Friday, September 21, 2012

Bitcoin, Gold and Competitive Currencies

You don't want to miss this thought-provoking James Turk interview with economist and trader Félix Moreno de la Cova.

Gold is simply analog bitcoin and, as gold bugs become more aware of that fact, two things will become more apparent. First, that specie-backed digital currencies will always be subject to trust in the custodial issuer, and more importantly, trust that the specie won't be confiscated or seized. Second, a transfer of wealth from national currencies to cryptocurrencies is occurring which will dwarf the transfer of wealth occurring in the precious metals sector. Enjoy.

For further reading:
"Ding, Ding, Ding! James Turk Gets It!", BitcoinMoney, September 20, 2012
"GoldMoney: James Turk in conversation with Félix Moreno de la Cova", Bitcoin Forum, September 14, 2012

Thursday, September 20, 2012

Cashless: The Coming War on Tax-Evasion and Decentralized Money

By Cris Sheridan
Financial Sense
Friday, March 30, 2012

There are two major trends taking place that are shaping up as a recipe for disaster. On the one hand, we have massively indebted governments around the world desperate for tax revenues and, on the other, steadily growing multi-trillion underground economies whose main goal is to avoid paying them.

According to a recent study, the amount of uncollected tax revenues in the U.S. is estimated around a whopping 500 billion dollars per year1—enough money to bailout most of Europe.

At 8 percent of GDP, the underground or shadow economy in the U.S. is much smaller percentage-wise than other nations like Greece (25 percent), Italy (27 percent), or Thailand (70 percent)2, yet, given our overall size, America's untaxed economy is larger than “the official output of all but the upper crust of nations across the globe…bigger than the GDP of Turkey or Austria.”3

Question is: How long will the government allow this to last?

When times are good and the economy vibrant, there is less incentive to crack down on tax-evasion; but now, unemployment is at all-time highs, income and property taxes have fallen dramatically, and the government is supporting an increasingly large and record number of people through a wide range of benefits.

Desperate times call for desperate measures

In an interview with Jim Puplava titled “Never Underestimate the Desperation of a Broke(n) Government”, world renowned economist, Martin Armstrong, cites numerous examples of how the U.S. is following a well set historical pattern where, inevitably, the “government is going to be much more aggressive to tax people, chase them down, and put them in prison.”

Just recently, noted author and blogger, Charles Hugh Smith, cited how California—a case-study for high taxes, regulation, and smothering bureaucracy—automatically seized funds out of a previous resident’s bank account for not filing taxes in the year 2006—five years after he had long moved out of state. In response to this incident, Smith writes, “What is entirely believable is that the state of California, desperate for revenue, is churning out dubious income tax claims stretching back years and collecting the money without due process.”4

If true, and these types of aggressive acts are to become more common, it should be fairly obvious that they won't achieve the desired results. As taxes are raised, regulations and filing requirement made more stringent, more and more people will merely leave the system. Eventually, the government will have to think of a different way to collect.

We could change current tax laws and make it less burdensome but, when given a choice between simple or none, most people would rather choose none; and since many realize that by doing everything in cash their transactions are virtually untraceable, the risk of getting caught is quite tiny compared to the benefits of keeping much more of their income.

The only option left is to remove the very thing that fuels the underground economy in the first place.

Cash becomes illegal

Consider Italy Intensifies Its All-Out War on Tax Evaders
In addition to banning cash transactions, [Italy] has included an ad campaign comparing tax evaders to parasites. There have been headline-grabbing raids on stores, hotels and restaurants in affluent Italian cities. For good measure, tax officials have also been stopping luxury cars and asking drivers to show their licenses, then using the information to pull their most recent tax returns.
Recently, best-selling financial author and well-known investor, Doug Casey, offered his perspective on this issue by pointing out that “governments hate cash for lots of reasons…it costs a couple of cents to print a piece of paper currency, and they have to be replaced quite often. As the US has destroyed the value of the dollar, they’ve had to take the copper out of pennies, and soon they’ll take the nickel out of nickels. Furthermore, with modern technology, counterfeiters—including unfriendly foreign governments—can turn out US currency that’s almost indistinguishable from the real thing. And the stuff takes up a lot of space if it’s enough to be of value. So sure, governments would like to get rid of tangible currency. They’d like to see all money kept in banks.”5

Italy or Sweden?

