Economics Questions

Re: Competing currency wouldn't work.

No2statism — Sat, 29 Sep 2012 13:03:16 GMT

@ Phi Est Aureum: I'm sorry about the confusion and the delay in my reply. Anyway, you got it right... I guess the question of whether government revenue collection, storage, and dispersal in gold by weight/purity only vs. govt fiat legal tender for revenue collection, storage, and dispersal instead depends upon whether the govt should have gold or whether as much as possible of the worthless paper it creates should be returned right back to it. I just don't understand how a govt (especially a non-confederation) could be restrained in anyway if it creates and then collects nothing of value even if it is not legal tender for private debts. If more States could also print their own money, then it would more easily make gold the preferred medium of the market, but I think it is just best to reinstate a modified Articles of Confederation where the central govt can only borrow, store, and pay gold, but can't tax and can't print or coin money. Going back to Jacksonian monetary policy (i.e., US gov only recognizes gold by weight and purity, all US govt revenue collected in gold, stored in a fully public physical sub treasury system, and paid out of that) and people can use whatever they want for private debts) immediately under the current constitution would be the next thing, but it wouldn't last. However, the problem with republican unions and monarchies is that they are too centralized so gold can't be dominant within them. That said, I highly doubt we will ever see gold fully legalized again in a centralist union... but maybe I'm just being too pessimistic.

Re: Competing currency wouldn't work.

Phi est aureum — Fri, 28 Sep 2012 20:28:40 GMT

I think we have to distinguish between "free entry to the market in money production" versus "a market of many competing monies". We know, a priori, that money is inherently eliminative and that is Hoppe's point. The same process that causes money to arise in the first place (indirect exchange) will inevitably result in the use of a single, global money.

I agree with this. It's even what I meant to say. I was unclear on what Hoppe meant, but I was probably unclear in my statement. My apologies.

And what's the use of these nationalized, incompatible quantities? Why not use an ounce or a gram?

Well, I wouldn't say they are incompatible. After all, is there a dispute over the conversion of ounces to grams? Really, the question that is/should be asked here is why do some places measure in ounces/quarts while other places measure in grams/liters, but this is a separate issue, I think. Would standardization of measurement (voluntary, of course) on a global scale be helpful? Absolutely. Is it necessary? Absolutely not. I mean, why are bratwursts sold in packs of five while buns are sold in packs of eight?

Local monies are not precluded by Austrian monetary theory - however, it is incorrect to characterize local monies as "competing" with the global money. They serve different functions as only local goods would be priced in a local money whereas all goods - including local monies! - would be priced in terms of the global money.

Absolutely. I guess I was calling even local monies "competing currencies" only because, in some sense, local communities "compete" with others, and this is what makes up the global community. But, yes, I agree.

Thanks for the clarification Clayton!

Re: Competing currency wouldn't work.

Clayton — Fri, 28 Sep 2012 19:56:10 GMT

Is it not plausible, if not outright likely, that as competing currencies worked the market, a few would rise to the top?

I think we have to distinguish between "free entry to the market in money production" versus "a market of many competing monies". We know, a priori, that money is inherently eliminative and that is Hoppe's point. The same process that causes money to arise in the first place (indirect exchange) will inevitably result in the use of a single, global money.

Particularly, is it not plausible, if not outright likely, that gold-backed currency would become the preferred currency of the market? Then it would matter little that, say the US used "dollars" that were backed by 1 / 20 of an ounce of gold and China used a "yuan" backed by a gram of gold, no? After all, then an American could buy a Chinese product that cost 28 yuan for 20 dollars, and a Chinese man could buy an American product that cost 20 dollars for 28 yuan.

And what's the use of these nationalized, incompatible quantities? Why not use an ounce or a gram?

The market may even pop up with businesses that take currencies back to their source to redeem them for a fee, facilitating the trade further. If you speak specifically of my example of corn or wheat backed monies, consider that they will likely only be used by those that benefit from using such a currency, like if they buy mostly local and all local businesses value that particular commodity.

