The Gold Standard Journal 11

8/11/2019 The Gold Standard Journal 11

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The Gold Standard

The Gold Standard Institute

Issue #11 15 November 2011 1

The Gold StandardThe journal of The Gold Standard Institute

Editor Philip BartonRegular contributors Rudy Fritsch

Thomas AllenLouis Boulanger

Occasional contributors PubliusJon RogersPhilip T


The purpose of the Institute is to promote anunadulterated Gold Standard

www.goldstandardinstitute.net

Patron Professor Antal E. FeketePresident Philip BartonPresidentEurope Thomas Bachheimer

Editor-in-Chief Rudy FritschSenior Research Fellow Sandeep Jaitly

Membership Levels

Annual Member 75 per yearLifetime Member 2,500Gold Member 25,000Gold Knight 250,000

Contents

Editorial ........................................................................... 1News ................................ ................................ ................. 2False Belief #10: Professor Feketes Work Is Futile3Report from Utah II ..................................................... . 5Infinite Money Part 2The Quality of Gold ........... 7The Golden Triangle; Economic Nirvana? ................ 7Is the Real Bills Doctrine Inherently Inflationary ... 10Debit Card Gold Dinar Payment System ................. 11

Editorial

I will be heading over to Auckland, New Zealand

toward the end of the month for Louis Boulangers

Gold Seminar. I look forward to catching up withsome of you there. It is a truly beautiful and unique

part of the world consider adding on another few

days to go exploring. It is a great event with great

speakers. Book now.

Let the Markets Decide

At The Gold Standard Institute we do not seek to

enforce the use of gold as money. We believe that

only a voluntary market should determine the money

that is in use and not as a concept that is binding onall. In each and every exchange between two or more

people there should be the same choice of the

exchange mechanism as there exists in the choosing

of the good. How can a market ever be considered

free if the one constant in all transactions is

enforced?

That said, history and logic strongly supports the

idea that the vast majority of people will choose gold

and silver. It is with that in mind that we seek to

educate people as to how a Gold Standard can beimplemented in such a way that it will work.

An absolutely vital component of a workable Gold

Standard is Real Bills that is why the market

originally introduced them. The free market does

not indulge in over-complexity. The Real Bills, once

understood are not only of undeniable benefit, they

are essential to the success of the Gold Standard. In

this issue of The Gold Standard, Rudy Fritsch

further explains Real Bills in The Golden Triangle.

We also have another article in the ongoing series onReal Bills by Thomas Allen.

It is always better to let the markets make the

decisions. We have surely seen enough of wise

academics sitting in ivory towers who believe that

they know better than market participants.

As the world now begins to again look at utilizing

the virtues of gold in the monetary system, it is

important that the subject of Real Bills share the

stage. If the world does adhere to the historicalnorm and again chooses gold and silver, then it will

also, again, choose Real Bills.
http://www.goldstandardinstitute.net/http://lbnow.co.nz/goldsymposium/http://lbnow.co.nz/goldsymposium/http://lbnow.co.nz/goldsymposium/http://www.goldstandardinstitute.net/


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News

See The Gold Standard Institutes Media webpage

for an introduction to a 9 part series by Keith

Weiner entitled Irredeemable Currency vs Gold

Mercatus Center at George Mason University: An

excellent study on the relative degrees of freedom in

the 50 US States. Though if monetary freedom were

a part of the survey then Utah would surely be

ranked higher than 20th.

Forbes on a Rasmussen poll: 44% of likely votersfavour returning to the gold standard, 28% opposed.

The Borneo Post: Mynet introduces worlds first

One World 10 Dirham.

BBC: Greek Referendum on EU bailout. In a

radical move which stunned and horrified other

governments and dismayed the markets, the

birthplace of democracy decided to consult the

people. This idea was quickly knocked on the head

as entirely inappropriate. Quite.

Lew Rockwell:Barter Society Emerges in Greece as

Crisis Deepens.

Reuters:"All our efforts aim at safeguarding our country's

interests, the interest of the vast majority of citizens who would

experience a real catastrophe if Greece defaulted" Prime

Minister of Greece George Papandreou (just like

Iceland didnt).

Thomas Bachheimer, President of The Gold

Standard Institute in Europe, was in attendance at

the Mncher Edelmetallmesse. He did some greatinterviews which will hopefully be translated soon.

ABC News Australia: Perth Mint unveils world's

biggest gold coin. Not for circulation.

Zero Hedge:For my money, though, I think there are atleast two reasons why it would be foolish simply to deride or

ignore Gata Gillian Tett, US Managing Editor,

Financial Times.

Yahoo News:Man jailed after trying to turn faeces

into gold.

IB Times: Return to Gold Standard GainingTraction with Presidential Candidates.

Business Insider:Gold Is In A Bubble That Is Going

To Burst James Altucher (There has been a rise in

the number of silly articles this month for some

reason)

Nick Barisheff: It (gold) will continue to be subjected to the

most aggressive perception management assault of any asset

class, because it is a direct challenge to all the worlds fiat

currencies.October 2011

CNN:Pundit points out that you cannot eat gold.

Bloomberg: Colombian rebels moving into goldinstead of drugs.

A French supporter of The Gold Standard Institute

organized a meeting between Ron Paul and Marine

Le Pen, leader of the French party Front National.

They met on the 2nd of November 2011 in

Congressman Pauls office at the Cannon building in

Washington DC.