Aside from how governments personally feel about cash, some societies are choosing to abandon it voluntarily. As recently reported by the Associated Press, cash only represents 3% of Sweden's entire economy—a trend that isn't being enforced through law but rather embraced by a strongly technological and innovation-loving people.6 No "headline-grabbing raids", automatic seizure of bank funds, or stopping luxury car owners to check their most recent tax returns. Then again, Sweden is also known for having the highest tax rates in the world.

Although the total amount of money changing hands in America's shadow economy is quite massive, again, with respective to our total economy it is fairly small—about 8 percent of GDP. Given the sheer convenience and accessibility of electronic payment options almost everywhere you go, the transition towards a cashless society is certainly "in the cards."

However, given the diversity of America's population, our strong desire for privacy and longstanding hatred towards taxes, there will always be a strong demand for some form of cash or non-traceable currencies—something I doubt the U.S. government won't try to supervise or restrict.

Resistance is futile. You will be assimilated

Given the trends taking place, a hot or cold war against non-traceable decentralized forms of currency is almost inevitable. Like Italy, the U.S. could hit such transactions head on and declare them illegal—although not without a massive uproar. On the other hand, the government could take a more indirect and technological approach that forces compliance overtime.

Specifically, we should expect to see some form of the following if the U.S. made a goal of collecting the estimated $500 billion in potential tax revenues:
  1. Make cash transactions illegal
  2. Merge all your information into one account and flag for any discrepancies between income and expenditures
  3. Make it impossible to receive any form of government-provided or government-regulated assistance (Social Security, Medicare, health insurance, bank loans, credit, etc.) unless all taxes are current and accounted for
Obviously, if cash transactions were made illegal it would be very hard for anyone operating outside the system to freely exchange goods and services within the wider economy. However, it’s very easy to transfer cash balances onto a stored value card and then use that instead. Also, people could start using gold, silver, Bitcoins, or any other form of decentralized payment methods within various sub-networks.

For the second option—merging all your information into a database—this would further help in cutting down uncollected revenues but would also require voluntary participation by most non-regulated providers of goods and services. You would also expect to see a large number of costly and intrusive audits for those operating businesses on a cash-basis.

The last option—slowly making it impossible to receive aid, loans, insurance—would effectively strangle the shadow economy into submission and mitigate the chances of a revolution by declaring war on decentralized methods of payment. Incidentally, I believe a very eye-opening glimpse of what's truly in the works was revealed when the Social Security Administration released a report highlighting the Big Brother right-to-access approach in conjunction with various other government agencies.

Consider SSA seen going 90 percent electronic
The Social Security Administration has little choice but to move toward a goal of processing 90 percent of all transactions electronically in the coming decades, according to a new report adopted by an SSA advisory panel...

The “Re-imagining Social Security” report was published recently on the panel’s website after being adopted by the group at a meeting in May.

In practical terms, the full picture of SSA's electronic processing would mean that hospitals would create an electronic medical record for each birth and communicate data about those births to SSA, which would set up a password-protected electronic account for each child.

Thereafter, as adults, people could log into their personal SSA account to verify information for jobs, name changes, widowhood, disability and retirement. Furthermore, SSA would communicate electronically with Medicare and with private doctors and hospitals to obtain patients' medical information if needed for a disability or benefits claim.

The proposed birth-to-death electronic system described in the report does not exist. The envisioned medical data-sharing network is based on the Health and Human Services Department’s Nationwide Health Information Network, and the job-verification system is based on the Homeland Security Department’s E-Verify, neither of which is widely used [currently]. More spending would be needed to create the necessary systems and networks, the report states...

To serve the small percentage of people with complex transactions or those who are unable or prefer not to use newer technologies, SSA should look into creating joint service centers with other federal agencies, such as the Internal Revenue Service, the report states.

There you have it: the merging of all your information (and money?) into one easily accessible electronic file. Want to get Social Security or other benefits? Apply for a loan? Get health insurance? You’re going to have to be part of the system. Otherwise, except to hear from the IRS!


