Calling all economists...

[Michael Fisher]

Slight deflation can occur with gold and silver if less is mined and more people are born, but the market will correct itself without intervention, despite even some Austrian economists who believe otherwise.

Did you mean "Chicago economists"? (Friedman et al) http://en.wikipedia.org/wiki/Chicago_School_(economics)

Generalizing, Chicago school economists believe the government is necessary to create a level playing field while Austrian school economists believe the maximum utility of government is in forbidding the initiation of force and fraud.
http://en.wikipedia.org/wiki/Austrian_school_of_economics

I know why you're asking this question, but I did mean the Austrian school and its apoplithorismosphobia.

Deflation?When Austrians Become Interventionists
(Even Austrian Economists, who know better, suffer from apoplithorismosphobia.)
http://www.mises.org/journals/qjae/pdf/qjae6_4_3.pdf

Deflation and Economic Growth
(Refers to apoplithorismosphobia's definition as a fear of deflation.)
http://www.mises.org/journals/qjae/pdf/qjae9_2_5.pdf

[mr.apathy]

If you do not ban all fiat currencies (sorry brass just struck last week and branded with a wretched hand), then real money will never overcome worthless paper currencies because of Gresham's Law.

Not true. Gresham's Law refers to legal tender, which would be banned by a separation of currency and state.

In other words, since no one would be forced to accept the fiat currency, Gresham's Law does not apply.

in the absence of legal tender laws, Gresham's law works in reverse. If given the choice of what money to accept, people will transact with money they believe to be of highest long-term value. However, if not given the choice, and required to accept all money, good and bad, they will tend to keep the money of greater perceived value in their possession, and pass on the bad money to someone else

Great stuff!
Now assuming that the ones that would use the second currency would be those that wanted to secede, wouldn't that currency hold the greater value to those who suport the cause?  Would that value be enough to start an economy?

[Ron Helwig]

All popular worldwide fiat currencies would need to be eliminated, or banned in a specific state, for gold and silver to circulate openly under Gresham's Law.

Why would people in a Free NH use gold and silver bullion if the worthless U.S. dollar is accepted as valuable by most people on Earth, and is thus easily accessible for foreign trade, because of the U.S. government's fiat currency laws? In today's world, people will choose to use U.S. paper money.

As the Wikipedia article points out, people want to use a better currency, and Gresham's Law only applies when they are forced to use the bad fiat currency due to legal tender laws. It points out that people in other countries use U.S. FRNs because they are better than the local currency. All we need to do is allow the market to operate. In fact, there are already some currencies out there that are superior to the FRN: http://www.libertydollar.org/ and https://www.phoenixdollar.com/ are two examples.

The article also points out that in the absence of legal tender laws, Gresham's Law works in reverse: people will use the best currency available.

Look at Somalia. As far as I'm aware, even in the absence of government, they did not use real money for personal transactions. They used random fiat currencies.

From what I have read, they continued to use the old currency, knowing that since no more could be printed it couldn't be inflated. The old fiat currency was in fact a better currency, so they continued to use it.

[Michael Fisher]

All popular worldwide fiat currencies would need to be eliminated, or banned in a specific state, for gold and silver to circulate openly under Gresham's Law.

Why would people in a Free NH use gold and silver bullion if the worthless U.S. dollar is accepted as valuable by most people on Earth, and is thus easily accessible for foreign trade, because of the U.S. government's fiat currency laws? In today's world, people will choose to use U.S. paper money.

As the Wikipedia article points out, people want to use a better currency, and Gresham's Law only applies when they are forced to use the bad fiat currency due to legal tender laws. It points out that people in other countries use U.S. FRNs because they are better than the local currency. All we need to do is allow the market to operate. In fact, there are already some currencies out there that are superior to the FRN: http://www.libertydollar.org/ and https://www.phoenixdollar.com/ are two examples.

The article also points out that in the absence of legal tender laws, Gresham's Law works in reverse: people will use the best currency available.

Look at Somalia. As far as I'm aware, even in the absence of government, they did not use real money for personal transactions. They used random fiat currencies.

From what I have read, they continued to use the old currency, knowing that since no more could be printed it couldn't be inflated. The old fiat currency was in fact a better currency, so they continued to use it.

