Barry Bonds and Abuse of Government Power

Why is it any of the government's business if Barry Bonds used steroids or not?

Why should the government waste money prosecuting Barry Bonds? Money was stolen from me via taxes, and is being wasted on a pointless criminal trial. I don't care if Barry Bonds used steroids or not.

Technically, Barry Bonds was investigated for perjury, but what right did the government have to question him about that in the first place? If Barry Bonds wants to put harmful substances into his body, doesn't he have the right to do so?

Major League Baseball had *NO* rule against steroid use at the time Barry Bonds was using steroids, although the failure to have a drug policy was related to the strong baseball players' union. The baseball players' union finally allowed a drug policy, under pressure from newspapers and TV stations, who are eager for any opportunity to make unions look bad.

What Barry Bonds does in private is none of the government's business. Barry Bonds was not breaking his contract with Major League Baseball, since they had no anti-steroid policy at that time.

Why is Barry Bonds guilty of a crime? He may have injured himself by using steroids, but that should not be a crime. I don't see how there can be a claim that he injured someone else or broke a contract. I don't consider the perjury charge to be valid, because the government had no business interrogating him in the first place.

Ron Paul, The Federal Reserve, and the Gold Standard

On the Ron Paul Forum, I received a private message:

Hi, I'm a big Paul supporter, I'm trying to get a better understanding of some of his policies, so that I can use them as rebuttals.. The one issue I have had is understanding the Fed, if Paul plans to return to the gold standard or not, how he plans to implement this, and what are the positives and negatives?

If you can help me, I would appreciate it..
thanks for your time!

This is another question that deserves its own separate post.

I see you haven't read my blog yet, though. I have a nice Google Search widget that you can use.

I'll highlight the most relevant posts for you.

The Compound Interest Paradox

It all gets started with The Compound Interest Paradox. You won't appreciate how evil the Federal Reserve is until you understand the Compound Interest Paradox. If you fully understand the Compound Interest Paradox, you know more about the US monetary system than Ben Bernanke. I'm 99.9% sure that Ben Bernanke doesn't understand the Compound Interest Paradox; if he did, he wouldn't be able to testify before Congress with a straight face. (unless he's really that evil; I prefer to think of him as merely being clueless.) IMHO, if Ben Bernanke understood the Compound Interest Paradox, he would testify before Congress that the US monetary system is hopelessly screwed and needs to be reformed.

Summarizing the Compound Interest Paradox, there's a fundamental structural flaw in debt-based money. In the US monetary system, money is created only when someone takes out a loan. Only the principal is created, and not the required interest payments. If you take out a 1 year loan for $100,000 at 8%, then a year from now you need to repay $108,000. However, that $8,000 was never created or put into circulation. There's a permanent money supply shortfall of $8,000. Your bank created $100,000 when it issued the loan, but $108,000 in money is destroyed when you repay the loan. There's a permanent money supply shortfall of $8,000.

More technically, if the bank loaned to you at 8%, it probably borrowed from the Federal Reserve at 4.5%, the current Fed Funds Rate. The bank will get $3,500 for its own expenses and profits, but repays $4,500 to the Federal Reserve. It is only at this step, when the Federal Reserve creates money, that the Compound Interest Paradox operates with the full force of law. The actual money supply shortfall is $4,500.

The accounting is misleading. The bank's books balance. The Federal Reserve's books balance; the Federal Reserve books a profit of $4,500. However, if you look at the books of "society as a whole", there's a bigger and bigger accumulated money supply shortfall. Every time the Federal Reserve "monetizes the debt", it creates a bigger and bigger money supply shortfall.

Over time, society as a whole must get into a deeper and deeper debt hole. It gets exponentially worse at time passes. We currently are in the endgame of the Federal Reserve's scam. It can't last much longer. Whoever designed the current US monetary system in the 1910s knew about the power of the Compound Interest Paradox and its ability to enslave people. It's like they included a ticking time-bomb in the US monetary system, knowing that it would self-destruct after a certain period of time. We are very nearly at the point where this time-bomb explodes, and this defect is built into the rules of the monetary system. In the present, nobody who understands the Compound Interest Paradox is allowed to rise to a position of political influence.

If you don't understand the power of the Compound Interest Paradox, consider the following. The accumulated Federal budget deficit is over $9 trillion dollars. According to the Federal Reserve, the M2 money supply is only $7.4 trillion dollars. In other words, if taxes were raised to 100% and all the M2 money supply were paid as taxes, there *STILL* would be a shortfall of $1.6 trillion dollars. The above figure doesn't include private-sector debt, which is estimated to be over $50 trillion.

How can the money supply be smaller than the accumulated Federal budget deficit? How can the money supply be less than the total amount of outstanding debts? That's nonsense, isn't it? The answer is the Compound Interest Paradox.

Due to the Compound Interest Paradox, it is *MATHEMATICALLY IMPOSSIBLE* for all currently outstanding loans to be simultaneously repaid. There needs to be continuous inflation just to keep the monetary system afloat. You need negative real interest rates in order to ensure that any money is in circulation at all.

Under the Federal Reserve, real interest rates are negative. The Fed Funds Rate is currently 4.5%, and the rate of growth in M2 is over 6.5%. That's a negative real interest rate of -2%. Some people estimate that M3 is growing at 10%-15% or more. That's negative real interest rates of -5% to -10% or more! This is a massive subsidy to the financial industry and large corporations. This subsidy isn't free; it's paid by everyone else as inflation.

That's another naughty thing the Federal Reserve did. They stopped publishing M3. Ron Paul tried to get Congress to force the Federal Reserve to resume publishing M3, but none of the other members of the banking committee were interested.

I made a series of articles on the Federal Reserve, Income Tax, and Gold Standard on the Ron Paul Wiki. I reposted them on my blog. I haven't been back to the Ron Paul Wiki in awhile; my posts appear to have been replaced by spam. That's why I like having my own blog where I control the content!

Income Tax Thoughts
Gold Standard Thoughts
Federal Reserve Thoughts - How it Works
Federal Reserve Thoughts - Why it Should be Abolished
Federal Reserve Thoughts - Answers to Media Myths
Federal Reserve Thoughts - How to Fix the Financial System - This isn't necessarily Ron Paul's plan, but it is a plan that would work. Ron Paul has stated he would abolish the Federal Reserve immediately, but he hasn't mentioned his plans for a replacement system. It is possible for Ron Paul to abolish the Federal Reserve without the US economy completely collapsing, if he follows a plan similar to what I describe. The risk is that, with market-determined interest rates, the dollar could collapse in hyperdeflation as people struggle to repay their loans. Ron Paul's Treasury department would have to inject paper dollars into the monetary system to make up for the huge accumulated money supply deficit.

Ron Paul's plan for retuning to the gold standard is to remove the taxes and regulations that prevent people from using gold as money. Currently, if you buy gold for $850/ounce and later trade that gold for goods when the price of gold is $1000/ounce, you would owe taxes on a capital gain of $150 at the 28% rate used for collectibles. This tax makes it pretty impractical to use gold as money. If you attempt to use gold as money, you wind up paying more in taxes than if you use Federal Reserve Notes as money. Further, the IRS has cracked down on individuals who attempted to operate a gold-denominated bank. Anti-money-laundering laws have made businesses such as eGold harder for US citizens to use.

All Ron Paul needs to do is remove the taxes and regulations that prevent people from using gold as money. Ron Paul intends to allow gold and unbacked paper to circulate together. Then, the free market would prefer to use gold or silver as money.

For example, if I trade a $20 bill for two $10 bills, is that a taxable transaction? Of course not. Similarly, if I trade $850 for an ounce of gold, is that a taxable transaction? According to Ron Paul, that should not be a taxable transaction. Gold is money, and that transaction is merely trading one form of money for another form of money. The IRS has ruled otherwise, but since when does the IRS follow the Constitution?

I also have some other posts on the Federal Reserve and income tax.

The True Purpose of the Federal Reserve
The True Purpose of the Income Tax
The Federal Reserve and Income Tax Conspiracy Theory

The Federal Reserve and the Income Tax are inextricably linked together. If you ask "Why don't people just boycott Federal Reserve Notes?", the answer is that income taxes MUST be paid in Federal Reserve Notes, hence my term Federal Reserve Work Permission Points. Income taxes mean, literally, that you need permission from the government in order to work. Even worse, income taxes mean that you need permission from the Federal Reserve, a private corporation, to work. By controlling the money supply, the Federal Reserve controls the extent to which US citizens have permission to work. In an economic boom, there's plenty of work permission receipts in circulation. In an economic bust, there's a shortage of work permission receipts.

Income taxes also mean that you need permission from the IRS if you want to set up a private monetary system. The taxes and regulations are so high that a private on-the-books monetary system is unworkable.

Even if you wanted to boycott Federal Reserve Notes, you would need a certain supply of Federal Reserve Notes just to pay income taxes. The Federal Reserve and the income tax are two sides of the same evil. The Federal Reserve is a corrupt monetary system, and income taxes prevent people from boycotting that corrupt monetary system.

The income tax, literally, converts every US citizen into a government slave.

Ron Paul's plan is to issue a bunch of executive orders. He would abolish the Federal Reserve by executive order, on the grounds that it is unconstitutional. He would abolish the Income Tax by executive order, on the grounds that it is unconstitutional. I believe his argument is that the income tax violates other provisions of the Constitution and that the 16th amendment itself was never properly ratified.

I've already answered a bunch of Federal Reserve questions in Reader Mail #1 - the Federal Reserve Still Sucks.

My post on the Subprime Mortgage Lending Scam relates my criticism of the Federal Reserve to current events.

My post on How the State Destroys Small Businesses gives a good illustration of how the Federal Reserve and government regulations combine to hurt small businesses and favor large corporations.

Personally, I'm not holding out hope that Ron Paul gets elected. The voting system is defective. It's too late for the USA. The USA is now a communist country. I think it's time to move on to a new model for an economic and political system. The best model I've seen for a nonviolent revolution is agorism. If Ron Paul fails to get elected, I think many of his supporters might be converted to that philosophy.

Even though I don't expect Ron Paul to get elected, he still is my favorite candidate. Plus, the Internet discussion forums for Ron Paul tend to have the most interesting topics.

If you're frustrated with professional trolls on the Ron Paul Forum, you probably should start your own blog.

The only negative about Ron Paul being elected is that he might be able to postpone the inevitable collapse of the US monetary system and the US government. It would be fairer to see the current system completely collapse, rather than see it reformed.

The people who think they control the US government might be, literally, facing the choice of "Allow Ron Paul to be President." or "Allow the current worldwide economic system to completely collapse."

Leave a comment or E-Mail me if you still have questions.

Writers' Strike

One issue that has me pretty confused is the writers' strike. This post has a very good explanation of why a writers' union is needed, from the writers' point of view. That post does have one error. The author says that cartelization of the entertainment industry is an inevitable consequence of a free market. That is false. It is an inevitable consequence of a corrupt economic system, which is falsely touted as a "free market". Cartels don't occur in a truly free market. (If a cartel does occur in a free market, that means that the free market has been destroyed and someone has successfully established a new state.)

Why is the writers' strike industry-wide? Why should the Tonight Show, Letterman Show, and Daily Show writers be all striking simultaneously? They are owned by three separate corporations. Shouldn't NBC/GE, CBS, and Viacom each negotiate their own separate agreements with the writers' union? Why can't the Daily Show say "We agree to the writers' contract request", while the writers for other shows keep striking?