Both are running for the 2012 presidential election;

one in the US and one in France, and both are
http://www.goldstandardinstitute.net/media/http://www.goldstandardinstitute.net/media/http://mercatus.org/freedom-50-states-2011http://mercatus.org/freedom-50-states-2011http://www.forbes.com/sites/ralphbenko/2011/10/31/october-surprise-can-gold-be-the-panama-canal-treaty-of-2012/http://www.forbes.com/sites/ralphbenko/2011/10/31/october-surprise-can-gold-be-the-panama-canal-treaty-of-2012/http://www.theborneopost.com/2011/11/03/mynet-introduces-world%e2%80%99s-first-one-world-10-dirham/#ixzz1cfcPfbbuhttp://www.theborneopost.com/2011/11/03/mynet-introduces-world%e2%80%99s-first-one-world-10-dirham/#ixzz1cfcPfbbuhttp://www.bbc.co.uk/news/world-europe-15549352http://www.bbc.co.uk/news/world-europe-15549352http://lewrockwell.com/slavo/slavo70.1.htmlhttp://lewrockwell.com/slavo/slavo70.1.htmlhttp://www.reuters.com/article/2011/10/15/us-greece-pm-idUSTRE79E2A720111015http://www.reuters.com/article/2011/10/15/us-greece-pm-idUSTRE79E2A720111015http://www.abc.net.au/news/2011-10-27/one-tonne-coin/3604466http://www.abc.net.au/news/2011-10-27/one-tonne-coin/3604466http://www.zerohedge.com/news/fts-tett-says-foolish-simply-deride-or-ignore-gata-gata-debates-cpm-re-silverhttp://www.zerohedge.com/news/fts-tett-says-foolish-simply-deride-or-ignore-gata-gata-debates-cpm-re-silverhttp://au.news.yahoo.com/a/-/latest/10649730/man-jailed-after-trying-to-turn-faeces-into-gold/http://au.news.yahoo.com/a/-/latest/10649730/man-jailed-after-trying-to-turn-faeces-into-gold/http://www.ibtimes.com/articles/234990/20111020/return-to-gold-standard-gaining-traction-with-presidential-candidates.htmhttp://www.ibtimes.com/articles/234990/20111020/return-to-gold-standard-gaining-traction-with-presidential-candidates.htmhttp://www.businessinsider.com/reasons-why-the-gold-bubble-will-burst-2010-10#ixzz1b5QdW2wuhttp://www.businessinsider.com/reasons-why-the-gold-bubble-will-burst-2010-10#ixzz1b5QdW2wuhttp://www.youtube.com/watch?v=yw-bRlSjvV0&feature=relatedhttp://www.youtube.com/watch?v=yw-bRlSjvV0&feature=relatedhttp://mobile.bloomberg.com/news/2011-10-12/gold-eclipses-cocaine-as-rebels-tap-mining-wealth-in-colombia.htmlhttp://mobile.bloomberg.com/news/2011-10-12/gold-eclipses-cocaine-as-rebels-tap-mining-wealth-in-colombia.htmlhttp://mobile.bloomberg.com/news/2011-10-12/gold-eclipses-cocaine-as-rebels-tap-mining-wealth-in-colombia.htmlhttp://www.youtube.com/watch?v=yw-bRlSjvV0&feature=relatedhttp://www.businessinsider.com/reasons-why-the-gold-bubble-will-burst-2010-10#ixzz1b5QdW2wuhttp://www.ibtimes.com/articles/234990/20111020/return-to-gold-standard-gaining-traction-with-presidential-candidates.htmhttp://au.news.yahoo.com/a/-/latest/10649730/man-jailed-after-trying-to-turn-faeces-into-gold/http://www.zerohedge.com/news/fts-tett-says-foolish-simply-deride-or-ignore-gata-gata-debates-cpm-re-silverhttp://www.abc.net.au/news/2011-10-27/one-tonne-coin/3604466http://www.reuters.com/article/2011/10/15/us-greece-pm-idUSTRE79E2A720111015http://lewrockwell.com/slavo/slavo70.1.htmlhttp://www.bbc.co.uk/news/world-europe-15549352http://www.theborneopost.com/2011/11/03/mynet-introduces-world%e2%80%99s-first-one-world-10-dirham/#ixzz1cfcPfbbuhttp://www.forbes.com/sites/ralphbenko/2011/10/31/october-surprise-can-gold-be-the-panama-canal-treaty-of-2012/http://mercatus.org/freedom-50-states-2011http://www.goldstandardinstitute.net/media/


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The Gold Standard



among the very few who are well known for

advocating a return to the gold standard in order to

fix the international monetary system.

Marine Le Pen said: Ron Paul is a visionary when it

comes to the gold standard and we are visionary as well as wepredicted the unfolding European crisis. Ron Paul stated

that the gold standard is a crucial part of the future

international monetary system.

False Belief #10: Professor Feketes

Work Is Futile

The cyclical nature of thephysical and biological universe has

prompted acting man to hoard the means of sustenance since

time immemorial. As shown in the Genesis through theexample of Joseph (41:34-36), hoarding is necessary during

the seven fat years in order to provide the wherewithal through

dishoarding in the seven lean years that are inevitably to

follow. Today it is customary to ridicule the innate hoarding

instinct of man as primitive and atavistic, pointing out that

savings and investments denominated in irredeemable

currencies are far superior, and can be used for the same

purpose with good effect. However, man can ignore the Biblical

admonition only at his own peril.