Local monies are not precluded by Austrian monetary theory - however, it is incorrect to characterize local monies as "competing" with the global money. They serve different functions as only local goods would be priced in a local money whereas all goods - including local monies! - would be priced in terms of the global money.

Clayton -

Re: Competing currency wouldn't work.

Phi est aureum — Fri, 28 Sep 2012 00:11:46 GMT

@No2statism

While I agree that the state distorts the market, are you saying that whether the state creates and collects currency (as they do now with the FED creating and the IRS collecting) OR whether it merely collects money (if there were no FED, no legal tender laws, gold became the markets' preferred money, and the IRS collecting) makes no difference? I'm not totally sure I agree with that. When the state can also create money, it simply has another tool to extort wealth from its citizens. That is, a state will extort wealth regardless, but at least without the ability to create money (and enforce its use as per legal tender laws) the citizens are completely aware of why they become poorer (or as least don't gain wealth at a higher rate), namely, taxes and the state. With a central bank and legal tender laws, many (as I'm sure you have noticed) are completely unaware of what the FED is, what it does, and what the effects of its monetary policy really is. Instead, many people are sleeping targets for propaganda to get them to blame the rich, the poor, the immigrants, the terrorists, or in whichever direction the politically powerful wish for them to look (be distracted from the real cause). In this way, although I prefer voluntary associations only, if I had to live under a state, I rather a state with no ability to inflate, since a state will always be able to tax.

Re: Competing currency wouldn't work.

No2statism — Thu, 27 Sep 2012 22:22:20 GMT

Competing currencies aren't good enough because the state, especially a non confederal one! will distort the market anyway. What about when they want to spend? The Federalists didnt give us a form of govt that was compatible with no centralized monetary policy. Even the articles of confederation Sucked on money because it provided for the circulation of centrally created money. If the state creates or collects money then the market will distort it. That said, I think rothbard was a lot better on this because he pointed out that govs can't create money and shouldnt even try to exist because revenue collection will distort the market...I really wonder about Milton and fa Hayek sometimes as they got people thinking, but they couldn't really put it together like rothbard could who was even more principled than dr. Paul.

Re: Competing currency wouldn't work.

Conservative-Libertarian — Thu, 27 Sep 2012 22:01:42 GMT

I don't believe there would be that many currencies. Nobody wants confusion, so there wouldn't be.

Re: Competing currency wouldn't work.

Lady Saiga — Thu, 27 Sep 2012 03:41:15 GMT

What the original post actually says is that competing currencies might not work for HER. As with any other choices in life, you have to do your research and make good ones. Some currency only has local or limited value, like accepting an i.o.u. -that doesn't make it worthless, it just makes it a bigger risk. Larger and riskier investments can pay off better, if you're smart about it. And when a bank fails, it's not going to take the whole region with it. The damage is limited. Communities can recover easier.

Re: Competing currency wouldn't work.

Kelvin Silva — Thu, 27 Sep 2012 02:35:58 GMT

Now that i think about it, your argument wasnt that bad. It does hold truth that the economy works with competition of medium of exchange (or in this case a medium medium of exchange (visa, america card, mastercard etc, to dollars)), since businesses accept a wide variety of credit cards, so i guess you can contrast that between gold and silver etc, etc.

Re: Competing currency wouldn't work.

Phi est aureum — Thu, 27 Sep 2012 02:28:58 GMT

@Clayton

Is it not plausible, if not outright likely, that as competing currencies worked the market, a few would rise to the top? Particularly, is it not plausible, if not outright likely, that gold-backed currency would become the preferred currency of the market? Then it would matter little that, say the US used "dollars" that were backed by 1 / 20 of an ounce of gold and China used a "yuan" backed by a gram of gold, no? After all, then an American could buy a Chinese product that cost 28 yuan for 20 dollars, and a Chinese man could buy an American product that cost 20 dollars for 28 yuan. The market may even pop up with businesses that take currencies back to their source to redeem them for a fee, facilitating the trade further. If you speak specifically of my example of corn or wheat backed monies, consider that they will likely only be used by those that benefit from using such a currency, like if they buy mostly local and all local businesses value that particular commodity. I mean, people still use Discover cards even though they aren't accepted everywhere by everyone. But because of this, not nearly as many people use it as Visa and MasterCard, which are accepted almost everywhere.