The answer is that the entertainment industry has organized itself as a cartel. There are a handful of corporations that dominate the entertainment industry. Even worse, these handful of corporations have decided to offer standardized terms to writers. This is like GM, Ford, and Chrysler negotiating in unison; in practice, this is what actually happens, because the contract negotiated at one is used as the model for the other two.

The entertainment industry has decided to offer standardized terms to all writers. The writers respond by unionizing. The entertainment cartel LOVES this arrangement, because it means they don't have to compete on price. The writers' union is, in effect, an extension of the state. The writers' union legitimizes this corrupt practice by the entertainment industry. Under US government rules, the entertainment cartel gets immunity from antitrust regulations when negotiating with workers, if the workers are unionized.

A group of writers can't get together and say "Let's start our own TV station", because of the barriers to entry to the market. There is no true free market in writing for TV stations, so you can't really say that the actions of anyone are violating the spirit of a free market. A writer isn't free to personally negotiate his own terms. A TV station or program isn't free to individually negotiate with writers.

BTW, the actual issue appears to be Internet sales of programming. With TV broadcasts, it is generally acknowledged that writers get a certain % of sales. The writers want the same percentage to apply to Internet sales that apply to regular broadcast sales. The TV stations want the percentage to be 0% or a lower %. IMHO, it should be the same % for each.

In a truly free market, the issue of "what % of revenue the writer gets" should be individually negotiated by each writer. That is precisely the sort of price competition the TV stations do not want.

In the current system, a writer who attempts to negotiate individually with TV stations will see the same lousy terms offered by each corporation in the cartel. Given the context of an un-free market, forming a union is the writers' best alternative. A writers' union does give each individual writer the opportunity to settle pay disputes cheaply, through the union arbitration process. Under a corrupt legal system, it would not be practical for each writer to individually sue if they were cheated out of their pay.

Writers' Union vs. Editors' Union

This joke is circulating on the Internet: "If the fiction writers are on strike, then how come Fox News is still on the air."

The answer is actually very simple. The news editors are represented by their own separate union. Reality show writing falls under the editors' union instead of the fiction writers' union.

The writers' union attempted to unionize the writers on a reality show. They found themselves in a turf war with the editors' union. Their attempted strike failed miserably.

This is precisely the way the red market likes it. Even though the writers' union has a certain degree of power and influence, the writers' union and the editors' union are separate. When the writers' union attempted to unionize reality show writers, the turf war between unions took precedence over negotiating with the employer. That is precisely what the red market wants to do: divide and conquer the workers.

You shouldn't have any animosity towards the writers' union, who are doing the best they can in the context of a corrupt system. You should blame the TV stations, because if they broadcast honest news stories detailing the corruption, the system would be reformed. The truth is leaking out slowly on the Internet.

The NFL Players' Union Gambit

If the writers' union winds up being broken in the current strike, they could take a page from the NFL players' union playbook. After frustration with the NFL, the players' union decertified itself and filed an antitrust lawsuit. This wound up leading to the current free agency system, which is far better than anything the players had previously, although still short of optimal.

Since the TV industry is organized as a cartel, perhaps the writers' union could decertify and file an antitrust lawsuit. On the other hand, that's just relying on one part of the red market to protect you from another part of the red market. Perhaps they would be better off converting to agorism.

In fact, when I watch some TV fiction shows, I wonder if some writers are trying to secretly leak out the truth. A writer can't come out and say "The US Government is evil." However, it is perfectly acceptable for a writer to say "Ming the Merciless' government is evil", and have Ming use tactics similar to those the US government uses.

I wonder if that explains movies such as "The Matrix". Many people say that "The Matrix" is an analogy for the corrupt economic and political system we live in today. Maybe that is the real reason for that the popularity of that movie. Some people say "The Matrix" is nonfiction. Did a bunch of clever writers figure out a way to leak part of the truth?

Reader Mail #14 - Why Am I Feeding Trolls?

My post on How the State Destroys Small Businesses has been incredibly popular. It was merely a response to a question someone had asked me. You should read it if you haven't already. It was visited primarily by people forwarding the link. IMHO, word of mouth is the best way to promote your blog. That post set a new single-day visits record for my blog! The previous single-day visits record was set by The Voting Scam.

Sometimes, my best content is a response to a reader questions.

Brad Spangler has published links to the Market Anarchy Zine. They are worth reading. This post has an HTML-readable version. Brad Spangler linked to PDFs, intended to be printed and compiled as a book.

Here's another interesting Google Analytics statistic. 107 people have visited my blog at least 15 times. 84 people have visited at least 26 times. 3 people have visited over 51 times. That means I have around 200 regular readers.

Someone Google searched and found my blog for "how the federal reserve is fixing the economy". The Federal Reserve "fixes the economy" in the same sense that a veterinarian fixes a dog.

I read an interesting article on ProBlogger. It said that a blog is worth about $30 per regular reader. That seems like a high number to me. Plus, my blog isn't the kind I could sell, because I doubt someone else would be able to write articles in my style.

Some popular bloggers wind up writing a book. If I collected and edited my best posts, I'd have more than enough material for a book. However, selling only 200 copies doesn't make it worthwhile. What would be a good title? How about "The Compound Interest Paradox, the Federal Reserve, the Income Tax, and Other Enslavement Techniques"? That's a bit too long, though.

The Ron Paul campaign is interesting. From my point of view, the only alternatives are that (1) Ron Paul, or someone like him, should be elected president or (2) the current economic and political system will completely collapse. I wonder if enough people are starting to realize that those are the only alternatives? Personally, I think that a complete collapse is fairer, but I would also like to see Ron Paul be elected President. Even if Ron Paul fails to be elected in 2008, there probably still is time for another Ron Paul-like candidate to be elected President in 2012 or 2016.

I found a link to the full testimony of the FBI agent who petitioned for the raid of the Liberty Dollar offices. Apparently, the raid was not organized by the IRS. It was organized by the FBI, Treasury Department, and the Department of Homeland Security. First, the FBI agent was complaining that the Liberty Dollar Corporation was not reporting its seignorage income to the IRS; isn't that the IRS' concern and not the FBI's concern? The Liberty Dollar corporation was buying silver at the spot price ($14.50) and selling Liberty Dollar coins to associates for $16/oz, with a face amount of $20/oz. When the spot price of silver rose above $10/oz, the Liberty Dollar corporation devalued its currency from $10/oz to $20/oz, without reporting all this seignorage income. Liberty Dollars can be sold for multiple prices. The Liberty Dollar corporation can manufacture Liberty Dollar coins for $14.50, sell the them to associates for $16, and they can be redeemed for $20. An associate can buy Liberty Dollar coins for $16/oz, give them to someone else, who redeems them for $20/oz; in this manner, Liberty Dollars could facilitate money laundering. Also, I think that electronic Liberty Dollar transactions need to be reported to the government; I'm not sure if they were doing that.

Another complaint is that, by passing off an ounce of silver as a $20 coin, users of the Liberty Dollar are committing fraud. First, a 1 ounce silver coin is properly valued based on the spot price of silver, not $20. Second, a naive person might think the Liberty Dollar coin was official US money, due to the misleading inscription on the coin; Liberty Dollar coins look sort of like actual US government money.

Some news outlets are carrying the Liberty Dollar story as a Ron Paul related story. The Liberty Dollar and Ron Paul are *COMPLETELY* unrelated. However, they were minting a Ron Paul coin, trying to leech off the popularity of his campaign. Consider this article on CNN.com. Do you notice that they intentionally picked a bad photo of Ron Paul? The angle of the shadows is designed to make him look bad.

I recently discovered Google Reader, after viewing Kevin Carson's shared items. If you're a regular reader of a bunch of blogs, it's a neat way to keep track of new posts on various blogs, without having to visit the blog's homepage each time. You still have to visit the blog itself if you want to view reader comments. You should highlight reader comments in separate posts like I do! It's also useful for blogs that don't update regularly, because you receive a notification when there's a new post.

I have a Google Reader "FSK's shared items" widget on my blog's homepage now. It contains what I think are the best posts from the other blogs I read regularly. It has its own RSS feed, so those of you who read my blog via the RSS feed can also subscribe to that feed.

On the Ron Paul Forum, someone asked:

How about leaving fire departments to the free market?

There is a workable solution. The same people who sell fire insurance should own the fire departments! (Or purchase protection contracts from fire departments.) Presumably, the free market could more efficiently place fire departments than a government bureaucrat who would have concerns such as "one fire department per voting district".

For pretty much any state-provided service, if you really think about, there's a viable free market alternative.

The idea that fire insurance is bundled with fire departments makes perfect sense.

On Reader Mail #12, Aahz wrote a detailed response:

Personally, I think that Aahz and I should just go our separate ways. I don't think I'm contributing to his enlightenment, and I'm just getting frustrated. Other people are free to check out his spam-infested blog if they choose. When he posted his comment, he double-posted. I meant to click on "reject one, approve other", but Blogger rejected both.

If you post advertisements on your blog disguised as content, IMHO you are stealing from me. You aren't stealing money out of my pocket. You are stealing my time, which is just as valuable.

In Google Search, my blog is the #1 result for "oligopoly"! That's kind of cool.

Hate to burst your bubble, but try signing out of Google and doing the search again. You're not even in the first 5 pages. Google tailors your search results to your browsing and searching history.

Whoops! I was looking at "oligiopoly", where I actually am #1 due to a misspelling in my post. Other people made the same typo I did. Those people did appreciate my blog, staying to visit several pages according to Google Analytics.

Personally, I think word of mouth is the best way to promote a blog. There are many ways to "game" Google's search engine, and I'm not looking to waste my time on that. I do make the first page of plenty of searches. My PageRank does appear to be improving over time.

I'm interested in the idea that Somalia is a valid example of a stable anarchistic society. However, I don't think that Somalia could withstand an full-scale invasion by the USA.

Are you trying to say that one of the definitions of a stable anarchist society is that it be able to withstand a US invasion? I'm curious, then what countries you consider to be stable.

Yes, a stable anarchistic society has to be able to withstand invasion. Simple mechanisms, such as ensuring most citizens are armed, is sufficient. An unregulated free market in handguns is sufficient.

What countries do I consider to be stable? None, including the USA.

When you eventually stand up and actually start living as an anarchist your opinion may hold some weight.

If you don't like my opinions, you don't have to read my blog. Similarly, if I don't like advertisements disguised as content, I don't have to read Aahz's blog.

The state/corporate economy offers me a higher salary than the anarchist economy. So far, the best job the anarchist economy has offered me is $0/hr writing my blog, which I willingly do for free. If I could find an free market job that paid equal or better than my corporate job, I would gladly take it. I'd probably even work for slightly less, just to be able to work in the free market. I'm not going to sacrifice myself just for the sake of doing negligible damage to the state.

Besides, if my corporate job is really a complete and utter waste of time, I'm not contributing to the bad guys! I'm only helping the bad guys if I create something productive and useful that the bad guys steal. All state property is, technically, unowned property. I'm claiming my share of this unowned property.

There's nothing wrong with me using an IRA to protect my savings from taxation. There's nothing wrong with me investing in the stock market or options market. When I profit from my stock or option investments, I'm just claiming unowned property. There's nothing wrong with using my knowledge of the structural flaws in the financial system to profit. I'd prefer to work in a free market, but for now, I'll do the best I can given the circumstances.

That's another class of anarchists that I classify as fools. They go around living out of dumpsters, just to avoid supporting the state. There are more productive ways to undermine the state.

I take a normal corporate job, and use the proceeds to find time to work on my blog.

Besides, if your job is accepting payments for advertisements in your blog, I assume you're paying income taxes on that. If you're paying taxes, you're supporting the state.

