Of Money and Metals, Part V - Free Money Refutes Gresham’s Law

1/31/2012 Portland, Oregon – Pop in your mints…

{Editor”s note: The following is the long awaited conclusion of the series “Of Money and Metals.”  Please click here to view the Part I,  Part II, Part III, and Part IV} 

Free money also renders null and void any arguments as to what constitutes good or bad money, for this determination will be made on a daily basis by producers and consumers rather than a monetary authority who is acting on mere theory with severely limited data.

Absent the government declaration of what is money and how much said “money” is worth, there is no longer bad money driving out good money, as Gresham’s Law so perceptively observes.  What remains, then, as the ultimate determinant of what is money and how much it is worth are the two parties to a transaction, who are generally in the best position to determine such matters.

“But this would destroy exchange as we know it!” comes the cry from apologists of legal tender laws.  “No one will know what anything is worth, let alone how to pay for it!”

On the contrary, the free operation of the money supply would, by necessity, cause everyone engaging in exchange to be acutely aware of both what constitutes money and how much it is worth.  It is legal tender laws which serve to pull the wool over everyone’s eyes as to the true value of money.

When seen through a different lens, that of the free operation of the money supply, the absurdity of legal tender laws becomes clear.  Commodity (free) money is unhindered by the artificial restraint of existing debts and is constrained only by the productive will of society.  Commodity (free) money is free to accurately reflect the price of goods and services in light of the perceived supply and productive capacity of both goods being exchanged, that being offered in exchange and that offered in payment as money.

Money, as most people instinctively understand it, is simply an ordinary good whose utility and value are greatly enhanced by its wide acceptance in trade.  If one strives to remove the “cost” of producing money, as Adam Smith so nobly aspired to do, it is clear that the best way to do this is to allow the good which is acting as money to be produced in the most efficient way by the greatest number of artisans as are necessary to fulfill the present demand for money.

But how would all of these artisans, blindly creating all of this commodity money, know when to stop producing were it not for legal tender laws?

Here, there is no risk of oversimplifying the answer, for the answer is painfully simple.  As persons competing in the free market who have chosen to produce money, they are likely to be the first to know when there is too much money in circulation, for their orders for new money will uncannily drop when the economy has enough money to function efficiently.

Further, any commodity that is only marginally used in the production of money will quickly and smoothly have its supply directed to other, more efficient uses as the incentive (realized margin) to use it as money is incrementally reduced as supply begins to overtake demand.  Each producer is therefore free to choose his or her exit point.

Take the case of copper.  If copper becomes monetized by the free will of the participants in the economy, it stands to reason that it could be demonetized by the same free market operation.  Should economic activity slow to the point where the pace of saving and exchange no longer calls for copper to assume a role as money, as copper is demonetized those holding copper will find it more efficient to melt the copper that they have in monetary form and sell it as a consumer good.

The process of demonetization is simply a matter or free choice when something occurring in nature is used as money.  It first moves to the fringes of use as money, as a Jeton or modern day casino chip is used in place of money.  In time, the material will be demonetized completely.

European Jeton from 1598 courtesy of Wikipedia.org

Debt, when used as money, enjoys no such elasticity.  By necessity, when debt is forced into a role as money, it causes an unnatural proliferation of credit, so that when the inverse of Gresham’s law begins to operate (good credits push bad credits out of circulation) the unnatural restriction on the money supply assures that even the best of credits will go bad, and the money supply along with them.

When debt is demonetized, usually by force, the result is more often than not a severe hyperinflation followed by war.

Legal tender laws, such as the modern laws which declare that debt is money, are futile at best and generally destructive.  They do, however, permit a small group to reap the monetary margin that the artificial monopoly on money creation allows them for at time.

Accepting that an inanimate object is no longer worth what one thought it was can be disappointing, but at least one still has said inanimate object.  In the case of debt, accepting that someone cannot deliver what they promised tends to create feelings of resentment and remorse which, depending upon the size of the failure, can lead to violence.

Soon, the world will learn that using debt as money is a dangerous violation of the very laws of nature.  As with any violation of natural law, the consequences may be withheld for a time, but they are never avoided.  The longer they are artificially withheld, the more swiftly and severely the consequences will be meted out when they can no longer be repressed.

For no man, or group of men, regardless of their number, clairvoyance, or special powers they profess to have, can suspend or accelerate the operation of natural law.  The Creator alone reserves that power for himself.

There is a perfect balance in God’s creation.  Yin and yang, male and female, mercy and justice, heat cold, money and debt.  Calling one extreme the by the name of other is futile and leads only to confusion and destruction.