Gresham's Law in reverse only applies to a country in which no other fiat currencies are traded -- no such country exists today. Fiat currencies are only paper, but they gain value from the force of their respective governments forcing their citizens to accept their currencies. Then, if floated, a fiat currency becomes valued by the free market according to the market's valuation of that country's government and economy, according to the local and foreign currency reserves of the government in question, according to that government's spending and inflation practices, in some situations correcting for the global prevalence of the currency, and so on. A floated fiat currency is therefore a quasi-free market of trading in government force.

A fiat currency is a valuation of the force and the market's valuation of the currency's source country. After this force-backed law has been established, this value then exists in every country. Some countries place a higher value on certain currencies, such as the U.S. dollar, and use them as reserve currencies. Some countries never use many fiat currencies because it's easier to convert the foreign currency into a local currency, but foreign currencies still hold inherent force-backed value from their source country.

That some Somalis placed any value on their old, 15-year-dead fiat currency which had no fiat backing after the government's collapse, is nonsensical from the perspective of an outside observer. It takes a little while for a fiat currency to die after its force backing ceases to exist, and some cultures place subjective values on "currencies" that no other culture agrees with, such as the bead currencies of Rwanda. (Though many cultures used to trade with Rwanda in that currency, I believe.)
http://en.wikipedia.org/wiki/Somali_shilling

In the absence of fiat currency laws worldwide, Gresham's Law should work in reverse. In the presence of any fiat currency on Earth that is used globally as a reserve currency by many countries, Gresham's Law will not work in reverse simply because one single country eliminates its own fiat currency. Other widely used fiat currencies will replace it, as Somalia proves.

[FrankChodorov]

sorry to inform you guys but there are no gold or silver mines in NH.

only one of the functions of money is a store of value

Other functional definitions:

    * A standard of value
    * A unit of account
    * A store of value
    * A standard of deffered payment

NH would be better off with a mutualist credit clearing system (like WIR Bank in Switzerland) or a mutualist land bank system.

[mr.apathy]

Ron - Great links, I had no idea that alternate currency was already out there. Even more interesting was the fact that they are already backed with precious metals.

I am assuming that that a private co. is backing the currency. What would that mean if an entire nation wanted to use such currency? Could it be secure enough? Could it it be influenced by outside powers?

Frank - could you please define "mutualist land bank system", I'm a dummy at this stuff.

Still trying to digest the Grisham's Law debate.

[Brock]

sorry to inform you guys but there are no gold or silver mines in NH.

There are no banana plantations, either.  Last time I was there I didn't check for myself, but I assume that there is no dearth of bananas in the grocery stores.  I may be wrong, but I doubt it.  If a market demands precious metals, precious moments, or bananas, they will flow in without any specific or conscious action by any person or group.

Having said that, I don't think precious metals are any more valuable as currency than parakeet feathers.  There are places in the world where a handful of gold couldn't buy a sandwich - I would doubt that it would in downtown Manchester, for example - because gold doesn't have the liquidity that the government currency does. 

Whenever you purchase something with an FRN, you exchange a liquid commodity for a relatively illiquid commodity.  You get more of the illiquid commodity than you pay for as a premium.  Here's a test that you can try at home: $2.11 will buy you a gallon of gas.  BK cheesburgers are 99 cents.  Go into BK with a gallon of gas and offer to exchange it for two cheeseburgers.  BK the restraunt has no need for a gallon of gas, therefore, the commodity has no liquidity to them and will not be accepted.  However, some enterprising cashier or manager may see value in your offer, put the gas in their tank, and toss $1.98 in the register, claiming 13 cents for themselves as the liquidity premium.  Even that is doubtful, though, as the 13 cents will not adequately compensate them for the labor of pouring your gas in their tank AND it is impossible for them to verify the purity and quality of the gas you offered without sofisticated test equipment.

But, that's the beauty of a free market.  The market itself will settle on a currency without any specific or conscious action of any person or group.  There is no need (or, indeed, use) in defining a "standard" currency; as soon as you do, Gresham's Law comes into play.

Lastly, credit clearing (in essence PayPal) is useful, but will never totally replace currency because anonimity is lost in the paper trail.  Some transactions HAVE to be cash only.  In fact, the true test of the viability of a currency would be its acceptance on the black market.