I've been looking carefully at Aahz's blog, and his post promoting a payday loan service has me really angry.

Hmmm... so, you're really angry that I use payday loan services? I'm not seeing any logic there.

Ever since I decided to stand on principle and no longer spend my daytime hours supporting the economic tyranny that rules the US I've been living in poverty. One of the results is that I need to take out payday loans on occasion.

Are they a "ripoff"? No. I get exactly what I contract for. Are they a poor financial decision? Of course they are, most of the time. I pay $45 to get $255 for two weeks (actually only 10 days this month). However, this month that $255 is going to keep me from racking up over $500 in late fees and penalties in that same 10 day period. So it's actually a wise financial choice for me at this time.

Using your numbers, your paycheck is $300 and you're paying a fee of $45 for a 2 week loan. That's an interest rate of 15% over two weeks. Converting to an annualized rate, (1.15)^26-1 is an interest rate of 3600%. That's a ripoff.

Is it fair that large corporations can borrow at 6% while you borrow at 3600%? Where do you think that $45 goes anyway? It goes to a bank's profits. Banks have successfully lobbied the state for regulations ensuring that cheap small loans aren't available to poor individuals.

The problem is that there's no true "free market" in loans to poor individuals. Ideally, you should have some friends who could give you a loan at a decent rate so you could build up some savings.

Besides, I though that Aahz lived off his blog income. Are such checks accepted by payday loan services?

Yes, you freely contracted with the payday loan service. The problem is that state violence distorts the market, preventing cheaper loan services from emerging. If A trades with B, it's not a free transaction when C is holding a gun to B's head, or holding a gun against people B would prefer to trade with.

Similarly, you freely contract with your advertisers. That isn't a truly free arrangement, due to state interference in the market. Is it fair that the state distorts the market to the extent that is your best employment offer?

Google and Blogger should provide this directly somewhere. Their UI is pretty good overall, so it's got to be in there somewhere. If not, they should be adding it soon.

They should but they don't. From Google's help page at http://www.google.com/support/webmasters/bin/answer.py?answer=73026&query=feedburner&topic=&type=

Subscriber stats display the number of Google users who have subscribed to your feeds using any Google product (such as Reader, iGoogle, or Orkut). Because users can subscribe to feeds using many different aggregators or RSS readers, the actual number of subscribers to your site may be higher.

Google's own Matt Cutts recommends Feedburner on his blog:

If you just want a nice summary number, or to see the breakdown of feed readers, I recommend FeedBurner. It’s free and gives you useful stats for any day you want.

Since he's frequently the one breaking the news of new Google features (and that post is less than a month old) I wouldn't suggest holding your breath waiting for Google to get you real feed numbers.

I need to learn more about how RSS feeds work. I never realized that someone can subscribe to my feed via another service. Blogger -> Feed A -> Feed B -> Feed C. If someone subscribes to Feed B or Feed C, I'll never know unless I put some kind of cookie or web bug in my blog? Is that how it works?

All I did was click the checkbox "enable RSS feed" in Blogger. Hopefully, most people who get my RSS feed visit my blog itself sometimes. I have some nice links on my blog on the sidebar that aren't visible via the RSS feed.

My Google Analytics stats are interesting. I doubt that as many as 10% block scripts from running in their browser, so my Google Analytics stats are probably accurate. I block Google Analytics myself, partially to avoid corrupting my own statistics when I visit my own blog.

Anyone posting on the Ron Paul Forum who is strongly opposed to the gold standard either doesn't understand Ron Paul's positions or is a troll.

So you don't think it's possible to disagree with someone and not be a troll? Isn't it possible they're simply not Ron Paul supporters? Or that they like Paul for reasons other then his support of the gold standard?

Why would someone who isn't a Ron Paul supporter be on the Ron Paul Forum? It's like having advertisements for corporations on an anti-state blog.

Professional trolls disrupting debate on the Internet is a SERIOUS problem. It could be solved by writing better discussion forum software with a moderation feature. It could also be solved by moving to a forum where you control the content, such as hosting your own forum or blog.

I'm just shocked and disgusted to see professional trolls on a Ron Paul Forum. On the other hand, a popular political forum is expected to attract trolls.

I can tell by analyzing their arguments and tactics that they are professional trolls. I've seen it enough to be convinced. I may be wrong about some of the user's I've classified as disinformation agents, but some of them certainly are there to spread propaganda.

IMHO, Ron Paul's key positions are anti-Federal Reserve, anti-income tax, anti-IRS, and pro-gold standard. Those are more important than anything else.

For example, I think his immigration rhetoric is dead wrong, but I still hope to see him because President.

If you take the attitude that all governments are illegitimate, then free unrestricted immigration is the natural conclusion. That is not Ron Paul's position. In the present, the USA should offer free unrestricted immigration to any country that reciprocates.

I've come to the conclusion that shows like The Daily Show and Colbert Report are actually fake opposition. They really are just shills for the establishment. They'll never have a guest who takes the correct position of "Who needs a government anyway?"

I've never watched either of these shows so can't comment on them directly, but Rom Paul was on The Daily show on June 5th and on The Colbert Report on June 15th. Fact checking is a good thing, but doesn't seem to be one of your strong suits. That's what, 8 glaring errors I've corrected in just a few days?

Just because Ron Paul was on the Daily Show doesn't contradict that they are shills for the establishment. Ron Paul really didn't discuss his anti-Federal Reserve or anti-income tax or pro-gold-standard philosophies on either show. IMHO, a guest like Ron Paul deserves a full half-hour or more, instead of just five minutes. With other political guests, Jon Stewart had them on for longer interviews. Further, when Jon Stewart or Stephen Colbert ridicule the debates or candidates, they never mention Ron Paul at all. By failing to ever mention Ron Paul, except when he was a guest, they are effectively censoring him.

Ron Paul never said "Who needs a government at all?" Ron Paul has said "The government should be a lot smaller than it is now", which is entirely different. The standard Libertarian philosophy is designed as a distraction from the true anarchist philosophy. Ron Paul is a minarchist/Libertarian. That is one step away from being an anarchist. An anarchist is a minarchist or Libertarian who has carefully thought about his philosophy.

Some people say that Ron Paul himself is an establishment shill. He's holding out the false hope to a lot of people that the government can be reformed by voting. Those people are working on Ron Paul's campaign instead of other things, such as directly building a stateless society.

No one ever won a fight by running away.

Actually, that's how you win a fight with the state. You structure your activities so that the state never finds out.

Anyway, debating Aahz makes me feel tired and frustrated rather than enlightened. I'll stop by his blog occasionally, but I don't feel welcome there. I'm not convincing him and his arguments sound like nonsense to me. I'm considering the possibility of starting to ignore him.

Unfortunately, in the development of a true anarchist society, we're still in the raising awareness phase. I don't see why I should feel obligated to sacrifice myself to fight the state. For now, I'll just focus on raising awareness and keep looking out for opportunities.

I feel that I'm helping overall. I see some of my best posts cited on other websites. Based on Google Analytics, I have a decent number of regular readers. Perhaps in a few years, it will be practical for me to take more direct action.

On the Ron Paul Forum, someone asked:

How do libertarians and Libertarians feel about public defense attorneys?

Why does the justice system have to be adversarial? Why are people required to spend a lot of money on an attorney when they are accused of a crime?

In a non-adversarial justice system, the defendant could represent himself and the judge would be expected to sure that things are fair.

In that same thread:

so, this is the libertarian position on the court system? How should we keep our judges from abusing their power? And do you like having to option of trial by jury?

I never said that was the Libertarian position. I said it was my personal position.

What keeps judges from abusing their power in the present? Practically nothing.

Judges should be exposed to free-market competition just like everybody else. Why not have multiple competing courts and multiple competing police forces?

Contrary to popular belief, I think such a system would not degenerate into complete violence and chaos. The current system has pretty much degenerated into complete violence and chaos!

On the Ron Paul Forum, someone asked:

How come people aren't posting threads about the stock market crashing to zero?

Why would the stock market go to zero? If the value of a dollar is going to zero, then the value of tangible assets should go to infinity.

If you're worried about a crash, worry about a hyperinflationary crash of the dollar.

Of course, if the dollar crashes in hyperinflation, I wouldn't exactly call stock investments as "tangible assets" anymore.

The Federal Reserve always has a credible weapon to fight hyperdeflation. It can print more money!

On the Ron Paul Forum, someone asked:

If Ron Paul eliminated the income tax and slashed the Federal bureaucracy, wouldn't state bureaucracies just expand to compensate?

With a smaller Federal government, competition among states will lead to fair policies.

For example, if California has a huge state bureaucracy and Nebraska has no bureaucracy, then businesses will start moving to Nebraska.

Before 1913, states would frequently advertise things like "No state income tax!" or "Low property taxes!" to attract businesses.

Instead of a monopolistic Federal government, you would have 50 competing state governments. That is closer to the original intent of the Constitution.

On the Ron Paul Forum, someone asked:

Isn't Ron Paul's position on abortion inconsistent?

I believe that Ron Paul said that he personally opposes abortion. If he was representing people in a state government, he would work to outlaw abortion in that state.

However, Ron Paul says that abortion is an issue for states and not for the Federal government. Ron Paul is a strict Constitutionalist. The power to regulate abortion is not specifically enumerated as a power granted to the Federal government by the Constitution. Therefore, it is a state issue.

IMHO, abortion is one of those issues that is used to distract people from debating things that are really important, such as the Federal Reserve and the income tax.

In that same thread:

Can we remember, morality aside, that Roe Vs. Wade was a SCOTUS ruling? Since when did SCOTUS make laws?

So, overturning something that is not constititional cannot be unconstitutional.

The Supreme Court, in its Roe vs. Wade decision, effectively passed a law that said "states may not ban abortion". They do this all the time.

Most notably, the Supreme Court once passed a law that said "corporations have the same right to own property and enforce contracts as individuals".

Just because a group of nine people say something, doesn't mean it doesn't contradict the US Constitution.

On the Ron Paul Forum, someone asked:

What is an acceptable and moral tax?

All forms of taxation are theft.

Following that conclusion, there are NO morally acceptable taxes.

Do you have the right to steal from me? I assume you answer no.

If you don't have the right to steal from me, then how can you, by voting, authorize other people to steal from me on your behalf?

On that same thread:

I work for a living. I change hours of my life into dollars. If I don't have control over those dollars I don't have control over my life and I am not free. Taxes don't have to hit 100% to become a form of slavery.

Tax freedom day is now April 30th or 32.69% of the year. This is the amount of time we spend working every year to pay taxes. The argument is we're only partially enslaved by our government. They've moved freedom into a continuum and freedom is now measured relative to how free people are in other countries.

We have the most freedom of all the people on earth...but thats not the same thing as being free people, it just means we aren't enslaved as much as in other countries.

I don't see freedom this way; being a 1/3 enslaved is like being a 1/3 dead. Freedom is a very black and white issue and should be spoken of in absolutes.

And a response to the above:

I love this argument! You should publish it!

I'm publishing it. (I always wonder: Do people on Internet discussion forums claim copyright to their posts? I'm citing the source, so it's morally acceptable.)

On that same thread:

But without taxes, how would [fill in the blank] get accomplished?

In a truly free market, if people want something badly enough, they will voluntarily pay for it. It only takes a little bit of thinking to realize how government service XXX would be provided in a free market. Free from a crushing tax burden, people would be free to spend money on all sorts of things that the government does now.

On the Ron Paul Forum, someone said:

If Ron Paul eliminates the IRS, then what are all the former IRS employees going to do? If Ron Paul eliminates big government, then what are all the former government employees going to do?