[1] America's Underground Economy: Measuring the Size, Growth, and Determinants of Income Tax Evasion in the U.S.
[2] Hiding in the Shadows: The Growth of the Underground Economy
[3] America’s ‘shadow economy’ is bigger than you think – and growing
[4] Welcome to the Predatory State of California—Even If You Don't Live There
[5] Doug Casey on Cashless Societies
[6] In Sweden, Cash Is King No More

Reprinted with permission.

Monday, September 17, 2012

Key Disclosure Laws Can Be Used To Confiscate Bitcoin Assets

By Jon Matonis
Wednesday, September 12, 2012

Gaol time at the Justice and Police MuseumJail time for refusing to comply with mandatory key disclosure hasn't occurred in the United States yet. But, it's already happening in jurisdictions such as the UK, where a 33-year-old man was incarcerated for refusing to turn over his decryption keys and a youth was jailed for not disclosing a 50-character encryption password to authorities.

Similarly harsh, key disclosure laws also exist in Australia and South Africa which compel individuals to surrender cryptographic keys to law enforcement without regard for the usual common law protection against self-incrimination.

Key disclosure laws may become the most important government tool in asset seizures and the war on money laundering. When charged with a criminal offense, that refers to the ability of the government to demand that you surrender your private encryption keys that decrypt your data. If your data is currency such as access control to various amounts of bitcoin on the block chain, then you have surrendered your financial transaction history and potentially the value itself.

These laws will impact not only money laundering prosecution but almost any asset protection strategy that attempts to maintain an element of financial privacy such as private banking or family trusts. Prior to all these money laundering laws being enacted, I once heard it said that the practice of moving money around was simply referred to as banking.

Doug Casey famously said that "it's a completely artificial crime. It wasn't even heard of 20 years ago, because the 'crime' didn't exist." Furthermore he said, "The War on Drugs may be where 'money laundering' originated as a crime, but today it has a lot more to do with something infinitely more important to the state: the War on Tax Evasion." And, if they can't track it from the outside via the banks and financial institutions, they'll track it from the inside via access to an individual's passwords and private keys.

In the United States, relevant case law has revolved around the Fifth Amendment privilege against self-incrimination as there is currently no specific law regarding key disclosure. The definition of a password is alarmingly broad too -- all the way from an extension of your personal memory to an illegitimate tool that only hides something tangible from law enforcement.

The first case to address directly the question of whether a person can be compelled to reveal his or her encryption keys or password was In re Grand Jury Subpoena to Sebastien Boucher in 2009. Here a magistrate judge ruled that producing the passphrase for the encrypted hard drive would constitute self-incrimination, but on appeal the District Court overturned that decision, holding that decrypting and producing the complete contents would not constitute self-incrimination since Boucher initially cooperated in showing some of the computer files to border agents.

Next, there was the federal criminal case of United States v. Fricosu in 2010 in which the Federal District Court ordered a criminal defendant to decrypt the contents of an encrypted laptop. Although the defendant claimed Fifth Amendment rights against self-incrimination and the Electronic Frontier Foundation (EFF) filed an amicus curiae brief, the Court sided with the government in ruling that since defendant admitted to ownership of the laptop and knowledge of the passwords in a recorded conversation, the existence of evidence was a "forgone conclusion" and therefore Fifth Amendment privilege could not be implicated. In early 2012, the Tenth Circuit Court of Appeals rejected an appeal and let that decision stand.

