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Author Topic: shouldn't right-libertarians and market-deifiers support floating currencies?  (Read 531 times)
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Miamiu1027
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« on: February 16, 2012, 10:25:11 am »
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I'm usually not into trying to play gotcha! on individual points with right-wing ideology, as I find it generally to be a very vapid and bankrupt thing, but I found this point to be especially interesting?  isn't a hard currency or gold standard a violation of market principles?  why should investors be prohibited from valuing the money-commodity on its own merits, as is the case (or, it is argued, should be the case) with any other commodity?
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Beet
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« Reply #1 on: February 16, 2012, 01:27:30 pm »
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The ideal libertarian position would be to get rid of the concept of legal tender altogether. People could trade gold, but they would not be obliged to accept it as currency. Private banks could also issue their own currencies. For example, Citibank could issue the citibank note, which could be backed up by gold, silver, shares, or anything Citibank deemed to hold.

Eventually the banks would form a consortium so that Citibank would accept Wells Fargo's notes and vice-versa. For example, you have a Wells Fargo note and submit it to your Citibank teller, who gives you some silver in return. Citibank then takes that note to Wells Fargo, through a Clearing-House, and Wells Fargo pays Citibank some silver in exchange for the note. There would still be fractional reserve banking, so banks would be responsible for the creation of money in both senses (the monetary base, and the money multiplier).

Eventually (ironically), the Clearing-House would become like a privately controlled Central Bank, only it would be even less under the control of Congress than the Fed. Rather than be federally chartered and obliged to follow the goals of stable prices and maximum employment, the Clearing-House would operate like a Trade Association, with each major Bank having shares and a Seat on the Board. Collective actions would include processing transactions between banks (as above), providing liquidity in the case of crises, creating money (the Clearing-House would likely issue its own notes jointly backed by all members), and other functions currently done by the Fed.

This was the system on its way towards maturity during the National Banking Act era (1860-1913). Needless to say, I think it wouldn't work. For one thing, not having legal tender and having a plethora of different currencies would be too impracticable. And if the Clearing-House were to fail, it would almost certainly be bailed out. The idea of a consortium of private banks controlled the money supply and central bank functions doesn't sit well with me either.
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Gustaf
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« Reply #2 on: February 16, 2012, 02:42:06 pm »
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Essentially, fiat currency means that money derives its value from the legitimacy and the monopoly on violence of the state. Right-libertarians don't like the state, so they don't like this.

But the gold standard people is a complete loony fringe everywhere outside of the US. Mainstream free market proponents like myself support floating currencies.
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Ernest
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« Reply #3 on: February 16, 2012, 09:19:32 pm »
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Nah, the real loony fringe are the idiots who advocate a return to bimetallism.  A fixed ratio between any two commodities is not sustainable.

By comparison, the gold standard is completely sane, tho not something I would find desirable.
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« Reply #4 on: February 16, 2012, 09:53:34 pm »
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Yeah, I've often thought this too. If the price of dollars is fixed in gold, then the price of gold is also fixed in dollars. It's pretty odd to construe picking one metal and fixing its price by government fiat as a natural part of a rigid free-market ideology.

Wormyguy, to his credit, has been clear about this on the forum, and has advocated some sort of floating private-currency scheme along the lines of what Beet suggests, unlike the Paul people.
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Miamiu1027
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« Reply #5 on: February 17, 2012, 06:15:34 am »
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And if the Clearing-House were to fail, it would almost certainly be bailed out.

how could it be bailed out if the state could no longer print money?
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« Reply #6 on: February 17, 2012, 11:32:06 am »
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It would be limited, most likely to the government's stores of gold and, or silver, and or foreign reserves. So yes, the government itself could find its ability to bail out others inherently limited.

One question in this world is how the government would collect taxes. Even if it did not define legal tender, it would still have to define the forms in which it accepted tax payments, and whatever form this was, would be privileged. So most likely, the monetary system would still be anchored by gold (but not consisted of gold). I can't think of a libertarian answer to that one because taxes are inherently anti-libertarian.

An interesting point that Barry Eichengreen brings up about the end of the gold standard in Globalizing Capital is that the operation of the 19th-century gold standard depended on the absolute credibility of authorities to raise interest rates to defend the central bank's reserves in the event of a panic. But when the franchise continued to expand and then you had universal white manhood suffrage, it was no longer politically feasible due to the negative economic effects. Whereas in 1890, the Bank of England would have raised rates as high as necesary to stop any bleeding ('unemployment' was not even a word at the time), in 1931 it was no longer willing to lengthen the dole queues to defend the gold exchange standard. The 'markets' correctly anticipated this and the interest rate mechanism was even more ineffective. Thus to Eichengreen " 'was democracy wot did it."
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Beet
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« Reply #7 on: February 23, 2012, 05:37:20 am »
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There's a correction to what I wrote above- what I described is not just the National Bank Act era (which started in 1863/64) but a combination of the Free Banking era (1837-1863/64) and the National Bank Act era. The Clearing-Houses were more fully developed during the latter era, and I believe would have developed as I described it even without the National Bank Act, but the absence of legal tender was only a characteristic of the earlier era, and came to an end with the Civil War.
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« Reply #8 on: February 25, 2012, 03:06:02 pm »
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I'm usually not into trying to play gotcha! on individual points with right-wing ideology, as I find it generally to be a very vapid and bankrupt thing, but I found this point to be especially interesting?  isn't a hard currency or gold standard a violation of market principles?  why should investors be prohibited from valuing the money-commodity on its own merits, as is the case (or, it is argued, should be the case) with any other commodity?

One can have both a gold standard and floating currency exchange rates, assuming other currencies are not on the gold standard. If we revert to the gold standard, economic ups and downs will become more severe, since there will be fewer tools available to mitigate them.
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