intelligent comment below: You specifically made the claim that the Fed prints money OUT OF THIN AIR

jasenj1 did, not me, if you are following the argument (which it appears you have not).

intelligent comment below: gold is a piece of metal with no actual value except the rate set by markets

If gold has a value "set by markets" per what you say, then it has actual value. But it goes beyond that - WHY do people prescribe value on it? It's not just because it's shiny. A bond doesn't have value beyond its origin. At the end of the day, it's similar to an IOU. And what is that IOU tied to?

Bonds are also controlled by both the government and the Federal Reserve's whims and pay little attention to actual supply and demand. Gold delves from the demand of the people, not a central banking elite.

This is why it's a false comparison to claim bonds are the same as gold. To see a further comparison/contrast go to this link.

intelligent comment below: Good, now stop trying to insult my intelligence when I just schooled you once again on your ignorant RON PAUL type rants. You want to be an Austrian economist? Go to Austria.

Your Fark handle is even more inaccurate than previously concluded.

jasenj1: Or are you saying that if Intel produces $50 trillion dollars worth of chips there must be $50 trillion dollars around to pay for those chips, so the government has to print those dollars?

Precisely.

I believe Ron Paul and others who are against the Fed having the power to arbitrarily increase the money supply contend that the government is printing dollars faster than there is value to back them up - causing inflation and destroying the value of savings.

Here's a pretty basic question: Why should people expect their savings to maintain full purchasing indefinitely, given all the constant fluctuations in the economy? No, seriously. If there's a gas shortage tomorrow, why should I expect that my savings account should be able to buy exactly the same amount of gallons today as it could have bought with it 10 years ago?

The type of certainty and security Ron Paul wants from the economy would be nice to have, but it's also impossible to achieve. A flood happens in Thailand, and suddenly the price of hard drives skyrockets for the next year, affecting the price of any computer or device that uses a hard drive. Inflation doesn't stabilize the economy on its own, but it creates incentive that does stabilize the economy. It encourages people to either spend in the near term or invest in the long term. The problem with the gold standard is that it encourages hoarding, which rewards no one except the person doing the hoarding (in other words, it creates an incentive for behavior that benefits no other person).

No. Again, fundamental difference of understanding. If the government prints money faster than the rate at which the country creates value (probably measured in GDP or something) then the government is lowering the value of the currency.

If I produce computer chips at a faster rate than people are currently buying them, then I am lowering the value of computer chips.

Ah. Now we're getting somewhere. You seem to expect that a dollar today will somehow naturally depreciate (attrition). I don't think the gold standard people believe that.

Again, why exactly do you expect money to hold onto value forever?

If I say "The dollar will lose a few percentage points of purchasing power every year, so you should either spend it now or invest in the long run," then that's a workable economy. It's predictable, adaptable, and encourages behavior that helps out the economy overall. If I say, "The dollar will maintain full purchasing power, always," then that's entirely unworkable.

For instance, let's suppose someone holds half the dollars in a gold standard economy, but doesn't spend them, crippling demand and the growth of industry. This creates a massive job shortage and unemployment and a great depression. Prices have to scale down massively over the next 50 years in order to adjust. Combined with population growth, this creates deflation, which encourages even more hoarders like myself, who don't want to spend their dollars today when they could be holding onto them, and prolongs this great depression indefinitely. Since only the massively wealthy can afford to hoard, it increases the wealth gap between the rich and poor. Then, at the end of the 50 years, when all the prices have dropped, I decide to spend everything in one day and buy out 1/2 of the entire economy. I receive all the gains of productivity increases, despite the fact that I contributed nothing. And as a result, I create massive supply shortages from an economy that was unable to deal with the sudden infusion of new cash. And as the other hoarders see that prices go back up, they start spending as well, because they realize that their dollars are quickly losing value for the first time ever.

This is an extreme situation, but it's the very sort of behavior a gold standard rewards. When people talk about the merits of the gold standard, it's because the gold standard encourages hoarding. They're looking for ways to game the system. Of course, no man is going to control 1/2 of all the dollars. But we can easily replace "one man" with "The top 1% of wealth holders." The problem is that one person doing an action in this system encourages other people to do the same. When you have a critical mass of people hoarding cash, other people hoard cash. When you have a critical mass of people cashing out, people cash out. When you have a critical mass of people withdrawing from banks, banks collapse. When you have a critical mass of people converting dollars to gold, the gold supply crashes. etc.

Part of the reason for inflation is that it discourages these critical mass situations from occurring. I'm not going to hoard my money for 50 years, because my money will lose value. And even if I did hoard my money for 50 years, by the time I decided to spend it again, inflation would have minimized the impact of re-introducing my money to the economy. Instead of hoarding my money, I spend it or I invest it.