It is only a matter of time.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S.  For more ideas and commentary please check out The Mint at http://www.davidmint.com/

Key Indicators for January 31, 2012

Copper Price per Lb: $3.79
Oil Price per Barrel:  $98.48

Corn Price per Bushel:  $6.39  
10 Yr US Treasury Bond:  1.80%
FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,737 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,633  

M1 Monetary Base:  $2,152,800,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,782,800,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Of Money and Metals Part III - Debt: The Barbarous Relic

1/19/2012 Portland, Oregon - Pop in your mints...

{Editor”s note: The following is a continuation of the series “Of Money and Metals.”  Please click here to view the Part I and Part II} 

As the world descended further into depression which eventually led it into the Second World War (Editor’s Note:  It should come as no surprise that the only two World Wars have come after the declaration that debt is money), The Keynesian adherents clamored for more debt as the only answer to the world’s economic ills.

What Keynes and his Harvard trained legions fail to comprehend is that the only permanent cure for an economic depression is to allow each individual to declare what he or she will use as money and allow market participants to coalesce around what at that time is best suited for the role of money.  For balance sheet recessions, such as the one the world is currently experimenting, are merely symptoms of a rigid money supply which has failed to keep up with the demands of a dynamic economy.

Under current theory, the government sacrifices the dynamic economy in the name of preserving the “integrity” of the monetary system.


When it is quite obvious that it is the monetary system that has failed, the government’s response can only be seen as idiotic at best.

What makes the situation of the past 100 years even more untenable is that money, instead of operating as a lubricant for economic activity, is more like concrete.  Such is the inherently destructive nature of debt as money. 


For the only rule with regards to money which is imposed as a matter of natural law is that debt cannot ever be money.  It is a concept so clear that it escapes most academics and government officials.

The former "Barbarous Relic" - by Toi Mine courtesy of Wikimedia Commons

Now, the Keynesian indoctrinated readers of these words are no doubt dusting off the “silver bullet” of Keynesian theory:  That gold, which is widely held as the logical alternative to the “debt is money” insanity, is a “barbarous relic.”  In layman’s terms, Keynesian theory holds that any attempt to limit the money supply via natural means, the most popular being a gold standard (fixing the price of gold in terms of monetary units) will cause a deflationary spiral which will bankrupt the entire world.

Even Adam Smith argued that the mining of metals for use as currency was essentially a lamentable waste of resources.


We could not agree with them more.  The limited amounts of gold in the world make it wholly unfit for everyday exchange.  Gold, rather, is generally agreed upon to be the most perfect savings vehicle that the world has yet discovered.


So Keynes, despite promoting a theory which sacrifices the yang (savings) and glorifies the yin (debt) is right after all?  Not quite…


Using the same logic with which the Keynesian so adeptly slays the gold standard, it quickly becomes obvious that by declaring that debt is money is not only a violation of natural law, it makes debt, rather than gold, the new barbarous relic.


Debt has a distinct disadvantage to gold in that it can be quickly and completely destroyed.  Once it is assumed by the majority that a certain debtor will not be able to make good on their debts, the debts owed by the debtor, and any money in circulation which is either directly or indirectly related to the existence of these debts, is destroyed.  For debt, at its base level, is a figment of the imagination until it is settled in real terms by the delivery of money in settlement of the debt.


It would hold, then, that debt, the new “barbarous relic,” is exponentially more dangerous than gold when used as money.  The reasoning is the following, while the quantity of debt in the world can be suddenly and permanently reduced, the quantity of gold, which is admittedly difficult to increase, is at the same time extremely difficult to decrease.


Yet even given the strong advantage of gold over debt as money, it is obvious that both the Keynesians and the gold bugs are sadly mistaken in formulating their ultimate solution to the eternal problem of the money supply.


When it comes to determining the proper money supply, Adam Smith’s invisible hand of the market can be seen slapping both Keynesians and gold bugs silly!


For the problem with declaring anything, be it gold, debt, or white elephants as money, has nothing to do with the fitness of gold, debt, or white elephants for use as money, rather, it lies in the act of the minority attempting to dictate what will be used as money by the majority.


Money, in a general sense, is a good of the highest order.  There is nothing in nature which states that gold, silver, seashells, or anything else must be used as money.  The historical association of gold and silver as money is the result of their superior fitness for the role of money.  It is simply a product of the collective wisdom of mankind, gleaned from experience as free exchange and the division of labor began to bring order to man’s chaotic surroundings.