~ Professor Antal E. Fekete, in the Introduction to his Book

One: Credit Arising Out of Savings

When Philip Barton asked me late last year to write a

regular column for the Journal of the Gold Standard

Institute, which he was then planning to launch, I

felt honoured and wanted to rise to the occasion.

The mission that Philip and others have set for the

GSI is quite ambitious, but it is also a very noble

one. So, inspired by Philips dedication to what truly

matters, I took up the challenge and decided to write

about false beliefs. This is part of what I wrote for

the first issue of the Journal:

Sadly, ignorance can actually operate quite

powerfully under the guise of education. Our

ignorance can even get stronger with ever more

institutionalised education. This sad state of

affairs ensures our servitude to a system which

places debt at the very centre. Debt passes for

money now and so, debts are the shackles of our

slavery today. But true knowledge can set us freefrom this delusion.

This self-perpetuating and unnatural social,

economic and political system will be very hard

for us to challenge. But challenge it, we must.

Indeed, the Gold Standard Institute has set itself

a formidable task: to educate the world about the

true role of gold and disseminate the virtues of

the Gold Standard so that they become widely

understood and appreciated and never again

forgotten.

My personal contribution to this noble task will

be to write about prevailing and pervasive false

beliefs in the monetary realm. I will tackle some

of what I consider to be todays quiet, yet

harmful, assumptions that continue to be made

even by those who should know better;assumptions that effectively block the road to

humanitys natural progress and keep us on the

road to serfdom.

I will attempt to trace some of the errors into

which these assumptions have led us when it

comes to financial decisions. But I will also

endeavour to ascertain how many advantages we

could all now enjoy if these conceited false beliefs

about money matters were shattered once and for

all...

Well, we have so far in these pages touched briefly

on nine such false beliefs and now its time for me to

write about false belief number ten. I consider this

one to be a reflection of what is, to my mind, the

most important of all false beliefs that prevail today

in the insane world of finance and economics: false

education.

So, lets quickly remind ourselves what those first

nine false beliefs were:

1. Money Is Wealth

2. Risk-Free Investments

3. There Is a Debt Ceiling

4. Currencies Are Money

5. Deficits Dont Matter

6. Yes We Can... Ignore Reality

7. Gold Ceased To Be Money 40 Years Ago

8. GATA Is Irrelevant

9. Economics Is a Science

With a list like that, is it any wonder then that it is so

difficult to get peoples undivided attention when


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attempting to educate them about the true nature of

the ongoing global crisis, the human tragedy

currently unfolding on an epic scale? One man has

been unrelenting in his effort to do so, despite all the

blocks put on his path, despite the lack of funding

for much needed advocacy of a return to sound

money and despite his work having been rejected

many times for publication in so-called reputable

journals.

That man is Professor Antal E. Fekete, a man of

incomparable integrity. In his unflagging dedication

to truly educate, he never compromised or wavered

under pressure. Singlehandedly, he amassed a wealth

of knowledge on the subject of sound money and

has always, generously and spontaneously, made thatknowledge freely available to all. Nobody elses

work today, especially in the sphere of monetary

economics, comes even close as far as I am aware.

Yet, still too few know of his work.

To my mind, this is equivalent to Michelangelo

painting the Sistine Chapel, if hardly anyone had

known about it as the work was being executed.

Today, that ceiling is arguably one of the most talked

about ceilings in the world (rivalled, perhaps, only by

the so-called debt ceiling of the US federalgovernment...). But, back when it was being created,

even Michelangelo had his enemies to contend with.

Nevertheless, he tenaciously kept at it and ended up

creating a masterpiece.

It is truly astonishing that the body of work of a

single man should have such a lasting impact on

humanity. Yet, I doubt very much that is what

motivated the artist in Michelangelo. The same goes

for the educator in Professor Fekete: he is driven

only by his intellect and his humanity. The pursuit

of knowledge in itself is not enough for him; it must

be shared and continuously questioned, if we are to

progress and prosper as free human beings.

Professor Fekete is fearless in the face of criticism.

He dares to question what others accept as being

final and he expects no less from all of us who read

him and study his work. Time and again he will

come out with a new theory that forces us to

question the prevailing dogma in the monetary

realm. What courage he has, to proceed as he still

does with no fear of the consequences. His interest

lies only in advancing our understanding of human

economic action. There is not a Nobel Prize in

sight, but the road he travels is a noble one indeed.

Let me conclude this piece with an example of what

I mean. Last August, I attended in Munich the

Professors third course of his New Austrian Schoolof Economics. He began the course by giving an

impromptu talk about the present situation in the

world, why it is so confusing to so many and why

that was not a coincidence. Part of the reasons why

that is the case, has to do with our education or lack

thereof, as only certain theories are acceptable for

teaching in schools today.

He even argued that Carl Mengers ideas were

incomplete and that a theory of interest was what is

missing from Mengers extensive and important

body of work. He believes that Mengers theory on

the origins of money (which, incidentally, is still the

best theory on that subject) was incomplete and that

it needed to be complemented with a Mengerian

theory on the origins of interest. So he has taken the

challenge to develop that theory himself and, I must

say, it is quite compelling.

As an actuary, who was trained to believe that the

authority on this matter was Stephen G. Kellison,who authored a book titled The Theory of Interest

in 1970, the Professor had yet again pushed me

outside my zone of comfort, only to find myself

again in that place one now recognises as being one

of the essence of knowledge. You see, his theory

was not just about mathematical formulas, even

though he is a mathematician. No, he began

developing his theory by taking a close and objective

look at the nature of our actual human interactions

throughout history with this concept of interest.