This is almost like asking, "If people are prevented from stealing, what are all the former criminals going to do for a living?"

The people who currently work for the government would find useful, productive jobs in the private sector. This is the whole Bastiat "seen vs. unseen" argument. In the present, you see a lot of people working for the government and getting paid. Without government, those people would have other productive and useful jobs, and people would collectively be better off. The productive work those people would have been doing in a stateless society is "unseen", and therefore not missed.

Unfortunately, the people who work for the IRS do so "voluntarily". This means that their IRS-paid job is higher than what they could get in the private sector. They probably could not earn as much in a non-government job. Without the IRS, they would be earning less, but society as a whole would be better off.

Without government, the people who currently work for the government would be worse off. Society as a whole would be in much better shape. For low-ranking government employees, they probably would experience an increase in their standard of living. Politicians, judges, and lawyers, will probably not get paid as much after the red market collapses.

On the Ron Paul Forum, someone said:

Ron Paul said that, if elected President, he would stop prosecuting nonviolent drug offenders.

Then, that same person said:

Why isn't anyone responding?

People are brainwashed. "Drugs are bad! Drug users and dealers must be in jail!"

Ron Paul's attitude is "I support common law". That means, "If you don't injure anyone, it's not a crime." By that standard, drug users and drug dealers are not criminals, provided the drug dealer is actually selling what he claims to be selling. It's a private transaction between two individuals, and none of the government's business.

Ron Paul also says "The Constitution does not specifically delegate to the Federal Government the right to regulate drugs. Therefore, this is none of the Federal Government's business. If a state wants to decriminalize marijuana, that is within the rights of that state."

This goes against the mainstream media bias.

There are too many people who benefit financially from the "War on Drugs".

Some Ron Paul supporters are saying "Ron Paul should avoid contradicting mainstream media bias as often as possible. Whenever Ron Paul contradicts a mainstream hotbutton brainwashing issue, he risks losing support."

Therefore, Ron Paul supporters will not emphasize Ron Paul's desire to decriminalize drug use.

On the Ron Paul Forum, someone said:

Without Social Security, look at how many elderly homeless people there would be!

Look at it this way: If I didn't have to pay the 15% Social Security Tax, plus other income taxes, then I could afford to directly take care of my parents instead of forcing them to rely on the government.

If you want to look "pre-Social Security", you really need to go back before 1913. You can't consider homeless people during the Federal Reserve caused Great Depression to be homeless due to "market forces".

Suppose I didn't have to pay most of my income in taxes, and suppose state violence didn't prevent me from negotiating top value for my labor. In that case, I would easily be able to fund my own retirement, take care of older relatives, and donate to charity.

On the Ron Paul Forum, someone said:

If we go back to a gold standard, how will we pay for wars?

Who needs war? War is the health of the state.

War benefits the bad guys. War doesn't benefit the average person.

[Seriously, some people are so clueless. I can't believe that poster WANTED wars. I find it really disturbing that practically nobody else on that thread said "Who needs war?"]

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Ineffabelle posted several comments that I will answer in a later post.

Reader Mail #13 - Honest Stateless Time Deposit Banking

I had an interesting discussion with a user on the Ron Paul Forum via private message. I'm copying it here. (If I'm going to make a detailed explanation for someone, I should keep it and post it on my own blog.)

Communicating by E-Mail, private message (or by comments in my blog) sure is better than communicating in an Internet discussion forum. This way, trolls are banished. I like having full editorial control. My policy still is that all non-spam comments get published.

All of this discussion assumes a gold standard.

Summarizing my definitions (some of them are developed during the discussion below):

I define "money supply" as anything you can walk into a store and purchase something with. Of course, physical gold counts as part of the money supply. In a free market, there will always be a liquid secondary market for AAA paper promises for gold; they will trade at parity for their face amount, plus accrued interest, minus a transaction fee. Therefore, you can walk into a store and purchase something with a trustworthy paper promise for future gold. Trustworthy paper promises for future gold affect prices in the present. Therefore, they count as part of the money supply.

I define "fractional reserve banking with demand deposits" to be the fraudulent system where a fractional reserve bank operates and tells its customers that they have "demand deposits". That is fraudulent, because the bank is technically insolvent at any given instant. If all depositors simultaneously demand withdrawal (a "run"), then the bank will be unable to meet its obligations. In the context of a state, the state will declare a banking holiday to interrupt a bank run. State courts fail to punish fractional reserve banks for their fraudulent behavior. State violence is needed for fractional reserve banking with demand deposits to be a viable business. This paragraph assumes a gold standard. Fractional reserve banking with fiat debt-based money is completely and utterly fraudulent, to the extent that it makes fractional reserve banking under a gold standard seem mostly honest by comparison.

I define "banking where its loans exceed deposits" to be the fraudulent system where a bank issues more receipts for gold than it has gold on deposit. Such a bank is totally fraudulent. In a free market, the customers of such a bank should rush to convert their paper promises to gold for actual gold, discovering the fraud. In a free market, accountants would be assuming personal liability in the event of fraud. This is how the Federal Reserve operated from 1913-1933. The Federal Reserve issued more gold-redeemable Federal Reserve Notes than it had physical gold. Before 1913, the US paper dollar was a warehouse receipt for gold in the US Treasury.

I define "time-deposit banking" to be a bank that tells its customers that they have time-deposits and issues loans. Such a bank is not fraudulent, if managed properly. A time-deposit bank needs to make sure that its loan portfolio matches its future payments to depositors. A time-deposit bank will not experience a "run", because customers can't all simultaneously demand payment. If the bank is sound and has an AAA credit rating, its customers will be always able to sell their deposits for the face amount, plus accrued interest, minus a small transaction fee.

Summarizing my main points:

MY MOST IMPORTANT POINT: Without the state, banking is an honest business. This is a common misconception. It is not banks that are evil. It is the conspiracy between banks and the state that is evil. Unregulated free market competition among banks prevents the Compound Interest Paradox from occurring. In a free market, banks will only be able to charge interest that meets their expenses plus reasonable profits. In a non-free market, banks are able to act as a cartel and raise prices above the fair free-market level, enabling the Compound Interest Paradox to operate.

- This money stuff is really complicated. That's what allows the average person to be totally shafted by the monetary system. People have an inherent assumption that the monetary system is fair. They don't realize that their government would betray them this much.

- Most people don't realize the role a corrupt monetary system plays. Corrupt money is a very effective enslavement technique. Honest money protects individual property rights. Many people agree that taxation is theft. More subtle, and more dangerous, inflation is theft.

- In a stateless society, money MUST be backed by something tangible. Gold or silver are what the free market selected as money before the state started interfering with money. Other metals, such as copper, also work. Barter credits also are workable.

Metal money is best for several reasons. First, metal coins are generally agreed to be valuable. Metal has industrial uses. Second, metal coins are fungible; every .999 fine 1 ounce gold coin is equivalent to every other .999 fine 1 ounce gold coin. Third, metal coins lead to easy counting. If you trust the mint, then it's easy to count a stack of coins and determine the value.

- Under a gold standard, a fractional reserve bank that tells its customers they have "demand deposits" is committing fraud. A fractional reserve bank with demand deposits is technically insolvent at any given time. In a truly free market, this is not a viable business model for banks. State violence is required to protect fractional reserve banks from the consequences of their fraud. State regulation of banking prevents sounder models for banking from emerging.

- Under a gold standard, a bank with time deposits is an honest business. If the bank is careful to balance its loan portfolio with obligations to depositors, it is not committing fraud. I call this honest model for banking "time-deposit banking".

- In a truly free market, a bank cannot issue more loans than deposits on hand. To do otherwise is fraud. In a free market, fraud is detected and the responsible party must make full restitution.

Before 1913, the US government only issued as many paper gold-backed dollars as it had gold in its Treasury. In 1913, when the Federal Reserve was created, it was allowed to print more paper dollars than there was gold in the US treasury. If the US population was properly educated, they should have promptly redeemed all their paper dollars for gold, bankrupting the Federal Reserve.

In fact, paper promises for gold that don't bear interest should NEVER be used, unless it's a warehouse receipt. Why accept a paper promise for gold when you can use physical gold? Legal tender laws forced people to accept paper promises for gold at parity with physical gold.

Imagine if, in 1914, all the newspapers printed: "The USA has adopted an unsound monetary system! A default on the dollar is inevitable! Redeem your paper dollars for gold!" The Federal Reserve would have been stopped as it was created. Of course, the newspapers were controlled by the bankers. In the present, the same fraud by newspapers and TV news is occurring. Why don't newspapers and TV stations report on the unfair monetary system?

- In a truly free market, time-deposit banks will be competing with each other based on the length of the time deposit, interest rate offered, and reserve ratio. A bank with a higher reserve ratio is riskier, but will offer higher interest payments. At one extreme, there would be warehouse services, which offer no interest and charge a storage fee. It makes sense to use a warehouse service, if you are concerned about protecting your gold and you don't want to lend it out. At the other extreme, there would be very aggressive banks; they would offer the best interest rates, but they would also require the most skilled management.

- In the present, there are practically no secure gold or silver warehouse services available to the average person. If you have enough money to open a COMEX account, you can use that, but they practically have a monopoly, their storage fees are high, and you may not be able to access your physical metal during an economic crisis.

- In the present, it is not practical for the average person to use gold or silver as money. Government regulation restricts the supply of gold and silver dealers. Gold and silver dealers are allowed to charge high bid/offer spreads, due to regulation. It is difficult to switch between Federal Reserve Points and gold or silver, or vice versa. Income tax regulations make it impractical to use gold or silver as money.

- In a stateless society, banks will be required to disclose their balance sheets to depositors in order to attract deposits. The average person isn't interested in reading there banks' balance sheet, so there will be accounting associations that certify a banks' creditworthiness. The members of the accounting associations will be assuming personal liability in the event of fraud.

- In a stateless society, time-deposit banking is an honest business. Banking is not evil by itself. It is the conspiracy between banks and the state that is evil. The state regulates the banking industry, driving up prices and allowing the Compound Interest Paradox to operate. The state declares "banking holidays" if a large cartel-member bank is experiencing a run. Small banks that aren't members of the cartel are allowed to fail. The state protects certain fractional reserve banks from the negative consequences of their fraud.

- Paper promises for gold must be convertible to actual physical gold at the maturity date. Otherwise, fraud is occurring. Anyone who is concerned about fraud can ask for their paper promises for gold to be converted to physical gold.

- Interest payments are an incentive against gold hoarding. If a bank is trustworthy, people will prefer to deposit their gold in the bank for the interest payments, security, and convenience. People only rush to convert their paper gold to physical gold when they mistrust their bank. For example, in 1933, US citizens rushed to convert their paper dollars to physical gold, because they knew the US government was going to default on the dollar.

- In a stateless society, time-deposit banking legitimately expands the money supply to meet the demands of trade. People with a trustworthy paper promise for gold can trade as if they had actual physical gold.

- Gold has two prices, an immediate-price and a time-price. Gold has an immediate purchasing price. This is the goods you can purchase immediately with physical gold. The immediate purchasing price of gold should increase slowly over time as the economy becomes more efficient. Gold also has a time-price. The time-price of gold is more commonly known as interest payments. If there is a shortage of physical gold, the time-price of gold will rise.

The immediate-price of gold should be mostly constant. An ounce of gold represents a certain fixed amount of real wealth. This represents the scarcity value of the gold, the value of the gold for industrial uses, and the effort required to mine and mint the gold coin. If the value of economy is a lot greater than the value of the gold, then stateless time deposit banking legitimately expands the money supply to match the needs of trade.