In a blog post, Orin Kerr cited In re Weiss (703 F. 2d 653) in summarizing testimonial obduracy and what a future Court's likely posture would be if defendant refuses to comply with a key disclosure order or claims to have forgotten the password. On the specific Fifth Amendment issue in United States v. Fricosu, Kerr states:
"If I’m reading Fricosu correctly, the Court is not saying that there is no Fifth Amendment privilege against being forced to divulge a password. Rather, the Court is saying that the Fifth Amendment privilege can’t be asserted in a specific case where it is known based on the facts of the case that the computer belongs to the suspect and the suspect knows the password. Because the only incriminating message of being forced to decrypt the password — that the suspect has control over the computer — is already known, it is a “foregone conclusion” and the Fifth Amendment privilege cannot block the government’s application."
In another case upholding the constitutional right against forced decryption, the Eleventh Circuit Court of Appeals in United States v. Doe on February 24th, 2012 overturned a contempt of court ruling for refusing to decrypt. Arguing that without any specific knowledge of a hard drive's file contents or file existence, the government cannot assert that certain items can be described with "reasonable particularity" and therefore compelling a defendant to produce those files would violate the Fifth Amendment's protection against self-incrimination. The Electronic Frontier Foundation (EFF), which again filed an amicus curiae brief in the case, called it a major victory for constitutional rights in the digital age.

To say the cryptocurrency bitcoin is disruptive would be an understatement. Bitcoin not only disrupts payments and monetary sovereignty, it also disrupts the legal enforcement of anti-money laundering laws, asset seizure, and capital controls. It is very likely that a key disclosure case will make it to the U.S. Supreme Court where it is far from certain that the Fifth Amendment privilege, as it relates to a refusal to decrypt bitcoin assets, will be universally upheld.

Many observers have suggested defensive techniques that deploy TrueCrypt disk encryption with hidden volume partitions or PGP Whole Disk Encryption rendering the entire computer unbootable thereby making even file time and date stamps unavailable. Another legal strategy to complicate matters could be to split the passphrase with another person and claim that you are never in possession of the entire real passphrase. Then, at least there would be "plausible deniability" as to who provided the invalid portion of the passphrase or you would have a cellmate if held in contempt.

For further reading:
"Crypto Law Survey", Bert-Jaap Koops, July 2010
"UK Court Parts with US Court regarding Compelled Disclosure of Encryption Keys", Proskauer Rose LLP, October 31, 2008
"Why the War on Money Laundering Should Be Aborted", Richard W. Rahn, Financial Cryptography:
Lecture Notes in Computer Science, 2002

Tuesday, September 11, 2012

Blackmail And A Briefcase Of Bitcoin

By Jon Matonis
Tuesday, September 6, 2012

The anti-cashists are right about one thing. A briefcase full of paper cash is a dirty, inefficient way to move money around.

Upon hearing the news that a hacker had seized presidential nominee Mitt Romney's prior year tax returns and was asking for $1,000,000 to destroy them, you could be excused for thinking that you had stumbled into a Dr. Evil film. But, this blackmailer was demanding payment to be made in the cryptocurrency bitcoin, not dollars. A bitcoin receiving address was provided so that the public could monitor the progress.

But, is blackmail really an illegitimate act? In the fictitious case of Dr. Evil's demands, he was threatening a violent crime as a consequence. With the Romney tax hacker, the consequence of merely revealing the truth is not a crime. If the alleged hacker(s) acted alone to break in and obtain the information from PricewaterhouseCoopers, rather than discovering the information, that break-in would of course be considered a criminal act. However, the act of blackmail itself is a separate issue.

Professor Walter Block of Loyola University New Orleans reflects on the old axiom that "the truth shall make you free" and says that a blackmailer is simply setting the truth free to do whatever good or bad it is capable of doing. In his book Defending the Undefendable, Block suggests:
"We will find, however, that the case against the blackmailer cannot stand serious analysis; that it is based upon a tissue of unexamined shibboleths and deep philosophical misunderstandings.
What, exactly, is blackmail? Blackmail is the offer of trade. It is the offer to trade something, usually silence, for some other good, usually money. If the offer of the trade is accepted, the blackmailer then maintains his silence and the blackmailee pays the agreed-upon price. If the blackmail offer is rejected, the blackmailer may exercise his rights of free speech and publicize the secret. There is nothing amiss here. All that is happening is that an offer to maintain silence is being made. If the offer is rejected, the blackmailer does no more than exercise his right of free speech."
Professor Block also posits some good effects of blackmail, such as diminishing real crime (robbery, murder, rape) because it increases the penalty associated with crime if a criminal has to share the loot or pay up to avoid the reporting of an 'anonymous' tip. The legalization of blackmail could also have a beneficial effect on non-aggressive actions that are generally at odds with societal mores such as sadomasochism and adultery, according to Block.

