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Discussing Interest and Gold with the Daily Bell

December 29, 2011

The Daily Bell responded to an article on the Banker’s love for Gold, published on Henry Makow’s site.

They make a number of important points, which I will address one by one for clarity’s sake.

But first allow me to address a few minor issues:
Daily Bell: “From what we can tell, Mr. Migchels is something of what might have once been called a “greenbacker” – in US parlance. What that means, near as we can tell (regarding Migchels), is that he wants money to be publicly issued without interest”

This is only partly true. I’m not sure that Government is the best entity to provide the money supply. In fact, I believe a free market for currencies, with or without the Government partaking in it, is probably the best approach.
I am, however, completely convinced that if the Government insists on a monopoly, it should never ever surrender this monopoly to a Private Central Banking Cartel.
I’m also firmly convinced that if Government insists on printing money it should do so either in the form of debt free units, or interest free credit.

Because, and that is the basic discussion, Austrian Economics ignores redistribution of wealth from poor to rich through interest. They only see how inflation allows the Plutocracy to rob the middle classes.

I am not “generally dismissive” of Austrian Economics. I think it makes a great case for Free Markets. Austrian Economics has been indispensable in exposing Fractional Reserve Banking. These are wonderful accomplishments.
I do believe ignoring the problems of interest and explaining it away as a normal free market pricing operation is wrong, as discussed further below.

Followed by:
“Nonetheless, we admire Mr. Migchels’s imagination and courage in setting up an alternative monetary system that is actually gaining traction in the Netherlands. We simply and profoundly disagree with the concept.”
I assume they disagree because the Daily Bell believes I’m creating interest free currency for or through Government. I’m not. The Gelre is a privately controlled currency, competing with Euro in the marketplace. As long as one doesn’t break the law, it is not illegal to float your own currencies. Not in Europe, not in the US, see the Berkshares.
So the Gelre is a purely free market solution to the problem.

Furthermore, I do have a problem with the Greenbacker thing. Not because I consider the term derogatory, I don’t, but because the Greenback was a certain system. Debt Free paper money spent into circulation by Government.
This is probably the worst approach available to Government, although it still is much better than allowing a Private cartel to monopolize money. The Greenback is better because it is interest free, saving the taxpayer the 700 billion per year the Federal Government currently loses to debt service.
But it is far from perfect. Government will inflate, Austrian Economists are right on that. Furthermore, Government will use it’s prerogative to spend it into circulation to finance wars and other Plutocracy pet projects.

That’s why Social Credit is much better. It is a Greenback, spent into circulation by the people, not Government. The people know better where to spend the money. Most importantly, the Government no longer has an incentive to inflate the money supply: they would not be able to spend it themselves and the people are fully compensated for inflation by the fact they spend the inflationary cash themselves.

Public Banking suggests an interest free credit money supply. So not the debt free Greenback.

Bill Still is probably the most famous ‘real’ Greenbacker. But I would only support him as the lesser evil, although it was his brilliant film “the Money Masters” that got me into this business.

Now, to the main issues.

Interest
Of course, the Daily Bell is right to say that people have a right to ask for interest, as much as they have a right to either accept interest on a loan they want. Nobody is suggesting we should outlaw it. The challenge for interest free currency is to make it superfluous. By providing interest free credit. Nobody will ‘choose’ to take out a loan with interest, if they can get one without.

The Daily Bell concludes: “And so we would ask, in closing this article, what does the issue of interest matter if one is determined as Mr. Migchels and Ms. Brown are to put the issuance of money in human hands? It is not interest that will prove the ultimate problem but the VOLUME and VALUE of money itself.”

This is the basic discussion. The volume is an issue. We agree that the Money Power uses the boom/bust cycle and inflation to rob the middle classes. The matter of volume not that of interest: the boom/bust cycle and inflation are results of manipulating the quantity of money. Interest is also a means to that end, but not the most important one.

The manipulation of the quantity of money must end. There are two ways of doing this and they should both be pursued. The first is, that the middle classes are wrong to hoard paper assets. They never should. Paper is a good means of exchange, but a very bad store of value. If the middle classes understood this, they would not be destroyed by inflation. The second path is more obvious: the manipulation of the volume of money must end. And yes, the free market is probably the best guarantor of that.

However, the idea that the volume of money is THE problem is completely wrong. If there is a THE problem, its interest, with the volume being a good second.

And real monetary reform, if it is to end the slavery to the Money Power, must solve both.

I comprehensively dealt with the interest issue here, here, and here. It is concise, but too long to repeat here.