If there is a shortage of physical gold, people will be willing to accept trustworthy paper promises for gold with long maturity dates. Interest payments, the time-price of gold, are the incentive for people to accept paper instead of physical gold.

In other words, time-deposit banks are providing a legitimate arbitrage service. Time-deposit banks create trustworthy paper promises that enable trade.

Without time-deposit banks, the price of gold goes to infinity if the economy grows faster than gold is mined. Time-deposit banks LEGITIMATELY expand the money supply.

Someone with a trustworthy paper promise for gold can go into a store and purchase something exactly as if they had physical gold. Therefore, the trustworthy paper promise for gold counts as money.

If the time-price of gold starts to become too high, then in a free market people will start to choose other things as money. Cheaper metals, such as silver, copper, and aluminum can also be used.

- All paper promises for gold should bear interest. Only a fool would accept a paper promise for gold that didn't bear interest, unless it was a warehouse receipt.

Under a state, legal tender laws force untrustworthy paper promises for gold to trade at parity with physical gold. Legal tender laws force people to use paper promises for gold that don't bear interest.

On the other hand, if you're only holding onto a paper promise for gold for a day or two, then it doesn't pay to calculate the interest. If you hold a paper non-interest-bearing promise for gold, you should immediately redeem it for physical gold and deposit that gold in your bank.

- In a stateless society, a bank can't fraudulently expand the money supply to create boom cycles. People would become suspicious of the surplus of the bank's paper, and ask to redeem the paper for physical gold. A large bank can't fraudulently contract the money supply by refusing to issue new loans. Unregulated small banks would adopt an aggressive reserve ratio policy and expand the money supply. Under a state, small banks are regulated and restricted in their ability to increase the money supply, guaranteeing that large cartel banks have the power to create boom/bust cycles.

There were boom/bust cycles before 1913, but the ability of people to redeem their paper for gold limited the severity of the business cycle. The banking industry was regulated and the large banks acted as a cartel. That is the reason there were boom/bust cycles before 1913. It was not a deficiency in the gold standard; it was regulation of the banking industry. The "free market" didn't fail. The regulated "free market" didn't work, and the reaction was more regulation, which made things worse. Bank regulations are particularly harmful when the regulations were written by the large banks in the banking industry! The large banks intentionally wrote regulations that let them bankrupt small banks! The greatest rate of bank failures in US history was during the Great Depression, which was caused by the Federal Reserve.

- If there really is a shortage of gold, people will start using silver coins as well. In a stateless society, the exchange rate between gold and silver will be set by the market. Under a state, a bimetallic standard fails when the government fixes the exchange rate.

- Even if someone manages to monopolize the world's gold supply, stateless justice systems will fairly rule that monopolizing the supply of physical gold means that other payment methods can be substituted instead. If someone tried to monopolize gold, fair courts would rule that an equivalent value of silver could be used to pay debts.

Under a truly free market, the odds of someone monopolizing the gold supply is small. As they tried to attain a monopoly, interest rates would rise, and the person hoarding gold would miss out on interest payments. A sensible person would prefer to own income-producing assets instead of physical gold.

- A time deposit by a bank really does increase the money supply. If the issuing bank is trustworthy, the person with the time deposit can sell it to someone else for the face amount plus accrued interest minus a small transaction fee. In other words, someone holding a trustworthy paper promise for gold can always sell it for physical gold. This expands the money supply. If all parties are trustworthy, no fraud is occurring.

- There are many systems that are logically equivalent. Fractional reserve banking with time deposits, the bills of exchange system ("Real Bills Doctrine"), and The Social Credit Monetary System with interest payments credited/debited on nonzero balances are all equivalent systems.

- In a stateless society, if someone else wants to open a bank, you can't stop them. If you choose, you can demand physical gold and only use warehouse services, but you would be missing out on interest payments. If you refused to take out loans, you would have a hard time funding your own business.

In a stateless society, someone operating a fractional reserve bank with demand deposits would eventually find themselves faced with a fraud lawsuit.

In a stateless society, someone operating a time-deposit bank is operating honestly. If they manage their cashflow properly and their accountants are skilled and honest, no fraud occurs.

- Under a gold standard, gold coins serve BOTH a monetary purpose and as raw materials for production. Austrian Economics is closer to the truth than any other source I've read, but it still has its shortcomings.

- Under a fiat money standard, there is no social benefit to changing the money supply. Changing the money supply only moves wealth around from one group to another. Arbitrary movements of wealth destroy wealth instead of creating it. Under a fiat monetary system, the issuing authority, at best, can adopt a policy that damages the economy as little as possible.

Even with fiat credit-based money, the government is stealing from everyone else as it spends money into circulation.

With fiat credit-based money, the government must restrict the amount of reserve ratios banks can use. Otherwise, the banks would multiply the money supply indefinitely. Banks would perform arbitrage until the monetary unit reached its fair value, zero.

- Under a gold money standard, there is a social benefit to time-deposit banking. Time deposit banking prevents disproportionally too many resources from being devoted to mining, compared to other activities. Without time-deposit banking, as the economy grows faster than gold is mined, disproportionally too much effort winds up being spent mining gold.

In a stateless society, there's no way to prevent someone else from opening a bank. If they operate honestly, there's no problem.

I summarized all the key points above, but here are excerpts of the PM conversation.

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On the Ron Paul Forum, a user asked me via private message:

I checked out you blog and am somewhat confused. On your "Compound Interest Paradox" page you say:

"The school of 'Austrian Economics' advocates credit-based money instead of debt-based money. There are two separate websites, www.mises.org and www.mises.net. These philosophies are a precursor to agorism. However, they still hold out false hope that the people who control the government can be convinced to switch to a fair monetary system. They fall short of the correct conclusion that government itself is the problem."

What do you mean by credit-based money? Every single paper or book I have read by anyone associated with the Mises Institute has advocated 100% reserve, commodity, market originated money. Is this credit-based money?

Also, most of the more well known 'Miseans' (Rothbard, Hoppe, Block, etc) are anarchists so I'm not sure how they are 'precursors' to agorism/anarchism.

Agorism is a refinement of the Miseans. The difference is that, instead of merely writing on the subject, an agorist is ready to start trading off-the-books and building a stateless society. Here's an analogy. A Misean is a university engineering professor who's never actually built and sold something; an agorist is someone who's actually building something and selling it to customers.

Personally, I think like an agorist but don't act like one. I'm still looking for trading partners. For now, I need to raise the overall education level of the population, to get an agorist community started.

The Miseans falsely say that fractional reserve banking needs to be outlawed. In a truly free market without government regulations, fractional reserve banking is an honest business. If there's no state, you can't prevent people from opening a fractional reserve bank! (read: time-deposit bank) There is no Compound Interest Paradox in a truly free market; a banks' expenses and profits will equal its interest income.

It is not fractional reserve banks that are evil. It is the conspiracy between banks and government that is evil. Government regulation of banking is the problem; it raises prices, limits reserve ratios, limits leverage ratios, and makes it hard for newcomers to enter the banking industry. Without government, banking is an honest business.

Under a pure gold standard (without a central bank), money is credit-based. Money is created when someone mines and mints gold. With "free banking", money is also created when a bank issues a fractional reserve loan; with unregulated banking, banks are unable to artificially expand and contract the money supply. If a bank tries to expand the money supply, it will find customers rushing to redeem its paper promises for gold. If a bank tries to contract the money supply, other banks will issue more loans to make up for the shortfall. This did not happen before 1913, due to regulation of banking and large banks acting as a cartel.

You can also have a gold standard and debt-based money. This is the way the Federal Reserve operated from 1913-1933.

You can also have fiat debt-based money. This is the current system used in the USA and the rest of the world. Money is created when someone takes out a loan, and money is destroyed when someone repays a loan. The problem is that the interest payments are not simultaneously created. There will always be more loans outstanding than money in circulation. Compare this with fiat-credit based money below.

You can also have fiat credit-based money. This is what Abraham Lincoln did with his greenbacks. This is what Nazi Germany did before WWII. This is what the colony governments did in North America in the early 1700s, due to lack of gold. Fiat credit-based money comes into existence when it is directly spent by a government, and is later removed from circulation as it is used to pay taxes. Fiat credit-based money does not have the Compound Interest Paradox built into the monetary system. Also with fiat credit-based money, the market can be allowed to set interest rates without a hyperdeflationary collapse of the monetary system.

If the government is responsible and issues an appropriate amount of fiat credit-based money, fiat credit-based money works incredibly well. Fiat credit-based money was responsible for the incredible growth in Nazi Germany before WWII, even though Germany was economically crippled after WWI.

Fiat credit-based money was partially responsible for prosperity in the colonies before the US revolution. Benjamin Franklin told parliament how wonderful the colonies' monetary system was. The British central bank was outraged. The colonies' credit-based money was regulated and taxed out of existence, due to pressure from the British central bank. Some people say this is the true cause for the US revolution. The British counterfeited the colonies' paper money during the war, and paper money was pretty much discredited at the time the US Constitution was written. By having the new country be on a gold standard, it was like handing the keys to the country to the European central banks, because the European central banks controlled most of the world's gold supply. It took 125 years, but the European central banks eventually overthrew the US government with the creation of the Federal Reserve in 1913. The people who controlled the European central banks were very organized and patient. When they failed to create a central bank in the USA, or had one terminated, they would wait 20 years and try again.

Fiat debt-based and credit-based money requires government violence to succeed. Forced taxation creates a demand for the fiat money. Government courts only recognize fiat money as valid for payment of debts and taxes; the state prevents other justice systems from emerging.

There are several ways money can be created.

1. Under a gold standard with a government, money is created when someone mines gold and takes it to the mint to convert it to official money. This was originally the case in the USA after the revolution, with the "free coinage" acts; anyone could take gold to the US mint and have it converted to official money. (This was a disaster, because around 1776, most of the gold in the world was under the control of the international bankers in Europe. Even though the USA had gained legal independence, it still had monetary dependence on the European banks. Fiat credit-based money was discredited during the US revolutionary war.)

2. Under a stateless gold standard, money is created whenever someone mines gold and casts it into coin or bar form; coins don't need to be government-issued. Of course, since this system is "stateless", this means society has generally accepted that gold is money. People are free to use other forms of money if they chose.

3. Under a stateless gold standard, money can also be created by honest unregulated fractional reserve (time-deposit) banking. "Austrian" economics doesn't acknowledge that, without government, fractional reserve banking is an honest business. In a stateless society, bankers can't rely on government violence to protect them when they commit fraud.

4. With a government and a gold standard, banks can create new money by regulated fractional reserve banking. Here, government violence protects the banks when they do bad things. Banks can conspire to create boom/bust cycles. Large banks can create panics and runs against smaller competitors. Government regulation limits the ability of non-cartel banks to dampen the boom/bust cycles created by the large banks who act as a cartel. The government declares a banking holiday if a politically-connected bank finds itself in trouble.

5. With a government and fiat money, the government can directly spend money into circulation, without borrowing it from a central bank first. This is what President Lincoln did with his greenbacks. Under such a system, the benefit of money creation goes primarily to the government.

6. With a government and fiat debt-based money, the government can have deficit spending, but only if it borrows from the central bank first. Due to The Compound Interest Paradox, eventually, the government's accumulated budget deficit is larger than the money supply. This is the case right now in the USA.