Vitalik Buterin of Bitcoin Magazine extends that thinking to the potential beneficial effects on governments and the corporate world:
"Although the tools of communication and financial privacy are granting the small thieves an unprecedented ability to carry out their business with impunity, the large thieves that have so far been able to hide in the bureaucratic shadows of governments and large corporations are finding themselves more and more thrown into the limelight. This is the world we are moving towards: one that is perhaps more anarchic, and in some respects more dangerous, but one that is at the same time more just."
It is not yet known whether the threat to disclose tax return information is a real threat, but I suppose we will all know on the expiration date of September 28th. For its part, PricewaterhouseCoopers stated "we are working closely with the United States Secret Service, and at this time there is no evidence that our systems have been compromised or that there was any unauthorized access to the data in question."

Transactional privacy in the digital age is a double-edged sword. It has the potential to liberate individuals from many aspects of political tyranny but it also creates new challenges as the physical cash drop-off point is no longer a deterrent to getting caught. Regulating a bitcoin is like regulating an air guitar. The only thing we know for certain is that it's not going away.

For further reading:
"Blackmail as a Victimless Crime", Walter E. Block and Robert W. McGee, July 13, 2011

Sunday, September 9, 2012

Argentina Begins Tracking All Credit Cards

By Jon Matonis
Tuesday, September 4, 2012

In an eerie glimpse of what a cashless society enables, the government of Argentina has taken the drastic step of mandating banks to report every credit card purchase to the tax authorities, AFIP. Also introduced on Friday, another measure adds a 15 percent tax surcharge every time a purchase is made outside the country using a credit card issued by an Argentine bank.

This action targets those people that have been using credit cards as a way to purchase at the official rate rather than the black market rate, in effect creating a dual credit card exchange regime. Capital flight is high in Argentina due to the depreciating peso and currency controls are becoming more and more aggressive.

The black market peso price has spiked as the government has tried to close off any and all avenues for people to legally convert out of pesos and into US dollars. A 15 percent tax surcharge will close some of the gap between the regulated official rate and the black market rate, currently at 4.63 pesos per dollar and 6.39 pesos per dollar respectively. In theory, this new surcharge is deductible against future taxes owed so it's really an advance payment. But in practice, its real value as a deduction will have been eaten up through inflation and it's meaningless for those that don't earn enough income to owe taxes.

On Monday, this new rule was broadened to include debit cards and purchases at any online site outside the country, which targets Amazon and eBay purchases.

But the measures go much farther, according to Michael Warren of Associated Press, "giving the government powerful new tools to combat widespread tax evasion." He writes:
"Tax and customs agents now will be able to compare better what Argentines declare to the customs and tax agencies with what their credit card bills say. Before, the reporting requirements applied only to expensive charges of more than 3,000 pesos (about $645). Now, every single purchase by every co-signer must be reported. And if the totals show people are living large while claiming to be paupers, they could get into big trouble."
Even the socialist President Jose Mujica of Uruguay called the new measures "crudely protectionist" in a radio interview from Montevideo. Tourism and investment to the area has already been suffering.

This article is the third in an ongoing series of country focus pieces where the cashless society utopia has actually advanced the cause of financial repression. The SWIFT monetary blockade of Iranian banks was the first report and MintChip digital currency in Canada was the second report.

These are brutal, important lessons in why a cashless society should not strip everyone of their transactional and financial privacy. For those people in Argentina that want to bypass currency controls and also shelter their money from government-induced inflation, this Buenos Aires exchange community claims to buy and sell bitcoin for Argentine pesos. And, the exchange sells bitcoin for Ukash vouchers which are available in Argentina.

For further reading:
"Argentina tightens grip on credit card purchases abroad", Ian Mount, Financial Times, August 31, 2012
"Cashless: The Coming War on Tax-Evasion and Decentralized Money", Cris Sheridan, March 30, 2012

Wednesday, September 5, 2012

BitZino And The Dawn Of ‘Provably Fair’ Casino Gaming

By Jon Matonis
Friday, August 31, 2012

Have you ever wondered how easy it would be for online casino operators to cheat? After all, they're magically shuffling cards online and you can't even see the complete deck.