These careful observations and his deep thinking on

the subject matter have led him to conclude, among

other things, that the principle cause of interest

appearing in our human affairs is the fact that... we

age! Therefore, we must somehow convert income

into wealth and then wealth into income. Just as

direct exchanges in more primitive economic times

were turned into more efficient indirect exchanges

with the origins of money, so did humans evolve to

discover interest.

But the story of interest has dark chapters as well

and yes, religious beliefs come into play. Usury laws,


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for instance, played an important role in the

evolution of interest. Today, as we live an era of

seemingly endless zero rates, the Professor says: that

means that we are making the exchange of income and wealth

without any premium accruing to the fellow doing the lending;

so the other party is not interested and instead goes back to the

atavistic or direct exchange available: hoarding!

So, if you fear being uncomfortable about how the

world is currently governed, dont be; for that feeling

is simply a misinterpreted call to action by your true

self. You know that something is profoundly wrong

in the world today and Professor Feketes work

makes it clear that the cause is, quite simply,

unsound money. But society today does not even

know what money is... So, rise to the challenge, dareto question authorities about their monetary system

and hoard gold!

It is no measure of health to bewell adjusted to a profoundly

sick society. ~ Jiddu Krishnamurti (1895 1986)

Louis Boulanger

Louis holds a B.Sc. from Laval University in Canada; is a Fellow

of the Canadian Institute of Actuaries and the New Zealand

Society of Actuaries; and is a Chartered Financial Analyst.

Prior to coming to New Zealand in 1986, Louis worked for nine

years with a global consulting firm based in Montreal, Canada.

In New Zealand, Louis worked for another global consulting

firm for 18 years, including as Chief Executive of New Zealand

operations for five years. In 2006, he launched his private

practice.

Louis is also Founder & Director of LB Now Ltd, which

provides independent investment advice to private and

institutional clients, facilitates the purchase of bullion for private

and institutional clients as an authorized dealer for BMG

BullionBars and also helps firms comply with GIPS.

For more information of LB Now's services or to subscribed to

Louis' e-letter Prosper! see the contact details below.

P.O. Box 25 676, St Heliers, Auckland 1740, New ZealandPh: +64 9 528 3586 Mob: +64 275 665 095Email:[email protected] www.lbnow.co.nz

Report from Utah II

Last month I gave an overview of the events and

implications of the recent Sound Money conference

in Utah. Some related issues deserve furtherexamination, as they bear directly on the fight against

the banking system.

One speaker made reference to the Committees of

Correspondence that had existed prior to the

American Revolution. In an age long before the

telegraph, let alone the internet, the thirteen colonies

were each being oppressed in various ways by

England. Before they could determine whether and

how to organize and resist, the colonies had to

compare notes.

This task was delegated to a few men from each

colony, who wrote letters to their contacts in the

other 12 colonies. Thus, everyone was kept informed

of the latest assorted steps the King had been taking

to reduce colonists freedoms anywhere in America.

Mail travelled at the speed of a horse, but some

comprehensive co-ordination was possible.

The biggest barrier in our day is no longer the speed

of communication, but the deluge of irrelevantinformation through which a signal must be heard.

And the oppression we face comes not from a King

in England, but an Aristocracy in Washington D.C.

(taking its orders from an Oligarchy in New York).

Yet the US Constitution foresaw both problems. It

tells us what to do, and it does so very clearly.

Under the Constitution, the individual states were

expected to counter-balance the power of the central

government. The states varied interests could

naturally act as a check on any growth of the limitedpowers granted to the national level. But slowly,

over 200 years, by means of divide and conquer

tactics, public inertia, subterfuge, and under cover of

various national emergencies, the states influence

has effectively been reduced. Not formally though,

according to the highest law of the landand herein

lies the potential for a proper rebalancing of political

power.

Today, the President and the vast majority of

Congress has little interest in returning to a strict

reading of the Constitution. But the states can still

force the direction of events. Morality and
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legitimacy remain powerful forces at the disposal of

those seeking to protect individual rights. If enough

states follow Utahs lead in re-affirming gold and

silver as money, it might also bring the debate

properly into the public consciousness.

One critical part of the new Utah law is the

cancellation of state capital gains taxes that would

otherwise be triggered on the disposition of metal at

the time it was used as money. This is a first step in

the removal of a huge disincentive for gold owners

moving bullion out of hiding and back into

circulation. Anyone trading their metal for real

estate during uncertain economic times would be

worried enough. Buildings make easy targets for

renewed government confiscation.

If governments are to regain citizens trust, removal

of capital gains taxes on conversion of bullion into

circulating currency is a good start. Even better

would be to simultaneously open the mint to

unlimited free coinage of the metals, as Professor

Fekete has described and recommended.

The removal of these state taxes puts Utah on a

potential collision course with the federal

government. Dr. Edwin Vieira, Jr., in hiscomprehensive and excellent analysis of the topic,

points out Utahs strong case if it chooses to legally

challenge the remaining federal taxes on metals sales.

If all forms of US currency are required by law to be

equal, then how can a one ounce gold coin marked

$50 by the US Mint possibly be worth more than a

$50 Federal Reserve Note? And happily, this need

not be a case that takes ten years to get to the

Supreme Court. States have the right to proceed

directly to the Supreme Court as their initial trial

venue.