HighOnCraic: One more time: Libertarians would be better off saying, "Okay, civil rights was the ONE area where the Federal government did the right thing, but in other cases..." It's a much better argument than, "The civil rights act destroyed freedom."

I'd prefer the argument "Jim Crow laws are the perfect example of how government can destroy civil liberties and cause violence among its people, and how democracy can lead to a tyranny of the majority."

Pretty sure both liberals and libertarians can agree to that one.

Deftoons: That isn't like that at all. Bonds are not even the same thing as gold, gold at the very minimum is tangible and has value beyond being used as a measure of wealth. A bond is a piece of paper connected to an IOU. Do you know what bonds are?

Money has existed as IOU's since the history of money. Credit and notation systems pre-date coinage by thousands of years. And even when coinage was introduced, it was *also* an IOU the same way that paper is used today. In other words, the coins would trade at more than the bullion value, because the symbolic value was worth far more.

What is the earliest historical evidence you can give me of gold being used as money for every day transactions? i.e., not as an untraceable currency between criminals and mercenaries and warlords, or between complete strangers from far away lands who never expect to do business together ever again, and not for lifetime events like "wealthy family sells bride for hefty dowry." I mean, what is the earliest historical example of gold being used as money at the market? Don't just tell me that gold has always been the default currency, cite some evidence.

Deftoons: HighOnCraic: One more time: Libertarians would be better off saying, "Okay, civil rights was the ONE area where the Federal government did the right thing, but in other cases..." It's a much better argument than, "The civil rights act destroyed freedom."

I'd prefer the argument "Jim Crow laws are the perfect example of how government can destroy civil liberties and cause violence among its people, and how democracy can lead to a tyranny of the majority."

Pretty sure both liberals and libertarians can agree to that one.

So you're making no distinction between the local governments that caused the tyranny and the federal government that stopped the tyranny?

Try this one: "Jim Crow laws are the perfect example of how state and local governments can destroy civil liberties and cause violence among its people, but thankfully, democracy was restored by the good will of the majority (ie, Federal legislators from outside the South)."

Deftoons: If gold has a value "set by markets" per what you say, then it has actual value.

Dollars have a value set by markets. Why do you believe they have no value?

jasenj1: This is actually an interesting concept and I'm sure way above my pay grade and economic knowledge. If I do a unit of work and am paid, say $1.00, and I put that $1.00 under a mattress, should I expect it to hold purchase power? Or should the value of that stored $1.00 depreciate over time? It is work done in the past and "should" lose value over time.

Read David Graeber's book, "Debt: The First 5,000 Years." Pretty much everything that Paulbots advocate in terms of monetary policy is wrong, not just in terms of execution, but because they fundamentally misrepresent the history of money in general.

The problem is that most Paulbots assume that money is supposed to be a "store" of value, and that "store" is supposed to hold onto that value indefinitely. In other words, money is supposed to symbolize the past. And the exchange of money is supposed to be the exchange on this abstract store of past value. In practice, money has always existed as abstract IOUs, the abstract promise of pay back in the future. And in this case, people who exchange money are passing the promise from one person to the next.

The second scenario is counterintuitive, but it's far more accurate. For instance, people don't trade gold as a "store" of value. They don't trade gold because it represents the labor of the person who first mined it. They trade gold on the expectation of being paid back a greater sum down the line. In other words, gold exists as an abstract IOU. Not a contractual obligation that exists between a known entity, but a general IOU of "If you hold onto this, you will be paid back down the road by someone else." And people who exchange gold pass that IOU. No one cares about the first person to mine the gold. No one cares about what the gold is "storing." How is value "stored" in the first place? The only thing they care about is whether or not they'll make money off their gold in the future.

Fiat currency works in much the same way, except it's a lot more direct and honest about the approach. It's basically an abstract IOU, codified by law. The abstract payback is being able to use this currency as legal tender to pay off your debts. One debt in particular is enforced by law, the requirement to pay taxes, so the government creates the demand for legal tender by creating tax. And since the demand for legal tender is always there, people in the market will freely use the money for trade.

HeartBurnKid: Dollars have a value set by markets. Why do you believe they have no value?

Do you understand the definition of what fiat currency is?

Deftoons: HeartBurnKid: Dollars have a value set by markets. Why do you believe they have no value?

Do you understand the definition of what fiat currency is?

I understand this definition, but what I fail to understand is why the arbitrary value assigned to fiat currency is any more or less real than the arbitrary value assigned to gold or other precious metals.

schrodinger: Money has existed as IOU's since the history of money.

Credit and notation systems pre-date coinage by thousands of years.