Formally launching on June 9th of this year, bitZino has designed a method to prove that its shuffles are fair and bitZino is not your typical online gambling portal. The first difference you realize is that gaming is conducted only in the digital currency bitcoin. The other primary difference is that bitZino displays a 'Provably Fair' button which allows you to independently and immediately verify the authenticity of a shuffle.

Now, the fact that they use bitcoin as the gaming currency has nothing to do with the cryptographic techniques of 'provably' fair' card shuffling but it does add a nice touch. BitZino is differentiating itself on two amazing levels and this is sure to cause the mega online casinos some heartburn down the road.

At the first level, bitcoin operates as the ideal digital casino chip providing privacy, immediacy, and irreversibility -- in essence, everything you'd expect from a physical Vegas casino chip. In addition to advantages for the online gaming experience, bitcoin doesn't respect national borders and there's no third-party processor that has to aggregate casino cash flow. Bitcoin assists in jurisdiction-less poker, because if they can't go after the crime, they go after the money trail.

At the second level, bitZino has boldly encroached upon an area that has been dominated by the third-party auditing associations. Lowering the barrier to entry, there is no more need for the auditing, certification, and standards organizations like eCOGRA (eCommerce and Online Gaming Regulation and Assurance) and APCW (Association of Players, Casinos, and Webmasters).

BitZino claims their games aren't just fair, they're 'provably fair' and the verifiable proof is available directly to you as a player. If not for the education issue, this news would stun the established online casinos of Gibraltar and Malta. I cannot imagine a gaming operator that doesn't adopt provably fair systems to remain competitive in the future.

Basically, bitZino is deploying a cryptographic hash function (SHA256 algorithm) to create a fingerprint of an already shuffled deck. Since the SHA256 hashing algorithm is one-way and there's no way a player can use that hash to figure out what the shuffle of the deck actually is, the casino can let players look at the hash before the game starts.

Then, the deck is reshuffled using the Fisher-Yates shuffle algorithm with the random numbers generated from the Mersenne twister algorithm that was seeded with a hash of the combined server seed and client seed. According to bitZino, "The second round of shuffling only serves to ensure that neither the server nor client could possibly know the final deck before the game starts." Finally, the initial shuffle and the server seed are provided to the player for verification. [BitZino is aware that some older browsers are not as secure as modern browsers deploying window.crypto and also that a client-side script to generate the client seed would drastically improve the quality of the overall system.]

The bitcoin community provides an excellent user base of cryptographically-aware players which increases the practical understanding of 'provably fair' systems that don't require a third-party authority. Larry Taad, owner and lead developer of bitZino, explains in an interview:
"One of the largest hurdles to creating a good provably fair system is explaining to users exactly what it is. When developing our provably fair system at bitZino, we put a lot of effort into making sure we were able to accurately portray to our users how it all works.
Because the larger market doesn't yet understand provably fair systems, it doesn't yet demand them. So the big players aren't likely to implement them. However, if history is any indication, the market will come around. Look at the rate of adoption of HTTPS websites. Users in the 90's didn't demand secure websites when shopping, now they absolutely do."
When asked about other types of casino games like craps and roulette, Larry said that any single-player game can be made provably fair by merely utilizing a source of randomness that is unknown to the house at the time the outcome of the game is determined.

For multi-player games, it becomes more complicated due to the fact that the house could plant a player that has full knowledge of the state of the game. Mental poker techniques can address some of these issues but with significant computational overhead which is why bitZino is working on ways to improve mental poker techniques. He added that "bitZino currently offers single-player video poker and single-player blackjack that are provably fair, but that multi-player games will be offered in the future."

As I write this article, they have officially added provably fair roulette. I really like this online casino -- expect a lot of good things from bitZino!