Now I can imagine some readers thinking this all

academic. That the power of the numerous federal

police forces, backed by the US military, will ensure

taxes never stop flowing, and gold never circulates,

regardless of a court decision. But Dr. Vieira has

covered this aspect of the Constitution thoroughly as

well. We may feel like the colonists of 1770,

oppressed by an impossibly dominant ruling elite.

But the same solution the revolutionaries

successfully used, and then put into law, still stands

ready to help us today if needed.

I am referring to the state-sponsored militia. Many

people never consider the meaning of the first half

of the Second Amendment. A well regulated Militia,

being necessary to the security of a free State, the right of the

people to keep and bear Arms, shall not be infringed. Who

was in the militia? Everyone! In those days, every

able-bodied adult male was required (with his states

assistance, if necessary) to keep a modern military

rifle and ammunition in his home, and to muster

periodically to prove the readiness of the weapon.

Shirkers were fined.

This, thought the founding fathers, was the ultimate

check against the return of a tyrant. Let the people

be so universally armed that the would-be dictator

would find it an impossible task to send an army,whether home-grown or using foreign mercenaries,

to subdue the population. It had certainly worked

with King George III.

The tradition gradually faded since the 1700s, but

states can still legally bring it back. The militia forces

were intended to be under local state control. At the

conference I met a gentleman from Texas, whose

government is also considering adopting Utahs gold

and silver laws. He told me about the rapidly

expanding, well armed neighborhood watchprograms in his area. A militia by another name.

If only 10% of the population of even a small state

were so armed and organized today, can anyone

imagine squads of ATF storm troopers, or even

entire Marine battalions, attempting to impose

martial law there? Leaving aside the practical

problems of hunting down and disarming a guerilla

band several times its size, the damage to the morale

of a federal force so tasked might be so crippling as

to require, once again, the importing of foreign

mercenaries.

Would the federal government ever dare use nuclear

or biological weapons against its own citizens?

While that is not entirely a rhetorical question, I am

still confident the answer is no. I doubt there would

be any bloodshed, because the ultimate victory of the

free citizens would be so predictable to everyone

involved. Tyrants have their limits when enough of

their intended slaves can defend themselves.

Publius


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Infinite Money Part 2The Quality

of Gold

Gold has the highest utility of any commodity, or

more accurately, a near constantmarginal utility, forevery extra ounce of gold in your possession is as

useful to you as your first, no matter how many

ounces you have.

But what gives gold this utility and so value1,

compared to other commodities? The reason is that

gold is money and the demand for money is, for

practical purposes, infinite. The bid for gold in an

endless array of goods produced by human effort,

which is everything a human could ever need or

want, is endless. You cannot possibly have in your

possession too much gold. The utility of gold is to

extinguish all debt.

But why gold as money? Why is, say, wheat, a useful

commodity to be sure2, not money?

For starters, it is not impossible that wheat have a

degree of 'moneyness'. I may for example agree to a

days work on your wheat farm for a number of bags

of wheat. In this case, I've been paid in wheat for my

labour. That still doesn't mean wheat is moneythough, for money is what extinguishes all debt, not

just your debt to me for my labour.

What makes gold the 'moniest' of all, able to

extinguish all debt, is a physical property unlike any

other - it is an inert metal3. It can be refined & once

cast, its quality is unaltering. It can be said that

gold is forever, that gold is constant. To extinguish

alldebt, means to extinguish debt not just now, or

tomorrow but forever.

Of all the goods produced by human effort, only

gold with its unique unfaltering quality can

extinguish all debt, only gold can have an endless

bid. All other goods suffer from declining quality

over time, they have a declining marginal utility,

since the bid for goods that spoil or otherwise

deteriorate cannot be endless. Some decline fast,

some slow but none other than gold can be money4.

Notes:

1. Value is subjective, you value something because of its utility,

its usefulness, to you. There is no such thing as intrinsic value.

2. One of the staples of human existence.

3. Outside of a chemistry lab.

4. Including the obligations of government, not that you would

know it as an observer, or even participant in the 'money'

markets. At best they can be 'money good', at worst, worthless.

Jon Rogers

The Golden Triangle; Economic

Nirvana?

My last article, Golden Foot in the Door, suggested

that if Gold coins and Gold bonds are in circulation,

we are but one step away from Economic Nirvana;

the Unadulterated Gold Standard as the foundation

of the world economy. Of course, the first two steps

are not guaranteed; but if the new Gold Swiss Franc

is adopted, and Gold Bonds are issued based onSovereign Gold income, the third step to Nirvana is

in reach.

So why is an Unadulterated Gold Standard

Nirvana? Simply because all the abuses of the

irredeemable paper money system are erased under

the Unadulterated Gold Standard. This includes the

original error or was it original sin whereby

property rights to Money were curtailed by an early

English law precedent. Set in the seventeenth

century, around the same time the bank of England

was chartered (big coincidence!) the ownership of

money deposited in a bank demand deposit account

was legally ceded to the bank.

The triangle analogy kicks in as the triangle is the

most stable structural element; a three legged stool is

stable and does not rock or exhibit partial instability

on uneven ground. If you add a fourth leg, it will

become less stable. Of course, if you chop off one

leg and try to make a two legged stool, stability willbe lost in one plane to say nothing of chopping

off two legs.

The monetary system in use today has only ONE

leg! Talk about unstable, and talk about eternally

ongoing, futile efforts to keep the balance of this

poor damaged stool; constant manipulation of

money supply (printing), interest rate twists, bail

outs, credit default insurance, etc. etc ad

infinitum. By contrast, a three legged stool is

inherently stable; as is the unadulterated GoldStandard, the three legged stool of economics.


