email re dollars & gold

I received a long email recently from a member of the Free State Project complimenting me on my Gilligan article and asking my opinion of Liberty Dollars:

Re Gilligan:

That article was also the beginning of my education in economics, particularly how money works. I have purchased “Economics in One Lesson” by Hazlitt and “Economics for Real People” by Callahan. I have only skimmed Mr. Hazlitt’s book, since I didn’t find the “present a common fallacy and then debunk it” to be a good way for me to learn. Mr. Callahan’s book, which started with simple, hypothetical desert island examples, did better in helping me understand the evolution and functioning of money and economies in general.

I take special note of his preference for Callahan over Hazlitt since

1. I read Hazlitt before Callahan, and liked starting my economics education in that order, and
2. I recently expressed the opinion that debunking might be more important than teaching/learning the basics.

I take my correspondent’s point very seriously — and if his opinion sounds right to you, then you should definitely start with the Callahan before you move on to Hazlitt.

Re Liberty Dollars:

I first encountered the Liberty Dollar at the 2004 Porcupine Freedom Festival (the mascot for the Free State Project is the porcupine, and the project has a week-long party in New Hampshire once a year). I heard people stating that they didn’t see why they would pay $10 when the spot price was $6 or $7, or why anyone would accept it as $10 just because it has $10 stamped on it. I don’t remember Mr. NotHaus’ reply well enough to repeat it here, but it left me wondering. I checked out his website. The arguments against fiat money were easy enough to understand, and I started to think the markup was justified because he was doing the work of exchanging the paper notes for higher denomination notes if the price of silver went above a certain point. I think this was promoted as the mechanism by which your “money” kept its value, unlike inflationary U.S. currency. I couldn’t get over the idea, though, that SOMEONE was eating the difference between a coin that contained (supposedly) $7ish worth of silver plus some manufacturing costs and the $10 on the face. And, since his plan was to go to a $20 base once a 30-day average for silver hit $7.50, once that happened his markup would be even greater. $7.50+ in silver with $20 stamped on it clearly seemed wrong. I thought I read somewhere on the site that the reason for marking with Dollar denominations was supposedly to help people get used to thinking in terms of quantities of silver again. That sounded nice at first, but then the thought occurred to me that people might not actually associate the bills with a particular amount of silver. They would probably just assume the $10, $5, and $1 certificates were the same as US$10, US$5, and US$1.

[That's just an excerpt of the long email he sent.]

Here is my reply:

Mr. B?, thank you for the note and thank you for your comments on Gilligan. That was by far my most-read piece.

I’m going to post a couple of your comments to my blog (and thanks especially for the “Frank and Ernest” cartoon) [...]

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I appreciate your comments on Hazlitt and Callahan and plan to mention them in my blog. You may be interested in this new development:

http://www.mises.org/classroom/classroom.asp

Re Liberty Dollars: I’m definitely interested in strategy, but I don’t feel I have anything noteworthy to say on the subject. I recommend reading Murray Rothbard’s What Has Government Done to Our Money? — http://www.mises.org/money.asp — and also “The Case for a 100 Percent Gold Dollar” — http://www.mises.org/story/1829 — which are going to be published together soon: http://www.mises.org/story/1848

I don’t think it makes sense to call anything a “dollar” while people associate the word with Federal Reserve Notes. Rothbard believed that the word “dollar” was essential to a new gold standard, that the United States needed to in effect denationalize the dollar — liquidate government holdings, including all the confiscated gold, and define the dollar as that fraction of the American gold supply now available on the market.

I’m not as convinced that the word is so important. In fact, I’d like to see money expressed in explicit units of weight rather than in local synonyms. (A “dollar” used to mean an ounce of silver — but who knows that?) At the moment I put more faith in a future global free-market monetary system based on grams of gold, held in regularly audited gold warehouses. People would have to learn to think in terms of grams instead of dollars or pesos, but we’ve seen almost all of Europe do something similar recently with the transition to the euro, so I’m not as pessimistic as Rothbard was.

By the way, Joe Salerno, in his summer seminar at the Mises Institute, talks about strategies for returning to a commodity-metal standard:

http://mises.org/MultiMedia/mp3/Salerno/10.mp3

laissez faire,
bk
http://bkmarcus.com/blog/

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Followup from Mr. B?:

One of the links referenced your piece on “evil magicians”. I read that piece when you posted it, but at the time I didn’t follow the link to the article on “magic multipliers”. Coincidentally, just a couple of days ago “Frank and Ernest” touched on economics again, this time mentioning the multiplier effect:

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Perhaps in Mr. Thaves’ case, reading the Hazlitt book first WOULD be the better way to go. Or perhaps he should read Mr. Shostak’s article.