However, just because gold and silver were superior in their role as money in the past does not necessarily mean that they enjoy some sort of divine designation as money.


Gold and Silver, like all things occurring in nature, are in limited supply.  The fact that they occur in nature gives them a distinct advantage over debt (which is simply a promise to pay in the future) in that debt, which is theoretically in infinite supply, quickly loses value against scarce real goods due to the fact that debt, in theory, enjoys an infinite supply.


Anyone can make promises to pay in the future, it is the function of debt markets to determine what those promises are worth today.  Ironically, the value of debt today is perilously tied to speculations about the money supply, which is in turn dependent upon the issuance of debt.  Thus, declaring debt as money provides the economy with yet another hindrance in that the debt markets are increasingly disconnected from their noble origins; the debtor’s perceived productive capacity.


It is clear that mankind is in a perilous predicament.  Will we take hold of the simple answer, which lies in free banking and free determination of what will serve as money?

More to come…

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com
P.S.  For more ideas and commentary please check out The Mint at www.davidmint.com

Key Indicators for January 19, 2012

Copper Price per Lb: $3.80
Oil Price per Barrel:  $100.41

Corn Price per Bushel:  $6.06   10 Yr US Treasury Bond:  1.97% FED Target Rate:  0.09%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,657 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,625  

M1 Monetary Base:  $2,167,800,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!M2 Monetary Base:  $9,805,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Of Money and Metals, Part II - The Keynesian Nightmare

1/18/2012 Portland, Oregon – Pop in your mints…

{Editor"s note: The following is a continuation of the series "Of Money and Metals."  Please click here to view the Part I} 

In 1913 the US Congress passed the now infamous Federal Reserve act.  Not unlike the recent passage of the 2012 NDAA, it happened during the winter holiday when the populace was largely distracted by the festivities.

While the Federal Reserve act has wrought many injustices on the earth, undoubtedly the greatest injustice which continues to cause the greatest amount of damage to mankind was the subtle replacement of money proper with Federal Reserve notes.  This action effectively declared that debt is money, in direct violation of natural law.

The Federal Reserve, in direct violation of Natural Law

While this fact may have seemed like a minor detail with regards to custodianship at the time, the declaration was, in essence, handing Frodo’s One Ring to the financial and governmental authorities of the earth.  For it gave them largely unfettered access to the accumulated savings of the entire earth and, in the case that the savings ran dry, the unhindered ability to incur debts against the future production of the entire earth as well.

The only thing that they needed was to compel the entire earth to accept debts as money in everyday exchange.  In the west, they have largely succeeded.  In the east, the acceptance of debt as money has been violently forced upon the populace through a series of wars.

Yet as we stated yesterday, debt and money are polar opposites.  To declare that debt is money was not only insane, it was a direct violation of natural law.  This violation of natural law began to reap its terrible harvest in 1933 with the onset of the great depression.  Yet instead of admitting defeat and leaving the quantities of debt and money in the hands of the people, where it naturally belongs, the authorities presented an academic apologist to confirm for them that debt was indeed now money and that all that was required was more of it.

Enter John Maynard Keynes, best known as the father of the Keynesian school of economic thought.  Mr. Keynes developed a thesis which “correctly” diagnosed that the economic problem facing the earth was a lack of money.  What Keynes and those who subscribed to his theories have failed to realize is that the Federal Reserve, in declaring that debt was money, had placed a significant impediment to the creation of money, the remedy which the earth desperately needed.

Instead, Keynes and his colleagues skipped over the only viable solution, namely, allowing the free market to determine what constitutes debt and money and in what quantities each was needed, and offered the world a solution which has been the equivalent of injecting poison directly into the veins of the ailing economy.  The poison of which we speak was injected as a result of the testing erroneous hypothesis:

“The problem is that there is not enough money.  Because debt is now money, it follows that more debt must be incurred to create the money necessary to spur production, employment, and all the things that people now associate with a healthy economy.  Further, there is not enough money precisely because the people are not sufficiently indebting themselves.  Since the people are not inclined to further indebt themselves (Editor’s note:  the people are naturally reacting to natural law, which naturally calls for less debt and more saving), it is the duty of the government to increase overall indebtedness, and therefore the money supply, on behalf of the people.  It must force the people to do what they cannot (or more accurately, will not) do for themselves.”

As insane as this line of thought sounds, it is today generally accepted as natural law by nearly every Harvard trained economist, and therefore government and central bank official, on the planet.  The only difference between the 1930’s and today is that today, circa 2012, this disastrous line of thought is practiced on a much grander scale.