You're ignoring a very important fact - they were tied to actual goods and services. What is the US dollar - a "Federal Reserve note" - actually reserving? It's credit for credit's sake, not tying to anything of voluntary value, therefore governments have to force value on it by making it fiat.

HighOnCraic: Try this one: "Jim Crow laws are the perfect example of how state and local governments can destroy civil liberties and cause violence among its people, but thankfully, democracy was restored by the good will of the majority (ie, Federal legislators from outside the South)."

No, I don't think liberals and libertarians will agree on that entire statement, perhaps only part of it, and to a certain point. Federal governments are just as capable to destroy civil liberties as much as state governments can.

Need I remind you the damage our federal governments have caused in VERY recent memory to people around the globe. We have a lot of dead people on the federal government's hands, for arguable causes.

Deftoons: HighOnCraic: Try this one: "Jim Crow laws are the perfect example of how state and local governments can destroy civil liberties and cause violence among its people, but thankfully, democracy was restored by the good will of the majority (ie, Federal legislators from outside the South)."

No, I don't think liberals and libertarians will agree on that entire statement, perhaps only part of it, and to a certain point. Federal governments are just as capable to destroy civil liberties as much as state governments can.

Need I remind you the damage our federal governments have caused in VERY recent memory to people around the globe. We have a lot of dead people on the federal government's hands, for arguable causes.

So, both sides are bad, vote for the Mississippi State Sovereignty Commission? Link

All I'm asking is for you to admit that the Federal government did the right thing by intervening with executive orders, civil rights laws and Supreme Court decisions that eventually overturned state-level tyranny. We can agree that the Federal government has also done things that were bad for arguable causes.

"Federal governments are just as capable to destroy civil liberties as much as state governments can." Sure, but that doesn't mean that in the case of civil rights, the Federal government was wrong. Like I said earlier, even William F. Buckley, who was a strong supporter of segregation in the 50s and 60s (google "Why the South Must Prevail"), confessed that he was wrong about the need for Federal power. Even Pat Buchanan, who invented "Positive Polarization," understands that conservative opposition to Federal power (over domestic issues) is what makes Republican candidates so unappealing to black voters.

BUCHANAN: Well, I agree, I mean, I'll tell you why many African- Americans vote Democratic is because, you know, the federal government stopped, ended slavery, it ended segregation, it supported civil rights, supports affirmative action. But the Feds did that and they tend to believe in the federal government as a good, powerful positive institution, it's on our side. And Hannity and Buchanan and these guys are constantly knocking it, and that's why we are against them. So, that's an understandable position.

Link

I can admit that certain actions taken by the Federal government are/were bad: interning Japanese citizens, allowing the Army to be segregated in the first place, COINTELPRO, much of the war on drugs, and the PATRIOT Act. That doesn't mean that everything the Federal government does is evil. Why is everything with libertarians all or nothing?

Deftoons: You're ignoring a very important fact - they were tied to actual goods and services. What is the US dollar - a "Federal Reserve note" - actually reserving? It's credit for credit's sake, not tying to anything of voluntary value, therefore governments have to force value on it by making it fiat.

The value of US currency ultimately derives from the services that the US government provides. It's a practice as old as coinage itself.

One of Ron Paul's bigger lies during his debate with Krugman was "The Byzantine Empire had a gold standard for a thousand years and they did quite well and they didn't fight wars." This claim is completely false.

Did you know where the word "soldier" comes from? It comes from the word "solidus," which was the currency of the Byzantine empire. You pay your military in coins you minted, then you charge your citizens the same coins to pay back in taxes. In order to obtain a coin, the citizens need to provide services to the soldiers. So not only did the Byzantine empires fight wars, but those wars were the entire basis for their economy.

Even in the Byzantine economy that Ron Paul cites, money doesn't get its value because "gold is shiny." In fact, gold money frequently had to be melted/re-issued, because it was soft to the point of constantly wearing down and losing value every time it was traded. Currency ultimately got it's value from the government, because people needed value to pay for government services. You can replace "military" with "public roads" and "police force," and the same logic would apply. The only reason gold was used was because it's an IOU that would be difficult to forge. Just like the US Mint doesn't print US Dollars on paper and ink you can get from Office Max. But in the end, it's still an IOU.

Pointing out that money gets its value from fiat is like pointing out that plants get their energy from the sun. Technically true, but so what?

Deftoons: HighOnCraic: Try this one: "Jim Crow laws are the perfect example of how state and local governments can destroy civil liberties and cause violence among its people, but thankfully, democracy was restored by the good will of the majority (ie, Federal legislators from outside the South)."

No, I don't think liberals and libertarians will agree on that entire statement, perhaps only part of it, and to a certain point

What part do you object to?

"Jim Crow laws are the perfect example of how state and local governments can destroy civil liberties and cause violence among its people" Is that not true?

