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AGgressive Metal
Administrator
USA
1937 Posts |
 Posted - 04/23/2010 : 17:38:33
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An AGgressive Metal conceptual article based on FA Hayek's essay by the same name.
Dear Realcents;
As you know, we currently exist in a nation and a world where legal tender laws reign supreme. It is illegal for businesses to contract in gold. All taxes, fines, etc must be paid in FRNs. Businesses cannot turn away FRNs and only accept Euros or silver or whatever. These legal tender laws serve to prop up a currency by necessitating that everyone use it, thereby creating artificial demand for what would otherwise be finely ingraved, though largely worthless, paper.
Imagine, then, a world in which fiat currency remained, but there were no legal tender laws. Would chaos reign as you tried to find the right mix of Mexican Pesos and Brazilian Real to buy your Subway sandwich? I seriously doubt it, as in a truly free market, order is always maintained by the price system and good money drives out bad, not the other way around. More likely, it would be a situation like Medieval Europe, where there were not explicit legal tender laws, but for simplicity sake people generally used the coin of the realm - trading with money-changers when they moved to new jurisdictions. However, in the modern era of electronic global exchange, this would not be necessary, since you could have debit card accounts in multiple currencies which would all automatically convert to US dollars when you bought something at the store. Thus, all prices could be in USD and you could pay in USD, yet still have 3 or 4 or 50 different currencies in your account that you are drawing out of.
Now, you ask, what advantage is gained by owning more than one currency if it is still just fiat? I will tell you. If central banks are forced to compete, they will not inflate too much because if they do, people will simply use other currencies and thereby render that particular bank powerless; a central bank only has relevance for so long as people accept its paper promises. So a currency hierarchy would rise up based on reputation, governmental backing, gold reserves, interest rates, etc. This currently happens today in the forex trading markets, but not to the same degree that it would if everyone was involved. Also, rapid swings would be less likely, since there would be non-stop arbitrage taking place to set prices. But the greatest advantage would be the checking of inflation due to the presure such a system would put on central banks.
Also, what about taxes? Most likely the government would stick exclusively to US dollars, but even if you decided not to hold any, conversion would be very easy at tax time due to the well-developed electronic systems that would exist.
And of course in the absence of legal tender laws, everyone would be free to use gold, silver, copper, and privately issued currencies as well. Store credits, community tokens, merchant association credits, etc would all be negotiable as well. Organic trade and commerce would flurish and more local business would occur. Major banks would create hedged portfolios of currencies and metals that you could save/invest in if you didn't want to stay in 100% US dollars.
Think this sounds implausible? Well, politically it is at the moment, but legal tender laws are actually a modern invention with some exceptions (ancient China, for ex.). In the US colonies, private tokens, Spanish Reales, French Livre, Dutch shillings, British Pounds, State-issued pounds/dollars, bank tokens, merchant tokens, tobacco, and various other forms of money all circulated freely. My friend whose relatives were killed by Indians in the 1700s has a written inventory of the possessions they left behind which was recorded by the local militia - it included Spanish dollars, French Livre, and several others I can't remember.
So, is this just a theorhetical model that will never happen in real life again? Most likely we will not have full-blown "free-money", to use the term like FOFOA uses the term "free-gold" (see: FOFOA blog) anytime in the forseeable future. However, we can begin the process of erroding the private Federal Reserve's choke-hold on commerce inside the US by bartering using bullion coins, foreign coins, privately minted coins, and foreign currencies amongst ourselves. Everytime you buy something with silver or Euros or copper bars, you are cutting the government out of the process and making society more free. Now I am not saying to avoid taxes - there is a tax on almost everything these days - but it is a satisfying act of rebellion to buy, sell, or trade outside the Federal Reserve System. Some entities that push this concept too far recieve the wrath of the Federal government, specficially the Liberty Dollar. But there is no law against trading a stereo for a 20 Euro note, or a basket of corn for a silver dollar. Soooo, try it! The only thing you have to lose is your loyalty to a corrupt and disgusting fiat money monopoly!
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And he that hath lyberte ought to kepe hit wel / For nothyng is better than lyberte / For lyberte shold not be wel sold for alle the gold and syluer of all the world.
-Caxton's edition of Aesop's Fables, 1484 |
Edited by - AGgressive Metal on 04/23/2010 17:48:53 |
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rodebaugh
Penny Collector Member
USA
377 Posts |
Posted - 04/23/2010 : 23:09:09
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Nice read…. Good work.
