notes based on their gold reserves. The Fed would act like a clearing house or traffic cop.
Why should the fed force banks and people who freely choose to exchange with them to back their currency with a certain commodity? This is the initiation of force.
Why should the fed force banks and people who freely choose to exchange with them to back their currency with a certain commodity? This is the initiation of force.
Hmm… I think that might depend on how the bank represented themselves. If they advertised that they were safe and sound, low risk (typical of a Bank, rather than a higher risk stock speculation) - and weren’t, then they wouldn’t they be the ones initiating force - acquiring the customers deposit through fradulent means?
Wouldn’t the Gov then be doing proper policing oversight?
Inflation resistant? I understood that, since inflation is caused by the existence of fiat currency, hard currency would be inflation immune.
Yes, that is what I said. People argue that gold backed currency is inflation resistant. I point out that it isn’t.
Even in Capitalism: TUI he argued that the banks should set their own exchange rates. Because if the government set the exchange rates then you might as well have a fiat currency becuase central bankers can fudge the exchange rates as neeeded to adjust the currency supply.
Why should the fed force banks and people who freely choose to exchange with them to back their currency with a certain commodity? This is the initiation of force.
I didn’t say he was right. I only somewhat agree with him. He said that ideally banks should have gold reserves but it should be up to the banks to choose in what percentages their notes are issued. I agree that it should be up to the marketplace what the currency is issued in. And that is if it’s “backed” by anything at all.
His whole thing with gold was that people have invariably relied on something other than currency to trade in times of trouble becuase it was so unreliable. Whether it was smokes or shells or gasoline or stockings or whatever. All goldbugs argue since it’s a pretty shiny metal you can make things out of, that it should be the standard that currency is backed with a mineral that is found in less places.
JMeganSnow said “Yes, but they could not issue more notes than they have promised gold (i.e. the total of their reserves and loans outstanding) to cover, and they still have to be able to pay out actual, physical gold on demand.”
In a free market, a bank could potentially issue notes on something other than total promised gold. It might or might not be prudent, but the buyer and seller have the right to set the terms of their own transaction; a loan might say “this note is backed by gold, based on our anticipated growth over the next 5 years”. It’s up to a buyer to contract for whatever risk that might involve.
P.S. Richard Salsman’s books and tapes (I think available at the Ayn Rand Bookstore), have quite a bit of info on private money.