Disturbingly, more of my political philosophies probably derive from Frank Herbert’s Dune series than the classes I took earning a degree in political science. One line I remember from the Dune was “Control the coinage and the courts, let the rabble have the rest.” It seems that Sen. Banks’ SB 99 might be straying from that aphorism.
Specifies that gold and silver coins issued by the United States government are legal tender in Indiana. Provides that a person may not compel another person to tender or accept gold or silver coins that are issued by the United States government, except as agreed upon by contract. Provides that the sale or other exchange of gold or silver coins issued by the United States government is exempt from state gross retail tax and use tax. Specifies that capital gains incurred on a sale or exchange of gold or silver coins issued by the United States government are not included in adjusted gross income for purposes of the state adjusted gross income tax.
But, I’m not sure if it does stray because I’m not sure what it’s actually intended to accomplish. It’s apparently a tea party initiative (see also) – and, my guess, it has something to do with Ron Paul’s distrust of the federal reserve system. I’m guessing the people who advertise silver and gold on AM radio stations also support such initiatives.
I don’t believe those are actually coinage minted by the government.
Gold and silver coins issued by the US Mint are sold for far above face value, which would create a whole set of different issues apart from the probable unconstitutionality of this bill.
Any person who understands economics knows that non-wasting commodity-based currencies are the only true money. Any person who understands contract knows that legal tender laws are a rights violation and a market distortion.
Political Science is an empirical subject. Government theory is taught down the hall in the Philosophy Department. The Economics folks also wade rather deeply into those waters.
Greg:
Do read the Constitution prior to commenting on it:
Art. 1, Sec 10:
***No State shall*** enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; ***make any Thing but gold and silver Coin a Tender in Payment of Debts***[END]; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
Money is an IDEA, anything that can be exchanged for another thing of perceived value is “money”. Money can be gold, silver, paper, electrons, or chickens.
A $10 face value gold coin is sold by the US Mint for about $1000. Would this bill discharge a debt of $10, or $1000, by tender of such a coin?
I wonder if these gold fetishists’s will exempt by capital gains from my gold ETFS from Indiana Capital Gains tax?
These laws are always worth a guffaw. Greg is right, money is a an agreed-upon concept, an efficient method for transfer of value.
Gold is a shibboleth, and a darned inconvienct one at that. Heavy, hard to transport and carry, and just waiting to be devalued by a stike anywhere in the world.
Actually, Planet Money did a great story about why gold is the only element worthy of being a currency: http://www.npr.org/blogs/money/2011/02/15/131430755/a-chemist-explains-why-gold-beat-out-lithium-osmium-einsteinium
Re: the bill, if I’m reading what you say correctly, it seems that it would be a HUGE boon for those in the Cash for Gold business, wouldn’t it? At that point it becomes a currency exchange. (though I’m assuming there are serious regulations re: currency exchanges too.)
The point of returning to a currency backed by specie is to limit inflation. We couldn’t fund the endless wars we engage in without printable money.
Greg- you are right about the concept of money as an idea. Our current money system is highly elastic, to accommodate this kind of spending, depreciating the value slowly over time in order to allow government to buy more and more. (In securities, this would be the Gould-Fisk scheme of ‘watering the stock’, illegal for anyone but government to undertake.) The idea of specie-backed money is that it is not elastic at the whim of lawmaker, but at the growth of productivity.
While the flow of gold can be interrupted by a strike, Carlito (damn unions, right?) the entire populace is robbed every day as inflation devalues the purchasing power of paper money. Given the choice between the two, I’d rather the gold.
I meant “strike’ as in a gold strike. Increase the supply of a commodity and what happens to its value?
I will take a rational decision based currency rather than one linked to a magic metal that has little industrial value.
Maybe an algorithm of available currency based on the number of known prime numbers. Currency would increase, in part, as a function of available computing power which would, in turn, be a proxy for the size of the overall economy.