8/12

The Gold Standard



The one leg our monetary system rests on is the

canard called debt money. In fact, even central

bankers do not seem to know what money is; is it

MZM, or M1, or M2, maybe M3? Mr. Bernanke

does not even admit that Gold is money he calls it

an asset. The truth of course is far simpler than he

or his ilk make it out to be; Debt (or its flip side

credit) is the exchange of a present good for a future

good and Money is that which extinguishes all

debt (or credit) period.

Truly it is a simple as this; money, that is Gold or

Silver, is an item of positive value, a present good,

which extinguishes all debt. Debt money is

impossible How could Debt possibly extinguish

itself? A thing is either a debt note; a promise, afuture good, two birds in the bush or the thing is a

present good; Real money, a bird in the hand,

something of positive value. There are no other

possibilities; the concept of debt money is just that,

a concept a nonsense concept that does not,

cannot exist in reality... only in the fervid brains of

Keynesian economists.

By clearly separating money and debt, we re-establish

a two legged stool; a big step in the right direction,

but still not quite there; we may have our Gold coinIn circulation, real money, a present good item of

positive value, and a Gold Bond, representing debt,

that is future goods or promises of delivery of a

present good in the future but the third leg is still

missing.

The way to re-establish the third leg is a bit more

obscure, and hidden farther in the mists of time;

after all, it was only about 41 years ago that money

was finally removed from the system, and replaced

by pure debt under President Nixons default of

the US international Gold obligations; the notorious

closing of the gold window. The third leg of the

Classical Gold Standard was amputated just before

WWI.

If you study history, the answer is easy enough to

find; Adam Smith wrote about this many years

ago that is why this third leg is called The Real

Bills Doctrine of Adam Smith but the concept

can be understood right here right now. All we have

to do is look more closely at Debtand we will see

that there are in fact two distinct facets of debt;

mixing up these two facets is just as deadly as

confusing money with debt. The classical Gold

Standard failed and Great Britain went off Gold

after WWI mainly because of the failure to

differentiate between the two facets of debt.

Close examination of credit shows that there are twoaspects; there is credit applied towards fixed capital;

for example machinery, farm land, orchards, oil

wells, transportation equipment etc. There is also

credit applied towards rapidly moving consumer

goods in urgent demand; manufactured products,

food stuffs, fuel, in fact anything that will be sold to

the ultimate consumer in 91 days (one quarter of the

year) or less.

Credit for financing long term fixed capital items

comes from savings. The quintessential market for

long term financing is the bond market. We are all

pretty familiar with debt based on borrowing; the

way the bond market works. The bond market is

controlled by interest rates, and supported by

collateral bonded debt, is NOT self-liquidating.

This is a very important concept, and often

misunderstood.

Consumer debt (borrowing) is clearly not self-

liquidating, as the borrower will need to earn moneyto repay the debt. Commercial debt for capital

investment is not self-liquidating either. This is not

quite as obvious as in case of consumer borrowing,

but is true nonetheless; money borrowed for the

purchase of a machine for example will not be self-

liquidating; the machine may earn enough money to

repay the debt, but this is not certain; that is why

borrowing demands collateral. If the machine does

not make sufficient profit, the borrower will have to

find another way to pay the debt; just like the

consumer. If the borrower cannot pay, the collateral

will cover any losses to the lender.

By contrast, Real Bills represent a form of self-

liquidating credit quite distinct from borrowing. In

fact, it is not fully correct to call this credit, as the

word can be confusing. Better to call it clearing, or

simply terms. In a commercial transaction, very few

payments are COD; terms are part of virtually all

sales. Only the poorest credit risk firms will have to

pay COD; all with reasonable credit ratings will get

30 or 60 or 90 days net; terms that imply credit.


9/12

The Gold Standard



Bills or invoices drawn against sales of consumer

goods in urgent demand are the fuel of the Real

Bills Doctrine. Bills drawn on items in urgent

demand will spontaneously go into circulation; other

bills will not. Bills are self-liquidating; the upcoming

sale to the consumer of the very item the bill is

drawn against assures payment. No need for profit

or earnings; the very fact that Bills are only drawn

against urgently needed goods is enough to assure

payment and self-liquidation.

Real Bills drawn on real goods on their way to the

ultimate consumer do circulate, thereby assuming a

temporary but vital monetary role; they finance or

fund the production of much needed consumer

goods Real Bills entail no borrowing, no collateral,no payment stream, and NO interest rate. Instead,

Real Bills are discounted; that is, they are paid in full

on maturity, but trade at a discount that decreases

linearly from the date of drawing to the date of

maturity. Real Bills are the least expensive thus most

efficient way to fund the production of consumer

goods.

Most importantly, since bills are drawn on consumer

goods, the funding for Bills relies on consumers

propensity to spend; by contrast, interest rates onborrowing are driven by the propensity to save.

There is no link between the two forces. Anyone

with Gold earnings has three choices; hoard the

Gold as it is constantly, gently appreciating in

purchasing power. Spend Gold on needed consumer

goods, thus giving rise to new Real Bills or save

the Gold, that is put it to work, if the interest rate

being offered is sufficient to overcome the instinct

to hoard.

There are the three legs of our Golden Stool; leg one

is Money; fixed quantity, hard, stable, 80 plus years

of mine supply on hand and slowly appreciating as

the economy grows ever more efficient. Leg two is

the Gold Bond; sure returns, long term, a vehicle for

savings suitable even for orphans and widows; bonds

for saving, NOT for speculation. Leg three is the

Real Bill; flexible, responsive to consumer demands,

liquid enough to back Bank Demand Notes if such

notes are in circulation, limited by physical

constrains of the real economy.