[FrankChodorov]

Lastly, credit clearing (in essence PayPal) is useful, but will never totally replace currency because anonimity is lost in the paper trail.  Some transactions HAVE to be cash only.  In fact, the true test of the viability of a currency would be its acceptance on the black market.

paypal is not a mutualist credit clearing system...

http://ripplepay.com/about/

In Ripple Pay you create a profile on the system and indicate who you know and how much you trust them by connecting to people by email address and giving them credit limits. Then whenever you want to make a payment to another Ripple user using only friendly obligations, the system finds a chain of intermediaries connecting you to the person you want to pay, and records the payment in each intermediary's account all the way down the chain. You end up owing one of your "neighbours" on the system, and the payment recipient ends up being owed by one of her neighbours.

[Brock]

So Hawkeye gets new boots from the ghost of Christmas past if Radar gets a date from the butter-bar nurse in Klinger's dress, who doesn't need it what with the Section 8 that Frank's going to sign when Hawkeye buys Hotlips a ring, eh?  Sounds like a sound system - unless somebody forgets to engrave an "n" on the ring.

[Dreepa]

So Hawkeye gets new boots from the ghost of Christmas past if Radar gets a date from the butter-bar nurse in Klinger's dress, who doesn't need it what with the Section 8 that Frank's going to sign when Hawkeye buys Hotlips a ring, eh?  Sounds like a sound system - unless somebody forgets to engrave an "n" on the ring.

This is my new favorite post.

[Michael Fisher]

Lastly, credit clearing (in essence PayPal) is useful, but will never totally replace currency because anonimity is lost in the paper trail.  Some transactions HAVE to be cash only.  In fact, the true test of the viability of a currency would be its acceptance on the black market.

paypal is not a mutualist credit clearing system...

http://ripplepay.com/about/

In Ripple Pay you create a profile on the system and indicate who you know and how much you trust them by connecting to people by email address and giving them credit limits. Then whenever you want to make a payment to another Ripple user using only friendly obligations, the system finds a chain of intermediaries connecting you to the person you want to pay, and records the payment in each intermediary's account all the way down the chain. You end up owing one of your "neighbours" on the system, and the payment recipient ends up being owed by one of her neighbours.

Ken and I came up with a similar electronic tuath-trust system long ago. Thankfully, our activism in Caspian and Digital Freeman stopped us from implementing it because of the potential privacy concerns.

Then Cathleen pushed us to simplify, simplify, simplify. So, the privacy-invading electronic trust system idea was toast.

[Michael Fisher]

So Hawkeye gets new boots from the ghost of Christmas past if Radar gets a date from the butter-bar nurse in Klinger's dress, who doesn't need it what with the Section 8 that Frank's going to sign when Hawkeye buys Hotlips a ring, eh?  Sounds like a sound system - unless somebody forgets to engrave an "n" on the ring.

ROFL!!!

[mr.apathy]

So Hawkeye gets new boots from the ghost of Christmas past if Radar gets a date from the butter-bar nurse in Klinger's dress, who doesn't need it what with the Section 8 that Frank's going to sign when Hawkeye buys Hotlips a ring, eh?  Sounds like a sound system - unless somebody forgets to engrave an "n" on the ring.

Now it all makes sense!

But, that's the beauty of a free market.  The market itself will settle on a currency without any specific or conscious action of any person or group.  There is no need (or, indeed, use) in defining a "standard" currency; as soon as you do, Gresham's Law comes into play.

That's the answer I was waiting for, Thank you.

[Ron Helwig]

I am assuming that that a private co. is backing the currency. What would that mean if an entire nation wanted to use such currency? Could it be secure enough? Could it it be influenced by outside powers?

Sunshine Mint is the warehouse behind the warehouse receipts. It is unrelated to NORFED.

Most of the Liberty Dollars in use are the actual silver rounds, not the warehouse receipts. Because of that, the "system" is essentially decentralized. This is even more the case since the RCO model was adapted. Outside powers can only really manipulate it by manipulating the "price" of silver. I know my silver is secure since I have it!

The RCOs (Charles Hampe here in NH) are supposed to be able to handle most users' redemption requests. (Redemption is where you trade in the receipt for the actual silver) That means they need to have a significant amount of physical silver on hand.

[lordmetroid]

Only three things can make trade "non-free" (both domestic and foreign).  Tariffs, quotas, and bounties.

I disagree, interests on loans and manipulation from the central bank on the amount of currency in circulation makes the market non-free as well. Therefore it is important that unlike with the federal reserve it is not a private owned bank that publish the currency.