"thankfully, democracy was restored by the good will of the majority (ie, Federal legislators from outside the South)."

1964 Civil Rights Act by party and region

Note: "Southern", as used in this section, refers to members of Congress from the eleven states that made up the Confederate States of America in the American Civil War. "Northern" refers to members from the other 39 states, regardless of the geographic location of those states.

The original House version:

Southern Democrats: 7-87 (7%-93%)
Southern Republicans: 0-10 (0%-100%)

Northern Democrats: 145-9 (94%-6%)
Northern Republicans: 138-24 (85%-15%)

The Senate version:

Southern Democrats: 1-20 (5%-95%)
Southern Republicans: 0-1 (0%-100%)
Northern Democrats: 45-1 (98%-2%)
Northern Republicans: 27-5 (84%-16%)

abb3w: Actually, it's in effect backed by a mix of both voluntary and involuntary value; that is, trust in the United States government as a social institution able to achieve desired goals, and respect for its capacity as a source of coercion.

Not necessarily true - that only applies if more than just the US dollar can be recognized as legal tender (competing currencies), which is currently not the case. This essay gets more into this at length:

"Looking at a clear picture of a $20 U.S. note, we see at the top "Legal Tender for Twenty Dollars." Legal tender means that the note must, by law, be accepted as payment for all debts, public charges, taxes, and dues."

It should also be noted that the previous term for "legal tender" was "forced tender."

schrodinger: The value of US currency ultimately derives from the services that the US government provides. It's a practice as old as coinage itself.

If that was the case, why not adopt open and competing currencies then? If you honestly think the value of our legal tender is voluntary and tied to its services (which you're still incorrect, but I'll humor you) - open up currencies to market competition like we would with anything else on the market. If we have trust in the these services our federal government provides, let the trust stand on its own.

schrodinger: One of Ron Paul's bigger lies during his debate with Krugman was "The Byzantine Empire had a gold standard for a thousand years and they did quite well and they didn't fight wars." This claim is completely false.

Did you know where the word "soldier" comes from? It comes from the word "solidus," which was the currency of the Byzantine empire. You pay your military in coins you minted, then you charge your citizens the same coins to pay back in taxes. In order to obtain a coin, the citizens need to provide services to the soldiers. So not only did the Byzantine empires fight wars, but those wars were the entire basis for their economy.

Even in the Byzantine economy that Ron Paul cites, money doesn't get its value because "gold is shiny." In fact, gold money frequently had to be melted/re-issued, because it was soft to the point of constantly wearing down and losing value every time it was traded. Currency ultimately got it's value from the government, because people needed value to pay for government services. You can replace "military" with "public roads" and "police force," and the same logic would apply. The only reason gold was used was because it's an IOU that would be difficult to forge. Just like the US Mint doesn't print US Dollars on paper and ink you can get from Office Max. But in the end, it's still an IOU.

Pointing out that money gets its value from fiat is like pointing out that plants get their energy from the sun. Technically true, but so what?

How does any of this contradict my point? Doesn't this, in fact, SUPPORT what I was saying in regards to how money was tied to goods and services, unlike our current currency today?

HighOnCraic: Deftoons: HighOnCraic: Try this one: "Jim Crow laws are the perfect example of how state and local governments can destroy civil liberties and cause violence among its people, but thankfully, democracy was restored by the good will of the majority (ie, Federal legislators from outside the South)."

No, I don't think liberals and libertarians will agree on that entire statement, perhaps only part of it, and to a certain point. Federal governments are just as capable to destroy civil liberties as much as state governments can.

Need I remind you the damage our federal governments have caused in VERY recent memory to people around the globe. We have a lot of dead people on the federal government's hands, for arguable causes.

So, both sides are bad, vote for the Mississippi State Sovereignty Commission? Link

All I'm asking is for you to admit that the Federal government did the right thing by intervening with executive orders, civil rights laws and Supreme Court decisions that eventually overturned state-level tyranny. We can agree that the Federal government has also done things that were bad for arguable causes.

"Federal governments are just as capable to destroy civil liberties as much as state governments can." Sure, but that doesn't mean that in the case of civil rights, the Federal government was wrong. Like I said earlier, even William F. Buckley, who was a strong supporter of segregation in the 50s and 60s (google "Why the South Must Prevail"), confessed that he was wrong about the need for Federal power. Even Pat Buchanan, who invented "Positive Polarization," understands that conservative opposition to Federal power (over domestic issues) is what makes Republican candidates so unappealing to black voters.

BUCHANAN: Well, I agree, I mean, I'll tell you why many African- Americans vote Democratic is because, you know, the federal government stopped, ended slavery, it ended segregation, it supported civil rights, supports affirmative action. But the ...

Fair enough.