This is the ideal, the Unadulterated Gold Standard;

the Golden Triangle. Gold (and Silver) as Money,

Bonds and Bills as the two other legs. So stable is

such a system, that historically it survived for

centuries and even survived the artificial

Government sponsored demonetization of Silver in

1873 a loss of about of total money in

circulation!

But what of the panics and such, the so called

business cycle that seemed to plague the Classical

Gold Standard? The cause of these effects is easy to

discern; there was a fourth, artificially attached limb

that allowed indeed forced these cyclical instabilities

to arise; this leg is called the Fiduciary Component.

Fiduciary means trust, or promise. This component

was the vehicle whereby excess credit was pushed

into the system, by greedy bankers and compliantgovernments.

I will discuss this fourth leg and the invasion of

property rights necessary to implement it in more

detail in my next article. Stay tuned.

Rudy Fritsch

Rudys book Beyond Miseswas written to make

Professor Fekete's work and Austrian economics

accessible. It can be ordered directly from

http://www.beyondmises.com/
http://www.beyondmises.com/http://www.beyondmises.com/http://www.beyondmises.com/


10/12

The Gold Standard



Is the Real Bills Doctrine Inherently

Inflationary

Opponents of the real bills doctrine claim that it is

inherently inflationary. Mises defines inflation as anincrease in the quantity of money (in the broader sense of the

term, so as to include fiduciary media as well), that is not

offset by a corresponding increase in the need for money (again

in the broader sense of the term), so that a fall in the objective

exchange-value of money must occur [i.e., general prices rise].1

Hazlitt gives a more succinct and clearer definition:

an increase in the supplyof money that outruns the increase

in the supply of goods.2Most economists, very few of

whom are supporters of the real bills doctrine, define

inflation similarly to Mises and Hazlitt. Thus,

inflation occurs when the supply of money increases

faster than the supply of goods.

According to these definitions, inflation cannot

occur under the real bills doctrine. Money supply

grows as new consumer goods enter the markets and

contracts as these new goods are removed,

consumed, from the markets. Thus, the money

supply cannot exceed the supply of new goods.

Opponents also claim that the real bills doctrineleads to an inflationary spiral. When a bank lends

money to a holder of a bill of exchange using the bill

as collateral, it injects additional new money into the

economy. This new money causes a rise in consumer

prices. Thus, the monetary denomination of the next

round of bills will be higher because of higher prices.

As higher prices lead to higher monetary

denominated bills, evermore additional new money

needs to be injected into the economy. The process

continues and causes an unsustainable inflationaryboom.

This argument errors in that it confuses lending with

clearing. Real bills of exchanges are clearing

instruments and do not involve lending or

borrowing.

Moreover, this argument overlooks an important

function of the gold standard accompanying the real

bills doctrine. Gold regulates credit. If prices of

consumer goods begin to rise, gold becomes cheapcompared to consumer goods. People begin buying

fewer goods. They begin converting their credit

money, bank notes and checkbook money, into gold.

As a result, sellers lower their prices, if they want to

move their goods, until supply and demand are again

in equilibrium.

Furthermore, banks conserve their gold. They buyfewer bills and by that reduce the issuance of bank

notes and checkbook money. Thus, the discount rate

rises to encourage banks to buy more bills. (This

action shows that the propensity of consumers to

spend sets the discount rate. It shows that the

discount rate is not an interest rate. The propensity

to save sets interest rates.)

Another reason that the real bills doctrine cannot

lead to an inflationary spiral is that consumer goods

are priced in gold and outside the bills market. The

price of goods covered by the bill of exchange are

independent of the bills market. With their demand,

consumers set the prices of goods. Bills do not

generate demand for consumer goods and therefore

cannot cause prices to rise.

Another version is that banks create and inject new

money into the economy when it buys a bill.

However, as bills are money in their own right,

banks are merely substituting one form of money foranother. They are not adding any new money. If a

manmade or natural accident did lead to a rise in

prices, gold would prevent an inflationary spiral as

described above.

Not only is inflation not likely to occur under the

real bills doctrine, but an inflationary spiral is even

less likely. Gold regulates credit and prevents an

artificial boom from occurring. (Another importance

of gold is that a bill needs to mature into that which

is no ones obligation, gold.)

Gold keeps everyone honest. Without the gold

standard or another commodity standard, the real

bills doctrine becomes so dysfunctional that it

collapses.

The above discussion assumes the true gold-coin

standard accompanied by a decentralized

competitive banking system without special

privileges.

Notes:


11/12

The Gold Standard



1. Mises, Theory of Money and Credit, new ed., tr. H.E. Batson

(Irvington-on-Hudson, New York: The Foundation for

Economic Education, Inc., 1971), p. 240.

2. Henry Hazlitt, The ABC of Inflation (Lansing, Michigan:

Constitutional Alliance, Inc., 1964), p. 6.

Thomas Allen

Thomas Allen has been a student and adherent supporter of the

gold standard and the real bills doctrine since 1972. In 2009, he

wrote and published Reconstruction of Americas Monetary and

Banking System: A Return to Constitutional Money. Many of his

writings on money and other subjects can be found at

http://tcallenco.blogspot.com/and an index to these blogs is at

http://tcallenco.weebly.com/

SYMPOSIUM on GOLDin collaboration with the

NEW AUSTRIAN SCHOOL

University of Auckland Business School,Auckland, New Zealand

28th November2nd December

Professor Antal FeketeLouis Boulanger

Sandeep JaitlyRudy FritschKeith Weiner

A ten lecture event focussing entirely on goldshistorical future role in the monetary system.