7. With a government and fiat debt-based money, the central bank can create money by repurchasing government bonds. This is how the Federal Reserve's open market operations work. The benefit of the new money accrues primarily to the financial industry and to large corporations. The Federal Reserve creates new reserves, and then fractional reserve banking multiplies those reserve by the reserve ratio, currently 10x, to create new money.

Does that answer your question? Let me know if you still are confused.

BTW, you have to be really careful on the Ron Paul Forums. Pretty much every thread on the Federal Reserve, income tax, or gold standard attracts posts by people who want to defend the Federal Reserve, defend the income tax, or discredit the gold standard. I suspect some of these people are deliberately planted to disrupt debate, but some of them may just be fools.

That same user PMed me again:

FSK said:

3. Under a stateless gold standard, money can also be created by honest unregulated fractional reserve banking. "Austrian" economics doesn't acknowledge that, without government, fractional reserve banking is an honest business. In a stateless society, bankers can't rely on government violence to protect them when they commit fraud.

I dont understand how fractional reserve banking can possibly be legitmate. If a person deposits money in bank and maintains the expectation to receive it bank on demand the instant the bank loans this money to someone else, it has misspropriated it. In fractional reserve banking the bank simply inflates the money supply by issuing additional money substitutes (notes, deposits) above and beyond the actually existing money. A fractional reserve bank is inherently insolvent. If every depositor returns to demand their money, it is impossible for the bank to fulfill its contractual obligation.

Now if the fractional reserve is in the contract, i.e a depositor agrees to the possibility that his money will not necessary be available on demand, there is no fraud. But in this case what makes you think that people 1) would partonize this bank and 2) that non-clients of the bank would accept the bank's notes as payment for goods knowing that what they would receiving is a very shaky claim on some amount of money?

[In retrospect, we were basically arguing definitions. We agreed that time-deposit banking is legitimate, and fractional reserve banking with demand deposits is illegitimate.]

You are correct. Fractional reserve banking coupled with demand deposits IS illegitimate. A fractional reserve bank with demand deposits is technically insolvent at any given instant. State violence is required to prop up fractional reserve banks. In the event of a bank run, the state declares "banking holidays" which allow banks to continue to collect from their creditors while ignoring their debtors/depositors.

Technically, in 1933, when there was a run on the dollar and the Federal Reserve, President Roosevelt should have allowed the Federal Reserve to be forced into bankruptcy. Instead, President Roosevelt declared a banking holiday, forbade US citizens from owning gold, and defaulted on the dollar.

In a truly free market, a fractional reserve bank that told its customers they had demand deposits would either find itself without customers, or it would find itself sued for fraud.

However, fractional reserve banking coupled with *TIME DEPOSITS* is sound. The fractional reserve bank tells its customers that they may only withdraw 1/100 or whatever amount per day. Under normal business circumstances (no bank run), the bank will typically repurchase customer balances for the face amount. If the bank is sound, then other banks will redeem its balances for the face amount as well (perhaps minus a small transaction fee). If other banks start refusing to honor your checks at face amount, that's a sure tipoff to customers that there's a problem.

A free market, without government coercion, will ensure that things are done fairly. Banks would be required to disclose their full balance sheet to depositors and other banks. Common law would dictate that, in the event of a shortfall, a bank's owners and management would be held personally liable.

The old "bills of exchange" system was equivalent to fractional reserve banking with time deposits. Bills of exchange were a promise to pay a certain amount of gold, after a specific lot of goods were brought to market and sold. A merchant sold bills of exchange to fund his operations; they allowed him to receive payment for his goods before they were actually sold, so he could invest in his business. The bills of exchange were sold for less than maturity value; interest payments from a trustworthy businessman were the incentive for buying them. If you defaulted on a bill of exchange, nobody would every issue you credit again. Word of defaults would spread quickly; your reputation would be worthless. Bills of exchange were freely traded, and typically traded for the face amount minus a discount factor based on the time left to maturity; this is where the term "Discount Rate" comes from. Under the Federal Reserve, "discount rate" has another meaning.

The "bills of exchange" system allowed the money supply to be increased beyond the amount of physical gold. The money supply expanded when merchants borrowed to fund their business. The money supply contracted when merchants paid off their debts at maturity. Such a system is perfectly fair. The "discount rate" is set by the free market.

Does it make sense now? A truly free market, without government coercion, would take care of everything.

Let me know if you have any other questions.

This money stuff is really complicated. That's what allows the average person to be totally shafted by the monetary system. People have an inherent assumption that the monetary system is fair. They don't realize that their government would betray them this much.

The same user PMed me again:

But how does a bank actually loan money?

A time deposit is a deposit with a set term that pays interest, e.g 1 year @ 5%. The depositor gives up his ownership of a given sum of money in exchange for a claim on a future amount of money. This is perfectly fine and is a normal credit transaction. Obviously the bank loans this out, services the loan, and earns a profit for its services as a broker/loan servicer. The loan is actually created by creating a demand deposit in the name of the borrower. This is banking with 100% reserve.

But you are saying that fractional reserve on time deposits is somehow different than fractional reserve on demand deposits, and can't see how it is. If the bank has 100 mu (money units) on time deposit and loans loans out 500mu in money substitutes (bank notes) or via deposit creation, it has just inflated the money supply and necessarily become insolvent. You must agree that it is impossible for the bank to make its loans in the actual physical money since it doesn't actually possess it. It must use either notes or deposit creation, which are actually the same thing since the bank must by contract redeem its note or deposit on demand. So we are back to fractional reserve on demand deposits which you have already agreed is fraudulent.

If a bank has 100 ounces of gold on deposit and it issues loans for 500 ounces of gold, then it has committed fraud. The crime will be obvious to anyone who asks to inspect the banks' books. The crime will also be obvious when the people with the paper promises for 500 ounces of gold ask for physical delivery of their gold.

That's the reason why, in a truly free market, depositors will demand to inspect the banks' books, or a trustworthy accounting association will inspect the banks' books. In the event of fraud, the members of the accounting association would be just as liable as the bank.

Before the general population was sophisticated about banking, it was possible for banks to commit such fraud. Government force protected them. The bankers were able to lobby the state for protection.

In the present, the general population is intentionally kept ignorant about banking. However, there only need be a fraction of people smart enough to understand the intricacies, in order to keep the entire system honest.

If a bank has 500 ounces of gold on deposit and it issues loans for 500 ounces of gold, it has not committed fraud. However, the bank does need to match its obligations to depositors with its loan portfolio. If the deposits were 1 year deposits and the loans were 2 year loans, the bank might find itself with a problem. Again, the depositors will expect to audit the banks' books, or will have some accounting association audit the books.

If I have a time deposit for 500 ounces of gold and the bank has loaned out 500 ounces of gold, then the money supply HAS increased by 500 ounces of gold. Why? If my bank is solvent, I should be able to sell my account to another bank for its face amount, plus accrued interest, minus a transaction fee. This is logically equivalent to the "bills of exchange" system.

As long as all paper promises for gold are convertible to gold at their maturity date, no fraud occurs. As long as all loans are backed by actual goods or services, the system works.

The reason it is necessary to expand the money supply via fractional reserve banking is that an ounce of gold represents approximately a fixed amount of real wealth. If the total value of the economy is a lot larger than the volume of gold, you would have extreme deflation if fractional reserve banking were absolutely forbidden; the "market value" of an ounce of gold would become far greater than its actual value.

Under a gold standard, there actually are two prices for gold. The price of gold is the value of goods you can exchange it for immediately; I'll call this the present-value of gold. There also is a time-value of gold. The price of gold is also reflected in interest rates. If the value of the economy is a lot greater than the value of the gold, the present-value of gold should remain mostly constant, while the time-value of gold would increase. Interest rates are incentive for people with physical gold to surrender it to fractional reserve banks. If the banking system is sound, then people will surrender their physical gold. If a bank is unsound, people will rush to redeem their paper promises for gold, and then deposit at other banks. In a truly free market, you can't have all banks becoming insolvent simultaneously. That happened before 1913, due to collusion among large banks and regulation of small banks.

In the pre-1913 gold standard, fractional reserve banks couldn't operate "honestly" by offering only time deposits, because people were accustomed to demand deposits. Large banks could offer demand deposits, because they were the ones who controlled when economic busts occurred.

How can you say "required to"? There is no coercive force to do the "requiring". If you mean that the demands of the participants will be that no one will do business with a bank that doesn't report balance sheets etc then ok.

Yes, the requirement for banks to disclose their balance sheets will emerge due to market forces, not due to regulatory agencies. Without government regulations, would you prefer to patronize a bank that disclosed its books to you, or one that didn't? In the present, government regulations make it unnecessary for a bank to disclose its books to depositors. In a truly free market, market forces will require banks to disclose their books to depositors.

Of course, that's just my prediction. I can't tell what actually will happen until a free market exists somewhere.

The Real Bills Doctrine huh? This is fraudulent the exact same way I showed the fractional-reserve-on-time-deposits was. In order for some investor (i.e banker, etc) to purchase a businessman's "bill of exchange" they must have money to do it. If they pay in a money substitute that claims to be backed by some fixed amount of mus, but is actually not (because the notes are issued based on a fractional reserve) they have committed fraud. It would be impossible for all of them to redeemed.

Anyway you do it, inflating the money supply has disastorous effects for the capital structure of society. When you represent that more savings are available for investment than actually exist, you induce malinvestment by entrepaneurs in projects that seem profitable but are not actually warranted by an increase in the consumers' voluntary savings. This is the origin of the business cycle.

No, a bill of exchange is not fraudulent if it is backed by actual goods and services. A bill of exchange could be redeemed with gold, or it could be redeemed with an equal value of goods and services. I consider the bill of exchange system to be a variation of The Social Credit Monetary System, except that you have interest payments charged/credited on negative/positive balances.

I liked Dr. Antal E Fekete's description of the bills of exchange system. Have you read it? If not, read his description and then ask me again. I haven't written my own post on bills of exchange. Based on his description, the bills of exchange system worked very well before the government destroyed it in 1913. Allegedly, the bills of exchange system worked very well for international trade before WWI, and it never got reestablished after WWI.

If the expansion in the money supply is matched by an expansion in trade, it is not fraudulent. The bills of exchange system (or the Social Credit Monetary System) guarantee that the supply of money equals the volume of trade. Money is created whenever someone produces a good and sells a bill of exchange. Money is destroyed when the good is purchased and the loan is repaid. As long as there isn't a cartel that controls the gold supply and sets interest rates artificially high or low, the system works.

Under the bill of exchange system, the interest rate is set by the free market. Similarly, with unregulated fractional reserve banking, the interest rate is set by the free market.

You don't need to convince me of free markets. I am already a firm anarchist (aside, agorism is not really just a strategy for obtaining a stateless society. It doesn't offer any theoretical difference between your standard anarchism and economics). I don't think that you have established any real difference between the three forms of fractional reserve banking you presented. I think all three are basically the same and illegitimate. All 3 have the exact same economic effects.

In a truly free market, you can't prevent someone from opening a fractional reserve bank. You can refuse to patronize it and only deal in physical gold, if you so choose. Other people will deposit their gold in banks for the interest payments, and they will have an economic advantage over you.

Similarly, in a truly free market, you can't prevent other people from writing bills of exchange. You can refuse to buy other people's bills of exchanges, but you'll miss out on interest payments by hoarding physical gold. You can refuse to write bills of exchange, but that will make it very hard for you to fund your business, unless you already have a large supply of physical gold.

The bills of exchange system developed primarily via free market forces. The bill of exchange system was a great mechanism for individuals to fund their businesses. It was corrupted and overthrown by the state, and replaced with a system of fiat debt-based money.

