| | Rep. K.:"...which has an unfortunately privatized monetary system and created a system which includes banks having the ability to create money almost out of thin air ..."
Luke: "I personally have issues with fractional reserve banking and find Rothbard's arguments much more persuasive. But ..."
Fractional reserve banking is just another form of credit. In the unregulated past, when the public feared that banks were over-extended, there would be "panic" perhaps limited to the pages of a couple of New York newspapers, as the so-called Panic of 1857. Even so, some banks continued, the Chemical Bank of New York was one. When you lend money to a bank for interest, you are taking a risk. Apparently, some people did not think that through. After the so-called "Panic of 1857" some banks stopped paying interest on any demand account.
Do you have a credit card? Even American Express, which is paid off every month, allows you a 30-day float on your purchases, i.e., one month of "creating money out of nothing" which is then "destroyed" when you pay the bill. That is how banking works.
As for the revolving credit cards of consumer debt, the open, free and general market allowed entities to create new money based on expectations of the creation of new wealth in the future. Borrowers and lenders came together at a price.
The fear of "credit" is a result of concrete-bound epistemology: only hard money is money. Yet, gold existed long before it was useful. What made money useful was things (and services) to buy with it. Given that, money could have (almost) any form -- or none. "Money of account" (pounds/shillings/pence) was invented by bankers in the middle ages to meet several needs.
- The appearance of a "bullion famine" is generally accepted, but debated on the evidence. Basically, the major mines of Germany were exhausted in the 1300s. (However, "money of account" existed before that time by about 200 years.) Lacking coins, merchants exchanged promises.
- With hundreds of mints -- perhaps over a 1000 -- deniers and marks (pennies and ounces) were struck to all kinds of standards. While there were popular preferences such as the English "easterling" (sterling) penny or the heller from the town of Hall, standards changed. Sometimes places got poorer from baronial mismanagement. Sometimes patterns of trade changed and towns shifted their standards to re-align with new partners. All of that was settled with the arbitrary "L-s-d" measures in which 12 pence (each weighing so many nominal grains of barley or wheat) made a shilling ("mark") and 20 shillings made a pound, regardless of how many of whose coins it took to make the measures.
- Transporting money was dangerous and bookkeeping and receipts and contracts were safer ways to get the value of the money from one place to another.
- When merchants bought and sold continuously -- Champagne had six fairs a year -- they could take on obligations that balanced, buying wool now, selling spice then, buying leather ("cordoba") here and selling dyed wool there. Purchases and sales across time, i.e., on credit, offset each other, reducing the need for hard money except to settle the differences.
For all of those reasons, much of trade and commerce at the "international" level (ships and caravans going long distances), has been by credit. This is not just medieval.
Colonial America worked on the same basis. Denied hard money by the law, American merchants bought and sold to English merchants with letters of credit. Typically, three copies were sent, each on a different ship. The letters themselves passed for a kind of money, being bought and sold, discounted and transferred.
If you stop and think about it, what is a stock certificate or a commercial bond? How could the steelmills and railroads have been built if the capital had to represent existing gold in convenient form, securely stored?
Why are not the owners of gold mines fantastically rich, capable of buying everything they want without limit? Because it takes effort -- money -- to get the gold out of the ground and that effort must be paid for. Only the creation of new wealth as new goods and new services can drive that digging and refining and shipping and minting, otherwise, there would be zero profit in owning a gold mine because the gold would be worth its weight in gold, no more, no less.
On the other side of the ledger, how would the creator of a new motor ever be paid if the motor could not be invented until the right amount of gold (how defined?) were stacked up somewhere waiting for the machine?
By the static theory of no-credit wealth, the invention of a new motor would suck money out of the financial system, making everyone else poorer.
Yes, ultimately, it all comes down to hard money, the physicial, empirical reality of stuff that is durable, divisible and commonly accepted. We all like it. But it is just material, inanimate matter, unless there is an engine of creation to give it value. That engine needs fuel. The fuel is credit: literally "credo" I believe. I believe that you have a good idea.
Last point: during the so-called Dark Ages, what had been the wealth of the Roman empire, was hoarded in the dungeons of warlords -- Beowulf and Siegfried. The silver and gold was the very same stuff that powered trade on three continents in 200 AD. The hard money was there in 600 AD. Where was the trade? .
(Edited by Michael E. Marotta on 9/30, 7:51am)
|
|
I thought that United States currency was legal tender for all debts. Some businesses or governmental agencies say that they will only accept checks, money orders or credit cards as payment, and others will only accept currency notes in denominations of $20 or smaller. Isn't this illegal?
The pertinent portion of law that applies to your question is the