Saturday, November 21, 2009

Gary North, What is Money? Parts 1-17

Gary North concluded his outstanding series of articles today on What is Money? The links to all seventeen essays are posted below as well as on BRC. I encourage you to read them again and again until their messages are firmly understood and remembered.

Part 1: Introduction
“If you don't know what money is, how will you obtain more of it?”

Part 2: Precious Metal Coinage
“Counterfeiting is universally condemned by civil governments . . . because they are all counterfeiters, and they deeply resent an invasion of their turf.”

Part 3: Schizophrenic Economists
Economic textbooks don’t treat central banking as a cartel, yet it unquestionably is.

Part 4: Bait and Switch
Through fractional reserve banking, “bankers knowingly promise more than they can deliver to every depositor.”

Part 5: Fractional Reserve Banking
“Banks are government-licensed institutions that issue bogus IOUs. Because these IOUs function as money, they are counterfeit money.”

Part 6: What Makes Money Different?
Unlike the supply of other goods, “an increase in the money supply conveys no verifiable social benefit. Early owners and early users gain benefits. Late-users experience losses.”

Part 7: Gresham's Law
‘Bad money drives out good money’ is not a failure of the market. It is a failure of government-imposed price control.

Part 8: Why Gold Has No Intrinsic Value
As with other economic goods, gold’s value is imputed, not intrinsic.

Part 9: Monetary Reform
The Fed should be made completely independent from the federal government: “cut loose and left to fend for itself.” When that happened to the Second Bank of the US in 1836, it went bust.

Part 10: When Money Dies
“When money dies, so do people." In a modern urban society, maybe a lot of people.

Part 11: The Great Default
“Ultimately, it is either the great depression or the Zimbabwe option.”

Part 12: Why Central Banking Persists
“It is not surprising that central banks never get shut down or disestablished, not even after they create nightmare hyperinflations. The victims do not recognize the perpetrator: fractional reserve banking.”

Part 13: Exported Inflation
When physical money is sent out of the country, it shrinks the supply of digital money in fractional-reserve American banks, making prices cheaper. Inflation is exported mainly by illegal immigrants.

Part 14: Money and Uncertainty
“Entrepreneurs make money by buying uncertainty with whatever money they own or borrow. Security-seekers gain their goal by forfeiting opportunities to get rich. In a free market, each participant is allowed to bid for the outcome he prefers. The great threat to a buyer of security is [the banking system’s expansion of the money supply, inflation].”

Part 15: Hoarding, Old and New
Someday, perhaps, central banks will stop subsidizing their respective Treasury Departments. On that glorious day, governments will move rapidly toward bankruptcy, interest rates on government debt will rise, the markets will begin to crash, consumer prices will begin to fall, and the mother of all bank runs will begin. Get there early.

Part 16: Inflation and the Savior State
What is sovereign in this world? The majority of economists affirm the sovereignty of the state. The sovereign state always becomes the inflating state. The market should be sovereign.

Part 17: Conclusion
Austrians say that the free market can provide a system of world money. We have already seen this system in operation. It was called the gold standard. It operated for most of the nineteenth century. It needed no world government and no world central bank to make it work. It did not need trained economists to make it work. Is it any surprise that the gold standard is so unpopular?

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