I completely pulled this out of my ass, by the way. It might be based on something I read once, though.
You can call it the Masson-Moore’s Law.
The gold standard is one of those proffered “simple” solutions to a complex issue. Perhaps it is is a uniquely American belief that the more complex the problem, the simpler the solution should be.
I studied economics in the late 1970s era of massive cost-push inflation. There were at various times shortages of oil, sugar, and believe it or not, canning jar lids. (My grandma told me about this one.)
But then came Friedman and Monetarism and the idea began to catch hold that cost-push inflation cannot happen. All inflation is a monetary event, cause by monetary supplty adjustments. That sounded sensible for awhile. Over the long run, besides all of use being dead, manufacturers would create products that use less oil, consumhers would react with substitute goods and behavioral changes, the CPI would be tweaked to underreport inflation,more oil would be found and it would again be dawn in America.
This, by the way, will be how a chained CPI, proffered as a Social Security “fix,” will sort out. The chained CPI captures subsitutions and behavioral changes, and in the long run reflects the view that inflarion is a monetary event.
But if the prices of steak and butter keep rising, and people become vegetarian and buy margarine, the CPI still inflates. Over time, COLAs will lag CPI basket goods inflation, and rob purchasing power from beneficiaries.
But with the Great Recession of 2008, we were all Keynesians again.
All of the monetary events we generate with stimulus cannot get the inflation needle to move much.
You’re referring to Bitcoins, Doug.
Greg, you really need to read a great deal of economic theory before you comment. A coin could be stamped with a nominal value, poetry or dirty jokes. Such artwork is irrelevant to commerce. A coin’s value as currency is exclusively a function of its weight and fineness.
Mike, money is not an “idea.” Real money is tangible and is desired in and of itself, while it also solves the “coincidence of want” market problem.
To the extent the unit of exchange is valued in and of itself, I think it’s a bartered good more than it is money.
Then, goods are real, not “ideas.”
Right. And money is an idea. Not a tangible thing.
It’s like a book. A book is a tangible thing with some inherent value, but most of its value comes not from the paper but from the ideas for which the book is a vehicle.
You’re contradicting yourself. Start with an open mind. You’re coming at this discussion with a goal to preserve a social system and means of governance, so you’re making intellectual errors.
Also, folks, don’t ignore the obvious: In absence of legal tender laws, not one of us would accept a Fed Note for our labor or goods, though we might willingly try to pay with them.
Since all you extremist lefties ballyhoo so much over “choice,” why not let market participants choose what payment they want to accept for goods and services?
I don’t want money, I don’t want gold.
I need food, shelter, and security.
I want entertainment.
Legal tender laws or not, the goal is to get goods and services, not to get stacks of gold or money. They are a means, not an end.
The issue I have with gold is that it is more unstable than dollars.
Look at a graph that shows the value of gold compared to the value of dollars.
Yes, Jason that graph shows that people desire gold more than dollars. Now plot the value of gold against sugar, cocoa and wheat. You might not really understand what’s being discussed here, so I’ll spoon-feed this one to you: the price of everything floats. Your challenge as a fiat defender is to show how the price of sugar is more stable against dollars than against gold.
The gold standard is simply a terrible economic policy. It causes deflation, restricts growth, destabilizes the money supply, and doesn’t allow for market corrections. For a parallel, look no further than Greece. Greece has a problem because as its economy slowed, it was unable to let its currency float and devalue, lowering the cost of exports and recovering because it uses the Euro, an analogue gold standard in modern society. If an economy is on the gold standard, it’s currency does not float with economic performance, it floats with the demand an supply of an arbitrary commodity independent of the economy. Imagine China were to find a vein of gold ore. Suddenly, all our currency is worth less than what it was. Similarly, as gold is used in manufacturing, you are destroying the money supply, causing double damage.
If businesses want to only accept gold, I guess that is their prerogative, so long as it isn’t conducting interstate commerce. My guess is that business will not be brisk.
