Posted by: graemebird | February 16, 2009

Life Is Beta/Monetary Transition And Monetary Theory Cannot Be Grasped Without That Realisation.

Somewhere to log my posts from the thread that Jason just tipped me off to:

It would be no problem going over to a multi-commodity standard just so long as no fractional reserve were tolerated anywhere. This would be a costless exercise. In fact it would shore up the situation by keeping our extraction industries ahead of the game.

Our Austrians at Mises.org grossly understate their case on this matter. There are only two industries that need to stay ahead of the game to avoid a general civilisational collapse. And thats the food industry and the energy/extraction industries taken as a whole.

The medical industry could disappear tomorrow and that would be tragic for many individuals. But if the energy, extraction, or food industries were to tank we would run the risk of a energy-capital-vortex developing. Where we don’t have the energy to get the capital and the capital to get the energy and so forth.

The difference in my view, is not to try to go to gold all at once. In transition we want to nuance matters so we have maybe half a dozen fully backed moneys… and fully anticipating that perhaps in 100 years or 200 years gold may have taken over entirely.

But actually so long as we can be assured that even the smell of fractional reserve is not present, then it ought to be the case that four or more monies ought to be able to keep off the ground. It would be fortunate if we had a stored commodity that was digitized that represented an explicitly energy-based commodity. Like liquified-coal or something of that nature.

But the thing is we will lose all hope for anything to compete with gold and silver so long as even the smell of fractional reserve is with us. We can have a digitized money that doesn’t have all the portability of pre-information-age-money and it still could be feasible. But this is an idle speculation unless there is absolute zero-tolerance against fractional-reserve.

We can learn from a 1000 years of banking you know. We ought to be able to learn from this history and retain the knowledge. We can learn that fractional reserve must always mean bank/government collusion and there is no getting around that.

There is absolutely no need for massive deflation if you start off going after half a dozen FULLY-BACKED commodity monies in the phase-out.

You see the first thing is you have to be phasing out fractional-reserve even before you are phasing out fiat money. But by the time you are at a 50% reserve asset ratio for the compulsion-cash you can start transitioning over to these various commodity monies.

Ironically the first step to phasing out the fiat-cash is to print more of it because your first step is to reduce the ponzi-money. As the reserve asset ratio for the fiat-cash starts inching above 50% the other monies will be able to compete.

The thing is it costs a lot of RESOURCES (it costs a lot of money) to keep this paper-money going. The fundamental costs for paper money are much higher then they are for coins.

Well those charges ought to be passed on to the consumer. And if there is no efficient way to do this then all you need to do is make interest earnings on 100%-backed commodity money or even on hybrid loans non-taxable.

Then you have a push-factor for the paper-money to be phased out. And once fractional reserve is halfway to being phased out then it will be the case that these other monies can start getting some traction.

I recommend a straight tax advantage for commodity money as a stress-free way to see it edging out the compulsion cash.

But there is not way to do it seamlessly without first charting the course to edging out the ponzi-money.

 

One more thing before I get a reply. I don’t think this matter can be resolved without a sort of consciousness towards all the realities of the extraction industries. You cannot contemplate this matter sensibly without keeping the dynamics of the extraction industries in mind.

If ever you start selling, lending or trading ponzi-commodities rather than the real thing you are not saving any resources as the fractional-reservists wrongly contend. Rather you are imposing costs on the extraction industries.

But the costs of having half a dozen monetary commodities are basically nil. Because you think about it. You go looking for a needle in a haystack…. well you will find a lot of four-leaf clovers prior to finding the needle.

The way these small-cap extraction companies work they have their exploration costs. They have their flyovers where they measure some gravity-field or something and make inferences on that basis. They put down drills and they map stuff out. And if you are doing that for gold, silver, copper, platinum, and liquified coal you are amortizing the costs of bringing up just about everything else. So this idea that 100% backing is costly is just wrong. It is a misunderstanding of how the extraction industries work.

This I think is the best tip I can give the mises.org people. There ought to be some communication between the monetary theorists and the people running these small-cap exploration companies to get the full reality of the situation. Because while a sudden change to gold alone may well cost a lot of resources to the community as a whole….. if instead we started with maybe half a dozen monetary commodities it wouldn’t cost a thing. In fact it would be an act of civilisational insurance and any premium price on the monetary commodities would be amortized on all the other gear these adventurers were bringing up.

 

Its absolutely no good making these speculations without first describing your transition strategy.

You see I’d want to shoot holes in what you are saying but cannot do so for lack of a transition strategy.

But we can say this for sure. Once transitional matters were all overcome there would never and could not be monetary deflation under 100% backed gold.

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