I agree that a certain amount of opportunity and gain can be obtained trading outside of the normal comfort zone of the frn. The problem lies in the fact that both parties must be knowledgeable about the “deal” that is being constructed. I chance to say that this is often the deal breaker. Ex…is a mercury dime as valuable as a loaf of bread? Well that depends on the seller and the buyer and the bread for that matter. Is the bread whole wheat Heiners or bleached white Sunbeam? How hungry am I? How can you make that dime work for you? Just some thoughts.
Thanks for sharing,
Rodebaugh
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http://rodebaugh.ecrater.com/ |
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AGgressive Metal
Administrator
USA
1937 Posts |
Posted - 04/23/2010 : 23:33:20
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Thanks Rodebaugh,
For the time being, you can't pay your bills or do much of anything else unless you use the almighty Dollar. And even for personal transactions you are correct that there is both a knowledge and comfort barrier. I'm trying to break down the comfort barrier a little for people who already have some knowledge. If the USD ever hyper-inflates like some people predict, we may find ourselves giving our neighbors a crash course in 90% junk silver values and other "alternative payment options"! I am already educating my immediate family and circle of friends on how inflation errodes savings and why precious metals can help preserve their buying power. |
And he that hath lyberte ought to kepe hit wel / For nothyng is better than lyberte / For lyberte shold not be wel sold for alle the gold and syluer of all the world.
-Caxton's edition of Aesop's Fables, 1484 |
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jtm3
Penny Pincher Member
USA
187 Posts |
Posted - 04/24/2010 : 14:43:38
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I have one question.
If you were to trade a 90% silver quarter for a loaf of bread, Would that be tax free? It isn't really a sale, is it?
Also, do you know if that would need to be claimed as an income, eligible for taxation? |
Copper Cent Hoarding Wiki
coppercenthoarding.wikia.com
+637 posts |
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AGgressive Metal
Administrator
USA
1937 Posts |
Posted - 04/24/2010 : 16:02:33
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| From what I remember from law school, only "like kind exchange" are considered pure barter for tax purposes. For example, if you trade a silver eagle for a maple leaf, or a Honda for a Toyota, there is not tax. But if you trade a herd of cattle for a house, whoever gets the higher value in dollar terms has to report it as gains to the IRS (ex: silver quater worth $2.50, bread worth $1.50, seller of bread reports $1 in income). Don't quote me on this, its just what I recall from a income tax class two years ago. DYODD. |
And he that hath lyberte ought to kepe hit wel / For nothyng is better than lyberte / For lyberte shold not be wel sold for alle the gold and syluer of all the world.
-Caxton's edition of Aesop's Fables, 1484 |
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wheeler_dealer
Penny Collector Member
USA
402 Posts |
Posted - 04/27/2010 : 23:50:15
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| this concept offers excellent oportunities. Isn't a dime a dime for the purpose of a transaction. does that fact it is a 1942 dime make it worth more in an exchange of goods. If you paid your mechanic $5.00 in pre 1964 coinage for an hour labor and he agreed is that a problem as long as I paid tax on the $5.00 transaction is anyone not getting their fair share. I would willingly pay sales tax on the $5.00 transaction. post 1964 coins of course. |
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jadedragon
Administrator
Canada
3788 Posts |
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AGgressive Metal
Administrator
USA
1937 Posts |
Posted - 06/21/2010 : 03:30:32
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quote:
Originally posted by wheeler_dealer
this concept offers excellent oportunities. Isn't a dime a dime for the purpose of a transaction. does that fact it is a 1942 dime make it worth more in an exchange of goods. If you paid your mechanic $5.00 in pre 1964 coinage for an hour labor and he agreed is that a problem as long as I paid tax on the $5.00 transaction is anyone not getting their fair share. I would willingly pay sales tax on the $5.00 transaction. post 1964 coins of course.
It may be possible to beat sales tax in this manner, but I don't know if it is legal (probably not, since its too good to be true ). So far as federal taxes, if the mechanic was honest and reported the gains from the sale of the coins in the future when he converted them to FRNs he would get slaughtered because his basis in the coin would be FV, whereas for most people it would be somewhere between 3x and 12x FV. |
And he that hath lyberte ought to kepe hit wel / For nothyng is better than lyberte / For lyberte shold not be wel sold for alle the gold and syluer of all the world.
-Caxton's edition of Aesop's Fables, 1484 |
Edited by - AGgressive Metal on 06/21/2010 03:31:11 |
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Choice in Currency - A Way to Stop Inflation
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