And good luck using any banking services with that gold. Better buy a strong safe, since you are going to be advertising the presence of a valuable commodity in your store. It is actually a perfect target: a material easily mutable into a new form that is completely untraceable hours after it is stolen.
One further thought on that – how is one supposed to authenticate any payments in gold coinage? THe reason nobody counterfeits coins today is that the hassle to payoff to quite high, it isn’t portable in quantity, and you need an tons of it (literally) to make any monetary volume. Gold coinage would be a different thing entirely. Small amounts, like 1oz would be worth upwards of $1,500. Quite an incentive to produce counterfeit coins. And change? Fifty bucks in change would be .03 ounces. How small is that? Silver doesn’t really help because it is like $25 an oz. Those coins would be huge!
Marc, real coinage can’t be counterfeited. A one ounce coin can be struck with absolutely anything, and it’s worth no more than any other ounce of the same metal.
Further, I don’t want my money to float. If you want your money to float, then have the decency to let those of us in the market choose what we want to accept as payment. If you’re so convinced of the superiority of your paper money, repeal legal tender laws, and let the market choose the winner.
BTW, lotsa laughs on the Euro equaling gold.
Coinage is easily counterfeited. Idnetical weight metal with a plating of real gold on top. As a business owner, good luck on detecting that.
I am interested in your LOLs on the Euro analogy. It is quite apt, given the circumstances. I am guessing you are unaware of the basic macroeconomic equation, but essentially you meed currency values to float to stablize poor economic output. Britain and the US entered the Great Depression at the same time. Britain came out ahead largely because of 2 factors: 1. not implementing an austerity program at the first sign of recovery and, 2. Getting off the gold standard so their money supply can move with economic activity.
There is a reason nary an economist from the Keynesians to the Chicago Schoolers (which is about the entire spectrum of capitalist economic schools of thought) have endorsed the gold standard: it is a bad idea that doesn’t work.
As I said before, if a business wants to only accept gold, fine. It is their choice. But no successful business would ever actually do that, as they are quite happy making things easaier for their customers, not harder.
Marc, your lack of metallurgical knowledge makes for some funny reading.
Thank you, Senator Banks! Thank you former KC Fed President Thomas Hoening and current Dallas Fed President Richard Fisher! Thank you James Grant and Simon Johnson! Thank you Marc Faber and Jim Rogers! Thankfully, there are wise and courageous voices of dissent to the ultimately disastrous consequences of money printing.
Ben Bernanke is nothing more than the second coming of Rudolf von Havenstein. His money printing has done nothing more than prop up an ever expanding, all powerful state that cannot control its spending at the expense of the poor, the middle class, and those living on a fixed income.
Politicians and politically motivated Fed Chairman will always choose what they perceive is the easiest, most politically expedient solution. When national debts cannot be repaid, they will print money. Our national debt is $17 trillion, but the net present value of all future liabilities (big entitlements) – revenues (The U.S. Fiscal Gap using CBO numbers) is $200 trillion and simply cannot be repaid. Inflating our debts away is a temporary solution that delays the day of reckoning, but the music will stop eventually and the U.S. will find itself without a chair. Bernanke is buying some time so the problem will land on some other sap’s watch.
Like the ants and the grasshoppers, one part of America sees a long winter ahead and does its best to prepare while the other parties on indulging its Keynesian fantasies. “The U.S. will never default – it can just print money!” (Alan Greenspan actually said this) “The dollar is the world’s reserve currency, that will never happen here!” “This time it’s different”
Precisely what ordinary Germans after WWI thought and their inheritance for monetary collapse was Hitler. Wake up, America!
SB 99 will allow for private transactions/contracts using gold and silver coins minted by the U.S. as legal tender. Utah has already passed a nearly identical law and article 1 section 10 of the Constitution clearly allows it. SB 99 grants the citizens of Indiana the freedom and flexibility to prepare for an inflationary shock or worse. Equally as important it focuses attention on the disastrous monetary policies of Mr. Bernanke, Ms. Yellen, Mr. Geithner et al.