Agorism is a strategy for overthowing the red market and organizing society better. Other anarchist philosophies say "There should be no state.", but they have no action plan. Agorism says "Do this, and eventually the state will be defeated."

I think that fractional reserve banking with time deposits, the bill of exchange system, and the Social Credit Monetary System with interest payments are all logically equivalent systems. All are sound systems that can operate in a truly free market.

I'm not convinced by your argument that "all forms of fractional reserve banking is dishonest". That's actually a common misconception. Fractional reserve banking is not dishonest in a truly free market. It is the collusion between banks and the state that is dishonest. Government regulations make it easier for the large banks to act as a cartel. Government monopolistic justice means that large banks don't suffer negative consequences of their fraud.

I received another PM:

FSK wrote: If I have a time deposit for 500 ounces of gold and the bank has loaned out 500 ounces of gold, then the money supply HAS increased by 500 ounces of gold. Why? If my bank is solvent, I should be able to sell my account to another bank for its face amount, plus accrued interest. This is logically equivalent to the "bills of exchange" system.

Ok this is where I think you make a mistake. You have to follow the title to the actual money. If you make a "time deposit" with a bank, you transfer your title to the money in question the bank, in exchange for the title to a claim on some future amount of money. The bank becomes the rightful owner of the money. You are in effect loaning your money to the bank. Since the money is now the bank's property it is entitled to do with it as it pleases, including loaning it to someone else. There is NO increase in the money supply in this case. You may be able to sell your claim to another party, but you cannot sell your "account" (as in the actual money) since it is no longer yours.

A fractional reserve time deposit DOES increase the money supply.

Let's work out a full example.

Person #1 makes a 1 year time deposit of 500 ounces of gold at bank ABC at the free-market offer rate of 5%. Bank ABC is AAA rated.

Person #1 has a piece of paper that says "Bank ABC promises to pay 525 ounces of gold one year from now."

Bank ABC has 500 ounces of gold. Bank ABC issues a 1 year loan to person #2, whose credit rating is A, for 500 ounces of gold, charging 7%. Bank ABC has a piece of paper saying "Person #2 promises to pay 535 ounces of gold one year from now."

Bank ABC has not committed fraud.

Bank ABC will make a profit of 10 ounces of gold. This will pay its expenses, plus a profit for its owner, plus an allowance for the possibility that person #2 will default on his loan. There is no Compound Interest Paradox here. The 10 ounces of gold will be spent on expenses and reasonable profits.

Of course, you agree that person #2 has 500 ounces of gold that he can spend?

What about person #1? Suppose person #3 comes to person #1 and says "I need to raise 500 ounces of gold quickly. I have a rental property I'll sell you for 500 ounces of gold." Person #1 agrees that 500 ounces of gold is a fair price for the rental property and buys it.

Person #1 and person #3 go to bank XYZ. Person #1 presents his paper promise from bank ABC. The manager at bank XYZ checks bank ABC's credit rating and verifies it's AAA. The manager says "I'll buy the loan for 499.5 ounces for gold. The offer rate for 1 year AAA loans is 5%, but the bid rate is only 4.9%, so I'm charging you a transaction fee of 0.5 ounces of gold." This is acceptable, and person #1 has a half-ounce gold coin and pays person #3 the full 500 ounces of gold.

Suppose bank XYZ had 499.5 ounces of gold in its vault. Bank XYZ would immediately pay person #3. Suppose bank XYZ didn't have that much gold on hand. The manager at bank XYZ would say "It'll take a week, based on my cashflow, for me to come up with 499.5 ounces of gold for you. Is that acceptable?" If person #3 insists, "I need the gold TODAY", then the manager at bank XYZ will sell the loan to another bank DEF for499.6 ounces of gold. The manager will tell person #3 "You can pick up your gold at bank DEF" and issues a receipt.

The point is: person #1 was able to buy something that cost 500 ounces of gold as if he had physical gold. He did pay a very small transaction fee for selling his loan. In a free market, the transaction fees will be 0.1% or less.

Person #2 had the 500 ounces of physical gold. Person #1 was able to trade his paper promise for gold for actual gold. Both Person #2 and Person #1 were able to trade as if they had 500 ounces of physical gold.

Suppose that bank ABC was having financial trouble. The manager at bank XYZ would say "I'm sorry, I'm only willing to pay 400 ounces of gold for this loan from bank ABC." At this point, everyone would know that bank ABC was in trouble. Person #1 would have a fraud claim against bank ABC, if he believed bank ABC to have an AAA credit rating.

In a free market, the average person would only place deposits at a bank with a certified AAA rating. If a bank had only an A rating, it would be expected to purchase deposit insurance from an agency with an AAA rating.

FSK wrote: As long as all paper promises for gold are convertible to gold at their maturity date, no fraud occurs. As long as all loans are backed by actual goods or services, the system works.

This is only possible so long as the claims-to-money-in-the-future are equal to or less than the actual amount of money in existence.

It also works if the future claims don't all mature simultaneously.

If there really is a shortage of gold, people would be willing to accept trustworthy paper promises for gold instead of physical gold. Interest rates are an incentive for people to deal with paper credits instead of physical gold.

If the shortage of gold is that severe, people will start using other metals, such as silver. If the gold interest rate is 10% and the silver interest rate is only 2%, then people might start using silver as money instead of gold.

FSK said: The reason it is necessary to expand the money supply via fractional reserve banking is that an ounce of gold represents approximately a fixed amount of real wealth.If the total value of the economy is a lot larger than the volume of gold, you would have extreme deflation if banking were absolutely forbidden; the "market value" of an ounce of gold would become far greater than its actual value.

This I don't understand at all. The "value" of money is simply its purchasing power. An ounce of money is worth what it can be exchanged for. There is no difference between the "market value" of money and its actual value. They are one in the same. If the quantity of goods and services available on the market increases, everything else remaining the same, the value of a unit of money will increase, i.e the purchasing power of money will increase. This is NOT deflation. It's just a decrease in price brought about by increasing productivity.

Let's work another example.

Suppose that the only good produced in the economy is a fine suit.

Suppose a fine suit can be produced and sold for 1 ounce of gold. Due to productivity enhancements, a year later, an identical suit can be bought for 0.95 ounces of gold. This is deflation due to productivity gains. This is perfectly normal deflation.

Suppose that next year, people are buying twice as many suits, but the cost per suit is the same. Without fractional reserve banking, the price of a suit would have to crash to 0.475 ounces of gold. With fractional reserve banking, some of the suits will be purchased for 0.95 ounces of physical gold, and some will be purchased for paper promises for 0.95 ounces of physical gold.

Looking at it this way, without fractional reserve (time deposit) banking, holders of physical gold would have made an unearned profit of 100%; their purchasing power has doubled. Further, debtors would have a REALLY hard time repaying their debts.

You need fractional reserve banking to expand the money supply when the economy expands. Otherwise, you have runaway deflation as the economy expands. One reason the gold standard failed before 1913 was that fractional reserve banking was regulated. This limited the ability of banks to increase the money supply as the economy grew. Also, the large banks acted as a cartel, exacerbating the problem.

That user PMed me again:

[detailed counter-argument omitted - It can be summarized as "At no time did the supply of physical gold change.]

You're entirely missing the point. If you have a trustworthy paper promise for gold, you can trade EXACTLY as if you had physical gold. In the above example, the entire exchange among Person #1, Person #3, and his bank could have been handled without exchanging any physical gold at all. The bank gives gold to person #3, which he uses to pay person #4. Due to the incentive of interest payments, person #4 will promptly deposit that gold back in a bank. Equivalently, Person #3's bank could have directly given Person #4 a warehouse receipt for gold, which Person #4 would immediately convert to a time deposit, if he trusted his bank.

In a free market, you won't be able to operate as a bank unless you have AAA credit. Free market competition would make the bid/offer spread on AAA debt collapse to practically nothing. Paper promises for gold would be convertible to physical gold for the face amount, plus accrued interest, minus a transaction fee.

In a free market, you won't have banks conspiring to create boom/bust cycles. The interest rate for AAA debt should be very stable, changing at a negligible rate. In fact, under a pure gold standard, the AAA interest rate would be nearly constant throughout the world; otherwise, people would borrow in one location, lend in another location, and physically transport the gold.

You must be careful to distinguish between claims on present money, and claims on future money. They are categorically different.

They are different. However, in a truly free market, a trustworthy interest-bearing paper promise for future gold can be traded for physical gold with only a small transaction fee. Someone with a trustworthy paper promise for gold can trade as if they had physical gold.

From 1913-1933, Federal Reserve Notes were non-interest-bearing promises for gold. Only a fool would use a non-interest-bearing paper promise for gold when they could use physical gold. Federal Reserve Notes, from their inception, were fraudulent. Under a pure gold standard, interest rates are very small, so the loss of interest is negligible. Unfortunately, once people became accustomed to use non-interest-bearing paper promises for gold as if they were physical gold, a default on the gold redeemability became inevitable.

An interest-bearing paper promise for gold DOES expand the money supply, because the person holding it can trade as if he had physical gold.

The fact that paper promises for gold can be converted to gold DOES affect prices in the present. This presents excessive deflation from occurring if the economy grows a lot faster than gold is mined.

I don't have time right now to delve too deeply into your other "suit" scenario. I can only offer one point. There are so such things as "given costs". A suit does not [i]inherently[i] cost 1oz of money to make.

You are confused again. Gold as money and fiat paper money are inherently different.

Under a fiat money standard, the price of a suit is completely arbitrary. There is nothing preventing the issuing authority from inflating or deflating the money supply.

When the issuing authority accelerates the inflation rate, the small suit manufacturer is late raising his prices and loses to inflation. When the issuing authority causes deflation, the small suit manufacturer who borrowed to fund his business can't repay his debt. Large corporations benefit from inflation, because they have debt at negative interest rates. Large corporations act as a cartel, so they don't have to cut prices much during the deflationary phase of the business cycle.

Under a fiat money standard, the value of the monetary unit is completely arbitrary.

Under a gold standard, the value of the monetary unit has a specific, definite value.

Let's work another example.

Suppose fractional reserve banking were absolutely forbidden. Suppose our economy has two businesses, gold mining and suit manufacturing. As the number of suits produced increases, the price of a suit must drop. This provides more and more incentive towards gold mining. Suppose suit manufacturing grows at 10%/year, but gold can't be mined at a rate that increases the gold supply by more than 2-3% per year. There just isn't that much physical gold! Eventually, lots of people will be mining gold for ores with only 0.00001% purity. The price of gold will be so high that every scrap of gold is worth thousands of suits.

Suppose now that fractional reserve banking is allowed again. If the bank is sound, its paper promises for gold will trade at parity for physical gold. Now, the price of a suit will become reasonably balanced with the effort and rarity of gold. All those people who were desperately mining gold scraps will now go back to being productive suit makers.

An ounce of gold has a certain amount of real, absolute value. It has rarity value and it has value for industrial purposes. Suppose that it was considered fashionable to have gold buttons on your suits?

A fractional reserve bank provides the SAME service that a mining business provides, relative to managing the money supply. Eventually, the rate at which metal is mined or recycled MUST EQUAL the rate at which it is consumed for industrial purposes.

The error in your analysis is that, under a gold standard, gold coins serve BOTH a monetary purpose and as raw materials for production.

Read Man, Economy, and State - Chapter 10 - Money and its Purchasing Power for detailed reasoning on why there is no social benefit whatsoever to a change in money supply.

I glanced at it briefly. The analysis seems wrong to me.