The basic problem is, that interest is a wealth transfer from poor to rich.
The rich have money and lend it out to the poor, who pay interest to the richer classes.
The poorer you are, the greater the part of your income you lose to interest.

It transpires that the poorer 80% pay more interest than they receive. The middle classes are to a large extent compensated for their losses to the rich from what they receive from the poor. But the poor suffer horribly from interest: when you own zero net assets, you lose 45% of your income to interest. Because of capital costs included in prices. Just think about that, it’s huge. And invisible.
At this point 50% of Americans own zero net assets or less. Globally the situation is even worse, and interest truly is a Global phenomenon.

Only the richest 10% receive more interest than they pay.
But even they pay considerable amounts to the richest 1%. And even within the richest 1% the redistribution continues: the poorest 0.8% pay interest to the richest 0.1%.

This is what explains the incredible centralization of wealth at the top of the food chain. This is the interest drain.
And all this money over time inexorably ends up at the absolute top of the pyramid.

All this was established through research by Professor Margrit Kennedy, a leading interest free currency activist and intellectual leader of the German RegioGeld (Regional Currency) Movement. There are dozens of regional currencies in Germany, they have sprung up since the Euro was introduced. They all aim to reduce capital costs and capital scarcity.

The Problems of Gold in a Free Market

Because of the interest issue, it should be clear that Gold is absolutely unacceptable as a currency monopoly. If Gold is the only allowed means of exchange, interest free credit would be impossible.
The Daily Bell is not in favor of a Gold monopoly. Neither is Gary North.
The ‘Why Bankers Love Gold’ article was aimed against a Gold Monopoly and the Daily Bell recommends a free market for currencies, which they expect to be dominated by metal backed currencies. Of course, in practice it would all be paper, plastic, and bits and bytes. The question is, what is backing these tokens.

However, they are surprised by the notion that Gold would not hold up in a free market for currencies. In response to a comment by Memehunter, quoting my article on Gary North, they elaborate on why they think I might be wrong.

They suggest that Gresham’s Law does not apply: “As we pointed out before, this is a misconstruing of Gresham’s Law. Gresham’s Law only applies to tender manipulated via government compulsion: ” ‘When a government compulsorily overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.’ It is commonly stated as: “Bad money drives out good”, but is more accurately stated: “Bad money drives out good if their exchange rate is set by law.”

However, the source for this info is Wikipedia, and I don’t believe the Daily Bell will blame me for not accepting that as Canon Law.
It may be true that this was the situation at Gresham’s time, but it is clear that his observation is true always when different units circulate side by side and one of them is overvalued. Or losing value.

Its simple to establish. What will you pay with, if you have a choice: Federal Reserve Notes or your Gold Coins?
I think everybody knows the answer to this question.

But then the Daily Bell says it is not the payer who matters, but the seller, and he’ll prefer Gold:
” It is not a question of what people will prefer to PAY with. It is a question of what the SELLER DESIRES. Migchels would seem to have it reversed. If you want to make a purchase in a free-market economy, absent monetary coercion, you will need to accommodate the wishes of the seller. And we would argue that any seller would likely be more comfortable selling his goods or services for for notes that are backed by gold or silver rather than notes that are simply backed by the issuers stated willingness to pay. It seems like common sense to us.”

But is this really so? I’d suggest firms accepting only Gold would have a major problem in the face of competitors accepting both paper and Gold. The initiative is with the consumer and the firms accommodating them will prevail.

Let’s also keep in mind that very few people own Gold.

So the seller won’t be able to dictate the means of exchange. Only in the endgame of hyperinflating currencies could he plausibly not accept them.

Another crucial aspect to consider is the price of credit, interest. Clearly, if in a free market where Mutual Credit Facilities offer mortgages at 0% interest, it would be difficult both for Gold and Banking currencies.

Concluding

The goal of monetary reform, as I see it, is to free people and the commonwealth from the enslavement to the Money Power.

Interest is the biggest issue, followed by the boom/bust cycle. Both must be addressed to free people from economic slavery. And this slavery is real, as witnessed by the incredible fact that people who own nothing, which is the vast majority of the globe’s population, lose 45% of their disposable income to capital costs included in prices we pay for our daily needs. All this money is inevitably all sucked up by the absolute top of the pyramid.

It is because Public Banking and Social Credit profoundly dampen the interest drain to the Plutocracy that they are such important models, vastly superior to the current ways.

Even better is a combination with a free currency market. In it Gold will play a role as a store of value only. It will not finance many transactions and will therefore not be very important for the economy at large.

Update 1/1/2012: Go here to find out how it all ended.

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