The United States can pay its debts because they are backed by the full faith and credit of the US. This means assets of the US can be sold and taxes can be paid to pay them.
“Print money.” What a naive and simplisctic method to describe Fed adjustments to key financial descision making.
The “Gold Standard.” A discredited and comical whine to deflate and debase an existing and functioning money system.
The half-intelligent quoting the half-educated about a fully discredited monetary theology.
Like Marc suggests, one problem with gold is that its supply does not have any necessary correlation with economic activity. The point of money is for use as storage for value. I think of it as something like a battery. You want to trade value for money then, at a time of your choosing, be able to obtain goods and/or services of comparable value in return.
Instead of trying to work 10 minutes a week for the dairy farmer, two days a month for the car dealer, a week every month for the home builder, or whatever – you get money from the people who need your services and give it to the people from whom you need goods and services.
Money won’t be a good storage vehicle for value unless the money supply rises and falls in proportion to the overall level of economic activity. There is nothing about the gold supply that suggests it’s a good proxy for the overall level of economic activity.
This: “Like Marc suggests, one problem with gold is that its supply does not have any necessary correlation with economic activity. The point of money is for use as storage for value” is a contradiction and a non sequitur. Why should my amassed wealth be in any way impacted by economic activity occurring outside of it?
If the economy does fall apart, and if I have amassed my “store of value,” bully for me for my preparedness, no?
This: “Money won’t be a good storage vehicle for value unless the money supply rises and falls in proportion to the overall level of economic activity” is utterly unsupported balderdash proffered in absence of any requisite premises. You can’t simply toss out a bare conclusion to an argument and demand it be given any respect.
Freedom – you haven’t offered a single economic analysis of why gold works. As Bill Clinton said, “It takes some brass to accuse someone of something you did.”
I have offered the Euro example, we have talked about the Depression. You haven’t refuted either of these, nor have you constructed the most basic argument on how economies grow under a gold standard.
Just to add one more, under the gold standard, the business cycles and recessions happened at over 3x the rate they have occurred since its abandonment.
Q.E.D., Marc. Gold “works” because people want it. They want it, seek it, obtain it and use it, this very day, and it’s been made illegal as money.
Remove your legal tender laws, and who wants your paper? Your paper only has “worth” at the barrel of a gun.
I’m late to the party here, but I second everything Freedom has said.
“”The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default”
– Alan Greenspan, 8/7/2011
“But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
– Ben Bernanke, 11/21/2002
Gideon Gono and Rudolf von Havenstein must be smiling.
As for the rest of us, it that doesn’t scare the hell out of you I don’t know what will.
The United States can pay its debts because they are backed by the full faith and credit of the US. This means assets of the US can be sold and taxes can be paid to pay them.
Full faith and credit of the United States?!!
We’ll see what the bond market has to say about that. Not today, but you can rest assured the storm is coming.
It will start with California, Illinois, and New York, and pretty quickly the blue (grasshopper) state dominoes will start to fall.
Insolvency is the ultimate end game for the grasshopper state model of budget deficiits, oppressive taxation, and political payoffs to public sector unions.
The facts are self-evident. Compare the economies of:
1) California vs. Utah
2) Illinois vs. Indiana
3) Greece vs. Estonia
4) Portugal vs. Poland
I know which I would choose.
Yeah, interest rates are at record lows. The bond market is telling us there are no concerns with US credit. It has been telling us that for years. I have heard that crap about the “storm” for years.
Blue state dominos. The blue states are those that create wealth in this nation because of their superior educational systems and productive work forces.
We have budget deficits because Republican legislators refuse to adequately fund government. Period. At about 16% of GDP is too low of a tax burden to support our level of spending.