@kelvin

Although credit card companies want payment in dollars now, with the repeal of legal tender laws, which is necessary for competing currencies if I'm not mistaken, would they not likely accept a new gold-backed currency as payment? Or would credit cards not exist if competing currencies were not allowed? I'm not sure what exactly is wrong with my example on credit cards, since they are accepted for the purchase of goods and services. Sorry if I'm missing something really simple.

Re: Competing currency wouldn't work.

Wheylous — Thu, 27 Sep 2012 02:12:49 GMT

Even if your answer is well placed, there's still the rest of the thread to consider.

Re: Competing currency wouldn't work.

Kelvin Silva — Thu, 27 Sep 2012 02:09:00 GMT

Credit is debt to a person.

And debts must be payed in a currency. Usually denoted before you enter into debt.

Phi, i think your argument is flawed since those credit companies want to be repayed back in dollars- the legal tender of united states.

Iit is not necessary to have 1 type of money in an economy. The economy wont be crazy since multiple currencies will have exchange rates between them. Eventually 1 money will arise through market competition or multiple moneys will be accepted.

Remember that as a currency is more widely accepted, its value increases, hence it will be rare to have multiple currencies, most probably 1 or 2 will dominate the market ex- Gold and Silver.

Re: Competing currency wouldn't work.

MissSocialist — Thu, 27 Sep 2012 02:07:14 GMT

Currency is not the same as credit cards.

Re: Competing currency wouldn't work.

Phi est aureum — Thu, 27 Sep 2012 02:04:02 GMT

To give an example of what Wheylous is talking about, consider that most businesses accept besides cash: Visa, MasterCard, American Express, and in many cases Discover, personal checks, money orders.

So Kylio, does the market cease to function because of competing credit cards?

Re: Competing currency wouldn't work.

Clayton — Thu, 27 Sep 2012 02:01:04 GMT

@Phi: Careful. Hans Hoppe:

What about the-Friedmanite-idea of freely fluctuating "na-
tional monies" or of "optimal currency area? It must be regarded
as absurd, except as an intermediate step in the development of an
inter-national money. Strictly speaking, a monetary system with
rival monies of freely fluctuating exchange rates is still a system of
partial barter, riddled with the problem of requiring double coinci-
dence of wants in order for exchanges to take place. The lasting
existence of such a system is dysfunctional of the very purpose of
money: of facilitating exchange (instead of making it more difficult)
and of expanding one's market (rather than restricting it). There are
no more "optimal"-local, regional, national or multi-national-mo-
nies or currency areas than there are "optimal trading areas." In-
stead, a s long as more wealth is preferred to less and under conditions
of uncertainty, just a s the only "optimal" trading area is the whole
world market, so the only "optimal" money is one money and the only
"optimal" currency area the entire globe.

Clayton -

Re: Competing currency wouldn't work.

Phi est aureum — Thu, 27 Sep 2012 01:56:55 GMT

You seem to misunderstand the reason for competing currencies. It allows the market to choose the best money. There's a good chance that if legal tender laws were repealed, the FED was abolished, and fractional reserve banking was considered fraud, the markets may very well choose gold- or silver-backed currency. Meaning that it would matter little if a man from Topeka held a local Topeka bank's notes (that were backed by gold) and all of the sudden moved to Indianapolis, as the dominating currency there would be a gold-backed currency as well. The Indianapolis bank would likely exchange his Topeka notes for Indianapolis notes, possibly for no charge if the Topeka bank was a well-trusted bank. It also would matter none if Topeka notes were backed by wheat and Indianapolis notes were backed by corn. If one bushel of corn is valued twice as much as a bushel of wheat, the man could exchange his wheat-backed notes for half as many corn-backed notes, but he is no poorer or richer. His money can still buy the same amount of goods.

Hi Kylio!