Tag Archives: ron paul

Money Supply: Force of Nature

Everyday, you and I add value to the global economy by trading.  I buy a sandwich because I value the sandwich more than I value the money it costs while the sandwich maker values the money more than the sandwich.  Both of us have exchanged something of lesser value for something of greater value and thus, our transaction increased the amount of value in the world. [1. Of course, this isn’t always the case.  Often the true cost of a good in terms of carbon dioxide emissions or deforestation is not included in the price a consumer must pay for the good. This issue is addressed by the emerging field of ‘true cost’ economics and it is not the focus of this article.] Value can be described in many different ways but, ultimately, value is time.  I like to think of ‘increasing the amount of value in the world’ as increasing the amount of time people can spend self-actualizing, and since most people don’t self-actualize during farm labor, our civilization has been doing a decent job getting people off farms so they can self actualize.

As our economies have become increasingly advanced, civilization has been freeing up more and more time.  This creates a dilemma.  If the supply of money doesn’t increase along with the amount of free time, deflation will occur: more goods + less money equals falling (and possibly unstable) prices.  So, our government wants to expand the money supply along with the expansion of time (aka productivity*labor), creating a balance between between the deflationary force of increased efficiency and the inflationary force of increased money supply.

To find this balance, the US Congress chartered a national central bank called the Federal Reserve in 1914.  The Fed’s  mission was to create stability in our economy by slowly, steadily and predictable expanding the money supply. Unfortunately, the law incorporating the Fed gave the centralized bank too much power and Congress too little oversight.  It wasn’t long before the Fed began to ‘manage’ the growth of the economy by manipulating the monetary supply.  They didn’t realize that the tools of money creation are like the forces of nature: so powerful that anything but the simplest and most predictable changes lead to myriads of unintended consequences.  Milton Friedman, the world’s #1 free-market economist, is convinced that unintended consequences of an ‘activist’ Fed inflamed the recession of 1929 into the decade long Great Depression, and, after years of argument, Ben Bernanke, the current head of the Fed, in 2002 finally agreed. Of course, the Fed has only become more active since the Great Depression and many economists outside the mainstream media bubble believe it’s this activity that has plunged our economy into what might become another depression. The Fed has, like many corporations and financial service firms, become fixated on economic entities acheiving short term, quarterly profits instead of long term, stable growth. In other words, the Fed’s actions have been oriented towards speculation instead of a value investing.  This activity, compounded year after year and complicated by quasi-government institutions like Fanny and Freddie, incentive sciewing legislation and misregulated markets has led to a singular problem: we don’t know how much money our assets are worth because our money isn’t sound.  Our economy cannot function without sound money.

Fortunately, there is a simple way to return to sound money charted by the Zen master of free-market economics: Milton Friedman.  It doesn’t involve returning to a gold standard or eliminating the Fed.  All that is required is that we follow the three simple steps recommended by Friedman in his amazing and brief 1962 treatise Capitalism and Freedom.

1. Our money supply needs to be determined by “a legislated rule instructing the monetary authority [Fed] to achieve a specified rate of growth in the stock of money…The money stock rises day by day at an annual rate of between 3% and 5%.” (Capitalism and Freedom, 54)  This will lead to deliberate, predictable, transparent action that focuses on long term stability.

2. The value of the dollar must be determined by “a system of freely floating exchange rates determined in the market by private transactions without government intervention.”  (Capitalism and Freedom, 67)

3. The Federal Government needs to sell it’s gold reserves on the free market.  It should begin selling it’s reserves immediately and plan to return all it’s stock into the marketplace over a 10 year period.  The Federal Government must stop manipulating gold prices and purchase it’s gold on the free market along with other entities.

Milton Friedman’s system would create an economy that is internally centralized, externally decentralized and completely transparent and free market oriented, thus winning it the coveted QS stamp of approval.  =<QS>=

A lingering question remains: when the money supply is expanded, how should the new money be injected into the economy?  Friedman supports the Federal Reserve system and argues convincingly that no other practical alternative exists.  However, Milton wrote his free market treatise in 1962, before the advent of the internet and peer-to-peer lending services such as prosper.com, which allows people to loan each other money and earn interest (about 7%.)  At scale, these services provide much of the functionality of banks without all of the overhead and middlemen of traditional financial institutions.  Could we use these organizations to place the expanded money supply directly into the hands of Americans instead of giving it to banks and hoping it’ll trickle down to the masses?  This is a question I will be investigating over the next few months.

In the meantime, the Federal Reserve Transparency Act is in front of congress.  Right now the Fed can’t even be audited by the public.  This act allows Congress to look into the dealing of this amazingly powerful and private institution.   Transparency is the first step towards solving our economic problems.  Tell your congressman to support this act.  It’s the most important piece of economic legislation in years.

An Alliance between the Real “Change” and “Maverick” Candidates

What happens when you cross anti-corporate hippy socialists with anti-government conservative libertarians?  The most surprising (and interesting) political alliance of my lifetime.  Ron Paul and Ralph Nader have come together over four core issues neglected by the mainstream parties and media and discussed these ideas with Wolf Blitzer on the Situation Room.  The following is the agreement from Ralph Nader’s website.  Excuse the odd use of bold and underlining, Nader is a quirky dude.

We Agree

Foreign Policy: The Iraq War must end as quickly as possible with removal of all our soldiers from the region. We must initiate the return of our soldiers from around the world, including Korea, Japan, Europe and the entire Middle East. We must cease the war propaganda, threats of a blockade and plans for attacks on Iran, nor should we re-ignite the cold war with Russia over Georgia. We must be willing to talk to all countries and offer friendship and trade and travel to all who are willing. We must take off the table the threat of a nuclear first strike against all nations.

Privacy: We must protect the privacy and civil liberties of all persons under US jurisdiction. We must repeal or radically change the Patriot Act, the Military Commissions Act, and the FISA legislation. We must reject the notion and practice of torture, eliminations of habeas corpus, secret tribunals, and secret prisons. We must deny immunity for corporations that spy willingly on the people for the benefit of the government. We must reject the unitary presidency, the illegal use of signing statements and excessive use of executive orders.

The National Debt: We believe that there should be no increase in the national debt. The burden of debt placed on the next generation is unjust and already threatening our economy and the value of our dollar. We must pay our bills as we go along and not unfairly place this burden on a future generation.

The Federal Reserve: We seek a thorough investigation, evaluation and audit of the Federal Reserve System and its cozy relationships with the banking, corporate, and other financial institutions. The arbitrary power to create money and credit out of thin air behind closed doors for the benefit of commercial interests taxpayer bailouts of corporations and no corporate subsidies. Corporations should be aggressively prosecuted for their crimes and frauds.

We support opening up the debates beyond the two parties and the Commission on Presidential Debates (CPD), a private corporation co-chaired by former chairmen of the Republican and Democratic Party. It is time for our Presidential Debates to once again be hosted by a truly non-partisan civic-minded association.

As the mainstream ‘Change’ and ‘Maverick’ candidates continue their collective transformation into conventional politicians, it’s nice to see what real change would look like and who the real mavericks are.

If you haven’t watch Ron Paul give a speech, you’ll be shocked by his level headedness, philosophical consistency and candor.  His Rally for the Republic Convention Speech was great.  If you’re curious about the principles of Ron Paul’s libertarianism, watch his amazing discussion @ Google.