Golds historical role in the monetary system ofoften mischaracterised and misunderstood, especiallyby followers of neo-classical economic disciplines.This series of lectures will address thismiscomprehension.

Furthermore, what to expect from the gold andsilver markets going into the future will be described.Gold and silvers role in the monetary system willnot be restricted to marginal diversificationinvestments. Their return to the fiscal forefront willerupt as unexpectedly and violently as MountKrakatoa.

For further information, please contact LouisBoulanger:[email protected]

Debit Card Gold Dinar Payment

System

Following the launch of gold dinar and silver dirham

coins by various Malaysian states (Kelantan, andPerak and soon the Melaka and Kedah States), the

sales of these gold and silver coins have sky-rocketed

with one particular company selling locally produced

gold dinar coins and also other products such as gold

and silver bullion bars, achieving an impressive total

sales revenue of RM 100 million per month, but as

many have expected, these gold dinar coins did not

circulate widely as currency in Malaysia.

These coins are mainly hoarded to preserve

purchasing power of savings of the people, and not

widely used as a medium of exchange for trading

goods or services due to the following reasons:

a) The Central Bank of Malaysia (Bank Negara

Malaysia) is enforcing the Ringgit Malaysia (fiat

currency) as the only legal tender.

b) When the legal tender fiat currency loses about

20% to 30% in purchasing power a year as

compared to gold, people naturally will pay using

the fiat money and hoard the gold dinars.

c) Many people have some concerns about using

physical gold dinar coins for payment or

receiving payment: these include

coins are physically heavy to carry around,

risk of robbery/theft during shopping as

well as the storage of coins,

wear & tear and illegal dipping of coins,

purity concern and test equipmentexpensive,

spread on trading coin is wide (5% to 12%

for dinar), and

buying of small-priced item is not

convenient.

Gold Coin Debit Card and Electronic Dinar

In view of the issues related with physical gold dinars

by customers, a few gold companies are planning to

provide an alternative form of dinar for payment andhoarding purposes.
http://tcallenco.blogspot.com/http://tcallenco.blogspot.com/http://tcallenco.weebly.com/http://tcallenco.weebly.com/mailto:[email protected]:[email protected]:[email protected]:[email protected]://tcallenco.weebly.com/http://tcallenco.blogspot.com/


12/12

The Gold Standard



A study conducted by Mohd-Nazri et al. (Mohd-

Nazri Muhayiddin, Elsadig Musa Ahmed and

Hishamuddin Ismail. IBIMA Publishing, Journal of

Electronic Banking Systems Vol. 2011 Article ID

463185) showed that most people are generally keen

to use the proposed electronic dinar payment system.

Several companies in Malaysia are planning to offer

dinar debit /credit card or electronic account gold

dinar system whereby the customers can purchase

and deposit dinar coins into their own account and

use it to make payment for goods and services.

In their plans, the electronic/debit card dinar

account will allow customers to use the following

functions:

1. deposit dinar;

2. purchase of dinar;

3. selling of dinar;

4. payment in dinar to other account holders;

5. withdrawal of physical dinar coins.

There are several disadvantages associated with the

proposed electronic /debit card dinar system,

namely:

1.

Risk of defaulting by dinar companies;2. computer hacking; and

3. outlets for depositing/loading of dinar are

limited compared with fiat currency which

are processed in bank branches in every

town and city. The dinar outlets will have to

be as common as the post offices, 7-Eleven

stores, and petrol kiosks if the system is to

be the choice payment option in a free

market.

If the system is approved, it would be easier for the

people to carry out their business transactions

without having to physically carry gold dinar around,

especially those transactions involving large sum of

gold coins. For credit card dinar the amount of dinar

coins outstanding are settled between members at

the end of each month.

When contacted, a Central Bank official said at the

moment, they are not too keen on the dinar card

payment system as Ringgit is still the legal tender,and they are worried about control of the money

supply as credit money is created when a credit

card/debit card is used for trading.

Alternative Parallel Payment System

In order not to infringe on the money law of theCentral Bank, a couple of gold companies are

planning to introduce the debit/credit card dinar

payment system via the cooperatives in Malaysia. As

these cards will be used between the members of the

cooperatives for trading of goods, only approval is

needed via the department overseeing the

cooperatives.

Their aim is to provide convenience for traders, and

savers in cooperatives to save in gold and silver, and

these gold community people may also be concernedabout the problem of paper system, and they wish to

set up an alternative parallel payment system in the

event the exist paper system is jammed, trades can

still go on via dinar payment system.

Surely Greshams law will operator here too, and

members of cooperatives will prefer to spend fiat

money and hoard the gold dinar, especially when the

price of gold is rising significantly each year. Hence,

until we have freedom to choose the type of money

in business transactions, gold dinar coins or dinar

debit card are not likely to circulate as currency,

whereas fiat currency credits in visa/master cards

and Ringgit will be used to make payment.

Even though the proposed gold dinar payment

system may not be used widely, it will be to the

credit of these companies for their effort to set up an

alternative parallel payment system using gold coins

or debit card account redeemable in gold dinar coins.

Philip T

The Gold Standard Journal 11

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Transcript of The Gold Standard Journal 11