Libertarian Money?

[WhoCountsTheVotes]

Ron Paul is considered a libertarian, aside from some pandering to his religious conservative district. What do you think about his proposal?


http://www.house.gov/paul/press/press2003/pr073103.htm


Congressman Ron Paul, a leading advocate of sound money policies and an outspoken critic of the Federal Reserve, recently introduced legislation to repeal legal tender laws. The Honest Money Act, HR 2779, would eliminate forced tender laws that compel Americans to accept fiat irredeemable paper-ticket or electronic money as their unit of account.

Absent government intervention through legal tender laws, individuals acting through the market decide what they will use as money. Historically, the free market has chosen some combination of gold and silver whenever they were available. As Dr. Edwin Vieira, the nation’s top expert on constitutional money, stated: “A free market functions most efficiently and most fairly when the market determines the quality and the quantity of money that’s being used.”

When government creates fiat money out of thin air, the purchasing power of existing dollars falls. Fiat money erodes the value of savings, and is especially harmful to those living on fixed incomes. Paul believes centralized planning in monetary affairs is as harmful as centralized planning in economic affairs.

“Fiat money is widely accepted only because of legal tender laws,” Paul stated. “Throughout the 20th century, the legal tender power enabled politicians to fool the American public into believing the dollar no longer meant a weight of gold or silver. Instead, the government told the people that the dollar now meant a piece of government-issued paper backed up by nothing except the promises of the government to maintain a stable value of currency. Of course, history shows that the word of the government (to protect the value of the dollar) is literally not worth the paper it is printed on.”

“While legal tender laws harm ordinary citizens, they work to the advantage of large banks,” Paul continued. “Banks have been improperly granted the special privilege of creating fiat irredeemable electronic money out of thin air through fractional reserve lending. According to the Federal Reserve, since 1950 these private companies (banks) have created almost $8 trillion out of nothing. This has been enormously advantageous to them.”

Repeal of legal tender laws will help restore constitutional government and protect the people’s right to a medium of exchange chosen by the market, thereby protecting their current purchasing power as well as their pensions, savings, and other promises of future payment. Honest money serves the needs of ordinary people; fiat irredeemable paper-ticket electronic money improperly transfers the wealth of society to a small privileged financial elite. Paul’s legislation simply seeks to offer Americans a choice between fiat money and traditional stores like gold and silver.

[Cato1]

1. What I would like...

...to know is how ordinary people could afford loaning money were there no fractional reserve banking.

[leftyandproud]

2. good idea..

there is no limit to the amount of debt this administration can run up, so long as we remain on a non backed currency. They could put us 50 trillion in debt, then run the printing press day and night to devalue the currency and inflate their way out of debt. Having a gold/silver standard would put a limit to what shrub & co. can spend.

[wuushew]

3. I have always wondered if Nixon finished getting off the gold standard

for good monetary reasons or bad ones like financing the cost of the vietnam war.

[WhoCountsTheVotes]

4. We were already off the gold standard long before Nixon

Nixon ended the Bretton Woods agreement, which pegged the various currencies to a fixed ratio.

I don't think returning to a gold standard is a good idea, at all. However, commodity backed money isn't a bad idea in and off itself.

[wuushew]

5. It was still partially linked to gold

By 1971 US gold stock declined by 10 billion dollars. Foreign Banks at the same time held 80 billion dollars or 8 times the supply of US gold reserves. President Nixon then decided to de-link the dollar from the gold standard and ended the system of fixed monetary currency convertibility. In the same year as mentioned above the US implemented the Smithsonian Agreement which provided the monetary controls necessary to prevent the freefall of the Dollar potentially resultant from European credit claims and currency speculators. This agreement provided for a 10 percent devaluation of US currency as well.
http://www.geocities.com/s011023/coldwar9.htm

[Nederland]

7. bad idea...

Linking the money supply to the gold supply is a fundamentally bad idea. The money supply should expand and contract depending upon economic growth, not variation in the supply of a metal dug out of the ground.

[Liberal Classic]

6. Two different issues

Speaking as a nigh-libertarian, I think that fractional reserve banking and a commodity backed currency are two different things. I am less in favor of the latter than the former, but I do believe reform is needed in national monetary policy as well as banking regulations.

I am in less agreement with Paul fractional reserve banking. Fractional reserve banking simply means a financial institution is allowed to loan out more money than it has in deposits. There is always the risk of a run under this system, but this has always been true. Personally, this doesn't bother me so long as the customer (depositor) is aware that his deposits may be loaned to someone else.

I am in more agreement when it comes to fiat money. I believe the currency should be backed by something, though it need not be precious metals or tobacco as it has been in the past. I do not believe that currency should be backed solely by legislative act, of fiat from which the term is derived. When the government prints money, it is in essence a hidden tax to pay for borrowing against the future.