The error is:

It does not consider the possibility that the monetary unit ALSO has industrial uses. Under a gold standard or silver standard, metal coins have a DUAL purpose. They serve as money. They also serve as a raw material for certain consumer goods.

That article assumes that the only use of money is as money.

It does not consider the possibility that a metal monetary unit can be mined from the ground. How do you decide how much labor is allocated to mining? Without fractional reserve banking, a disproportionally high amount of labor can be allocated to mining.

Fractional reserve banking plays a similar role to mining in managing the money supply.

Under a fiat money standard, there is no social benefit to changing the money supply. Changing the money supply only moves wealth around from one group to another. Arbitrary movements of wealth destroy wealth instead of creating it, because the people who work aren't being properly paid. Under a fiat monetary system, the issuing authority, at best, can adopt a policy that damages the economy as little as possible.

A fiat monetary system allows wealth to be transferred arbitrarily by the state. At some point, abusing the state to transfer wealth to yourself become more profitable than doing productive work. At this point, the economic and monetary system collapses in contradiction; everyone prefers to abuse state power to steal, instead of actually working. The most intelligent people are attracted to careers using financial tricks to steal, instead of actually doing productive work. The economic system in the USA is very nearly at the point where it collapses. In the USA, abusing state power to transfer wealth to yourself is BY FAR a more common business model than actual productive work.

Under a gold money standard, there is a social benefit to fractional reserve banking. Fractional reserve banking prevents disproportionally too many resources from being devoted to mining, compared to other activities. Without fractional reserve banking, as the economy grows faster than gold is mined, disproportionally too much effort winds up being spent mining gold.

Another PM from the same user:

We appear to be merely disagreeing on definitions.

I guess I should define a new term. We'll use fractional reserve banking to describe the fraudulent system with demand deposits. I'll define "time-deposit banking" to refer to the honest system.

You define money as "physical gold only". We both agree that fractional reserve banking combined with demand deposits is unsound and fraudulent. We both agree that time deposits coupled with loans is sound and honest. In a truly free market, accounting associations will certify banks as having AAA credit to the general public. The accounting association members themselves will be incurring personal liability in the event of fraud.

I define money as "anything you can go into a store and purchase something with". If my bank is sound, my interest-bearing paper promises for gold will trade very close to parity with gold (plus accrued interest, minus a very small transaction fee). In fact, the transaction fee might be so small that people might not bother charging it.

We both agree that the existence of trustworthy time deposits for gold affects prices in the present.

In other words, the trustworthy paper promises for gold are increasing the money supply! The bank is providing a legitimate service when it issues loans and paper promises for future gold. The bank's profits are not excessive or exploitative, due to free market competition among banks.

Before 1913, the gold standard plus fractional reserve banking was discredited for several reasons. First, fractional reserve banking plus demand deposits is unsound and fraudulent. Second, banking was regulated. Banks could only issue loans up to a government-set reserve ratio. This led to excessive deflation when the economy started growing faster than banks were allowed to issue loans. Third, the large banks acted as a cartel. Most of the gold was controlled by a handful of people. Small banks were regulated, restricting their ability of banks not in the cartel to dampen the business cycles. Small banks also used the unsound practice of fractional reserve banking coupled with demand deposits. This meant that all it took to bankrupt a small bank was a newspaper printing an article that the bank was unsound; this would cause a run and it was a self-fulfilling prophecy. People didn't realize that EVERY bank was technically insolvent.

Time-deposit banking DOES INCREASE the money supply. Time-deposit banks provide a legitimate service. They let people borrow to fund their business. Their trustworthy paper promises for gold trade at parity with physical gold.

Time-deposits affect prices in the present, and they count as money.

Banks do not consprire to create boom/bust cycles. The boom/bust cycle is a logical and necessary result of credit expansion brought about via fractional reserve banking.

You're not up on your history here. I could not find the source, but in the late 19th century, all the big banks circulated a letter saying that they should stop issuing loans. Many small farmers were unable to pay their debts and lost their farms.

If banking were completely unregulated, small banks would have issued time deposits coupled with loans to these farmers, so they wouldn't have to fraudulently lose their farms.

Under the Federal Reserve system, boom/bust cycles are built into the rules of the economic system. No matter what interest rate policy the Federal Reserve adopts, boom/bust cycles are inevitable.

Under a gold standard, with regulated fractional reserve banking and demand deposits, the large banks have the power to create boom/bust cycles.

In a stateless society, any fractional reserve bank with demand deposits will be convicted of fraud.

Under a gold standard, with unregulated time-deposit banking, there are no boom/bust cycles. Boom/bust cycles are NOT a law of nature. They are created by government and the people who control the government, for the specific purpose of confiscating wealth.

FSK said: From 1913-1933, Federal Reserve Notes were non-interest-bearing promises for gold. Only a fool would use a non-interest-bearing paper promise for gold when they could use physical gold.
Not necessarily. A non-interest bearing claim on present money (as in contractually convertible ON DEMAND to physical gold, i.e not a claim on future money) is simply a warehouse receipt. It is entirely up to the individual owner of the money whether or not they wish to keep this money in their cash balance, or loan it to someone else. Both would exist in a free market. Assuming your scenario of widespread credit worthiness the demand for warehouse receipts may in fact decrease.

Federal Reserve Notes were NEVER warehouse receipts. Prior to 1913, the US dollar was a warehouse receipt for gold in the US Treasury. After 1913, the number of Federal Reserve Notes allowed to circulate were greater than the amount of physical gold.

What is your definition of money supply?? Money supply = physical present money. The fact that in your well developed economy an individual is able to easily convert a promise of future money, into ownership of present money doesn't matter. Where is the increase in the money supply? It's not there. You ARE correct though that such a liquid market for claims on future money does have an affect on prices. It reduces the [i]demand for money[i], which given a fixed supply, lowers the purchasing power, i.e "value", of present money. (higher money prices for goods).

I'm defining "money supply" as anything you can walk into a store and purchase something with. If your bank is trusted and has AAA credit, then there will be a liquid secondary market for your time deposits. Free market competition will guarantee that the transaction fee for selling your AAA debt is negligible. Free market competition will guarantee that interest rates will be stable; you won't have the problem of making a time-deposit and then watching interest rates immediate rise 5%, costing you money.

As you said, trustworthy paper promises for future gold can be used to purchase good in the present. These paper promises for gold affect prices in the present.

In other words, time-deposits increase the money supply.

A large company does not benefit from inflation because they are large. They benefit because in the majority of cases they are closer to the head of the line in receiving the new money. The same could be true for the small suit manufacturer if they received the newly created money early on in the process.

A large corporation typically carries a certain amount of debt on its book. This debt is priced very favorably, around 6% in the present. Inflation is 10%-15%, which means that large corporation makes an unearned profit of 4%-9% on this debt, just from inflation.

A small business has to borrow at 8% or more. Plus, the large corporation's size shields it from the effect of the business cycle.

FSK said: Under a fiat money standard, the value of the monetary unit is completely arbitrary. No the value of the money unit is determined by the supply of money and the demand for money

With fiat money, there is no safeguard that prevents the issuing authority from inflating. Your money has temporary value in the present. There is no guarantee that you will keep your purchasing power 10 or 20 years from now.

If you hold physical gold or silver, you are pretty much guaranteeing yourself a 0% return after inflation. Unfortunately, under the current economic system, a 0% inflation-adjusted return may be the best investment available!

The Federal Reserve, by managing interest rates, could choose any inflation or deflation rate it desired.

You should read the Mises Institute link carefully before saying it's wrong.

"One of the most important economic laws, therefore, is: Every supply of money is always utilized to its maximum extent, and hence no social utility can be conferred by increasing the supply of money.

Some writers have inferred from this law that any factors devoted to gold mining are being used unproductively, because an increased supply of money does not confer a social benefit. They deduce from this that the government should restrict the amount of gold mining. These critics fail to realize, however, that gold, the money-commodity, is used not only as money but also for nonmonetary purposes, either in consumption or in production. Hence, an increase in the supply of gold, although conferring no monetary benefit, does confer a social benefit by increasing the supply of gold for direct use. [emphasis added]" - MES, Chap 11

Your arguments seem wrong to me, so I figured the source was also wrong. I've read the Austrian economics stuff before, and that article contained nothing new. IMHO, Austrian Economics is closer to the truth than anyone else, but still short of being correct.

Mining gold does confer a monetary benefit. As the supply of physical gold increases relative to the amount of paper promises for gold, interest rates decrease. Someone who owns a gold mine could issue paper promises for future gold the same way a bank could, potentially taking advantage of high interest rates. High interest rates would therefore be an incentive for increased gold-mining. The gold miner benefits when gold has a high time-price by selling his future production in the present.

As you mentioned above, if the supply of physical gold became so short compared to the amount of paper promises for gold, people would start using other things as money. As interest rates skyrocketed, people would stop using gold as money and start using silver or other metals.

IMHO, a bimetallic standard of gold/silver would be used in practice. A silver coin is the right value for small purchases. A gold/silver/copper standard also works. Of course, in a stateless society, the exchange rate among metals is determined by the free market.

You seem very concerned about falling prices. What is wrong with falling prices brought about by an increase in productivity and an increasing purchasing power of money?

The issue is that, without banking, you can have a deflationary crash if the economy starts expanding rapidly. Banking performs a legitimate arbitrage service by expanding the money supply to meet the needs of trade. The bank provides a service very similar to a miner who sells a futures contracts against his future production.

FSK said:
An ounce of gold has a certain amount of real, absolute value. It has rarity value and it has value for industrial purposes. Suppose that it was considered fashionable to have gold buttons on your suits?

What on Earth is an absolute value? Nothing has as absolute value. Something is valued because there is someone doing the valuing. You can't distinguish between some mystical "abosolute value" and the market value.

Let's consider another example. We have two groups of people living near each other. Group #1 universally agrees that gold is money. Group #2 universally agrees that silver is money.

Suppose that both gold and silver has industrial uses for both groups.

Can Group #1 and Group #2 trade with one another? Of course they can. What determines the exchange rate between gold and silver? The exchange rate is determined by their rarity and their value in industrial uses. The price of gold/silver and the price of silver/gold should be mostly constant.

Gold, by itself, is worth an ounce of gold. When you talk about the price of gold/silver or gold/bread or gold/suit, you have a meaningful number. In a free market, each of those prices should be mostly stable over time. As the economy becomes more efficient, the price of the consumer good should slowly decrease.

The price of gold/labor determines how much effort should be spent mining gold.

Of course, if someone discovered a gold mine that contained 50x as much gold as the existing supply, that would cause a price shock.

When you talk about the price of Gold/FRP (FRP = Federal Reserve Points), you have a division by zero error. Any asset price, quoted in Federal Reserve Points, has a division by zero error. There are only a finite number of dollars in the present, but by the Discounted Cashflow Paradox, the long-term value of any tangible asset is infinity, because the value of dollar tends to zero faster than the interest rate. In other words, real interest rates are negative.

Negative real interest rates make pretty much all other economic analysis meaningless. You need to purchase food in the present to survive to the future; that's pretty much the only reason Federal Reserve Points have a nonzero present value.

FSK said:
A fractional reserve bank provides the SAME service that a mining business provides, relative to managing the money supply. Eventually, the rate at which metal is mined or recycled MUST EQUAL the rate at which it is consumed for industrial purposes.

Why? If supplies of the raw metal remain the same and the demand for them increases, their price will rise.

A time-deposit bank performs a service very similar to a miner who sells his production on the futures market. A paper promise to future gold issued by a bank, and a paper promise to future gold issued by a gold miner, should trade at parity with one another.