Stay tuned for tomorrow’s installment:  The Barbarous Relic and Trust Jesus!

Stay Fresh!


David Mint


Email: davidminteconomics@gmail.com

P.S.  For more ideas and commentary please check out The Mint at www.davidmint.com


Key Indicators for January 18, 2012


Copper Price per Lb: $3.73
Oil Price per Barrel:  $100.77

Corn Price per Bushel:  $5.93  
10 Yr US Treasury Bond:  1.90%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,660 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,562

M1 Monetary Base:  $2,380,300,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,829,100,000,000 YIKES UP $1 Trillion in one year!!!!!!!

Of Money and Metals, Part I - Balance

1/17/2012 Portland, Oregon - Pop in your mints…

It is turning out to be an unusually dry winter here in Portland.  It is a refreshing break from the usual incessant pounding of rain which blesses this part of the world between November and May each year.  Perhaps we are just now getting back the lost months of June and July of 2011, as nature has a way of evening things out over time.

We have observed that there is a perfect balance in God’s creation.  Some call it a yin and yang, male and female, mercy and justice, freedom and slavery, heat and cold.  For every extreme, there is a force which, given enough time, will work to counteract the excesses wrought by the seemingly uninhibited operation of its polar opposite.

It should come as no surprise, then, that in the economic sphere, debt and money fall into the same category of opposing natural forces.

Yes, debt and money are two completely different forces.  One takes from the future to provide for the present, the other takes from the past towards the same end. 

Yin Yang - A picture of balance

Simple, right?  Male, female, Yin, Yang, case closed.

Yet circa 2012, for some odd reason, there seems to be an abundance of debt and a dearth of money in the world.  The world as we know it is perilously out of balance.

How can this be?  Why are things so far out of balance?  In the interest of time, we will sum up what is otherwise a long and painful explanation in the following way.  Roughly 100 years ago, by decree of the financial authorities, debt was declared to be money.

Ever since then, man has lived in a state of economic confusion.  On one hand, He has seen an unprecedented level of technological advances and a resulting rise in his standard of living.  On the other hand, on net, he, or someone acting in his name, has borrowed an unprecedented amount of money from the future in order to achieve these advances and consequent rise in his living standards.

How is this possible?  Didn’t simply declaring debt is money relieve man of having to save?  After all, if everyone simply assents to accepting promises to pay in the future for goods or services delivered or performed today, haven’t we trumped the need for savings, the Yang, as it were?

More to the point, have the laws of nature with regards to money been permanently altered?

If only it were so.  Unfortunately, the longer man labors under the false assumption that debt is money, the greater the pain which will be incurred by mankind as nature unilaterally brings the earth into balance.

More to come…

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S.  For more ideas and commentary please check out The Mint at http://www.davidmint.com/

Key Indicators for January 17, 2012

Copper Price per Lb: $3.72
Oil Price per Barrel:  $100.75

Corn Price per Bushel:  $6.04  
10 Yr US Treasury Bond:  1.85%
FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,653 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  1.50%
Unemployment Rate:  8.5%
Inflation Rate (CPI):  0.0%
Dow Jones Industrial Average:  12,485  

M1 Monetary Base:  $2,380,300,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,829,100,000,000 YIKES UP $1 Trillion in one year!!!!!!!

 

Dual Entry Accounting - Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe - Part III – Money or Credit?

10/19/2011 Portland, Oregon - Pop in your mints…

For those of you who have missed Part I and/or Part II, you may read them by clicking on the following links:

Dual Entry Accounting - Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe - Part I

Dual Entry Accounting - Man’s Greatest Innovation, Modern Central Banking – Man’s Greatest Catastrophe - Part II - Irony

For those of you who are too lazy to click the links, we do not blame you.  Below we offer a brief summary to get you up to speed:

Central Banking is the physical expression of Man’s need to safeguard his wealth and to increase trade.  A Central Bank’s usefulness and scope were greatly increased when dual entry accounting could be employed to manage a Central Bank’s accounts.

The Central Bank’s role as a storehouse of wealth has generally attracted the attention of the Government, which is the physical expression of Man’s need to protect his life.  The Government, in this capacity, does not generate wealth and must maintain itself either by taxing its subjects or borrowing funds.

The Central Bank, as the repository of wealth and facilitator of trade, by default creates a majority of the banknotes which circulate in a society.  As such, the Central Bank becomes the natural creditor of the Government.  Whether it lends funds directly to the Government or indirectly, the result is the same.  That result is that the use of its subject’s wealth by the Government is greatly facilitated by the existence of a Central Bank.

Having established the fact that some form of both a Government and a Central Bank will come into existence and become increasingly interdependent, the only question is one of the size and scope of such entities.
Central Banking, like alcohol and socialism, may be a good idea when used in moderation.  However, each one of these also represents a catastrophe waiting to happen.  For if the circumstances under which they are created or used take an unfavorable turn, they wealth and lives of many may be lost in a very short period of time.

It is clear today that the scale of modern Central Banking is excessive and that the potential for catastrophe is unprecedented.

How, when, and most importantly why will this catastrophe take place?  As mere mortals, we can only answer the why and speculate as to the how and when.

Why, then, will the current system of Central Banking come to an end which will cause wealth destruction on a scale which will make the weapons of war seem like child’s play in comparison?

The answer, fellow taxpayer, is that money as it is widely understood today does not really exist.

You read correctly.  What a majority of the developed and semi-developed world uses as a store of wealth, unit of account, and medium of exchange, is a figment of the collective imagination.

Allow us to explain.  It is generally understood today that the value of money is not necessarily in money proper, rather the value of money is found in the ability of the bearer to exchange said money for goods and services.  What is often overlooked in this observation is that, for money to be exchanged for something of value between willing participants of a transaction, what is used as money in the transaction must be universally perceived to have value that is easily transferable between parties.

Following this logic, what society uses as money is, by definition, simply another good which is widely recognizable as useful in exchange and therefore carries a price premium (we will call it the monetary  premium) of a certain amount usually far above what some economists would incorrectly* call the good’s “intrinsic” value.

* We say incorrectly because value judgments, while often influenced by what are known as “market” or “intrinsic” values, are by definition made by the individuals who willingly enter into a transaction, not disinterested observers.  It is for this reason that it is more accurate to appraise value by observing price points of transactions on “the margin” (i.e. transactions that are actually taking place) as opposed to appraising value based on past transactions or transactions imagined to take place in the future.  Many are the hypothetical gains and losses of those who refuse to enter into transactions because they are waiting for and offer at “market prices” or the “intrinsic value” of an item.

Regardless of the monetary premium that a good may carry, whatever is used as money, by definition, must be a tangible good.  Otherwise, we are dealing with credit, which is a promise to pay in money at a future date. Credit may be given in exchange in the place of money and is often traded at a discount to money delivered immediately. 

The distinction between money and credit is common knowledge to but it is important to make a clear distinction in order to properly understand what happens next.

In roughly 9.000 years of human history, it has been tacitly agreed upon that silver and gold, usually in coin or bar form, are the highest and most widely recognized goods used as money and that the accumulation of silver and gold represent wealth. 

Examples of Money Proper - Courtesy of Mark Herpel - www.dgcmagazine.com

As you recall, the concept of a Central Banking arose in response to the need for man to protect his wealth.  You will further recall that in order to both protect wealth and facilitate trade, a Central Bank creates banknotes which represent a claim on the wealth being protected by the Central Bank. 

These banknotes which the Central Bank creates are, by definition, credit and not money.  They are generally the highest, least discounted, form of credit which is traded, but this does not change the fact that the banknotes are credit and thus carry an implied risk of default.  This risk of default places the ultimate limit on the circulation and acceptance of the banknotes in trade.

From time to time, when a Central Bank’s ability to protect the wealth entrusted to it came into question, banknotes would be presented to the Central Bank to be redeemed for the amount of silver and gold which they represented.  If the Central Bank could not produce the amount of silver and gold that was being redeemed, the Central Bank was considered to be in default and, as word of the default spread, the banknotes in circulation would trade at an ever increasing discount to real goods.

This logic further supports the fact that banknotes are credit, subject to default risk, and not money proper.

Can you now smell the impending catastrophe?  Or, to put the question more directly:

What’s in your wallet?  More tomorrow,

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

P.S.  For more ideas and commentary please check out The Mint at http://www.davidmint.com/

Key Indicators for October 19, 2011

Copper Price per Lb: $3.25
Oil Price per Barrel:  $86.11

Corn Price per Bushel:  $6.38  
10 Yr US Treasury Bond:  2.16%
FED Target Rate:  0.07%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,671 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.1%
Inflation Rate (CPI):  0.3%
Dow Jones Industrial Average:  11,505  

M1 Monetary Base:  $2,201,800,000,000 RED ALERT!!!
M2 Monetary Base:  $9,554,000,000,000 YIKES UP $1 Trillion in one year!!!!!!!