For further reading:
"bitZino touts ‘provably fair’ games, but can bitcoin-only casinos succeed?", Steven Stradbrooke, September 3, 2012
"Payment expert dubs Bitcoin a perfect fit for online gambling", Jamie Hinks, April 2, 2012
"Bitcoins Give Rise to Crypto Casinos", Bitcoin Blogger, August 28, 2011

Saturday, September 1, 2012

Economist Appearing On Max Keiser Show Forced To Resign

By Jon Matonis
Sunday, August 26, 2012

It's been confirmed now that economist Sandeep Jaitly has been forced to resign his position from The Gold Standard Institute following his on-air remarks about Ludwig von Mises and Ayn Rand. Jaitly, a follower of Antal Fekete, originally tweeted that "If it ain’t Menger or his direct student Eugene [sic] Von BB, it ain’t Austrian. Sorry #Mises: respectfully, too many mistakes were made."

On August 16th, Jaitly elaborated further on Russia Today's Keiser Report:
"Mises didn’t look back to Menger’s original axiom which was that value is not outside of your own consciousness. And he didn’t observe what Menger observed about market action in the sense that there are always two prices, there’s a bid and an offer. And von Mises didn’t like to admit that interest was a market phenomenon. He sort of wanted to imply that it’s a sort of natural consequence of not having a present good basically. So to develop a theory of interest without going back to Menger’s original observations is not continuing the tradition in the Austrian way as we would see it."
Then, after much debate in the blogosphere, someone known as kdt posted this text purporting to come from The Gold Standard Institute on August 25th:
Lest there be any misunderstanding, the views expressed by Sandeep Jaitly in his interview with Max Keiser ( are not the views of The Gold Standard Institute. To the contrary, we strongly disagree with those views. There is no doubt that Ludwig von Mises made mistakes; that should not diminish the respect due to a great scholar. The mistakes of Mises are dwarfed by the enormity of his positive contributions. The Institute believes that history will judge Ludwig von Mises far more kindly than does Mr. Jaitly. The Ayn Rand diatribe was of a tone that displayed little understanding of her philosophy and needs no further comment. The philosophy of The Gold Standard Institute has always been, and will remain, to debate and promote ideas, not to attack people.
Sandeep Jaitly has resigned from his position as Senior Research Fellow with the Institute and we sincerely thank him for his past contributions.
Philip Barton
In an email confirming the action, Sandeep Jaitly explained to me, "apparently, they don't want to burn bridges," and I take this to mean bridges with large benefactors and partners. However, Jaitly is unfazed and vows to continue his work including a PhD acceptance speech on the Ludwig von Mises split from Carl Menger and Eugen von Böhm-Bawerk regarding certain aspects of interest rate theory.

I like Sandeep because he challenges orthodoxy in a thoughtful way. Aside from the illuminating monetary debate sparked by Jaitly, as a guest on the Keiser Report myself, the forced resignation of an economist is both interesting and disturbing. Frequently, I find myself challenging the orthodoxy of the Mises' Regression Theorem on the origin of money when it comes to the nature and value of bitcoin as money.

Mises has written that, "Value is not intrinsic, it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment."

While I and other Austrians wholeheartedly agree with Mises on this, the notion of a decentralized bitcoin has eluded many in the economics profession. Peer-to-peer bootstrapped currencies secured by cryptography in a distributed computing project were not anticipated by Menger nor Mises. They are a reaction to our 'politically-hostile' environment for free market currencies. Public-key cryptography, as opposed to symmetric key cryptography, is a relatively new phenomenon that Austrian economics has not yet come to terms with.

Some may not like it, but bitcoin is a Mengerian-, Misean-, Rothbardian-, Austrian-currency in its purest form. Still actively debated within the Austrian economics community on whether or not bitcoin satisfies the regression theorem, I have gone so far as to propose a corollary.

It's not surprising that this Max Keiser television dialogue caught the attention of Austrian scholar Tom Woods who responded swiftly on According to Jaitly, Woods is still refusing to appear on a television debate about the issues. I encourage Woods to accept Jaitly's offer to appear and I also agree with John Robb who said, "The only real debate that remotely matters between the Mises faction and the Fekete faction regards their difference in perspectives on the merits and pitfalls of the Real Bills Doctrine. That would make a fine core issue for debate between Sandeep Jaitly and Joe Salerno or Guido Hülsmann."

As Lawrence White has pointed out, while real bills circulation via discounting can function adequately as a credit instrument in an environment of free banking, the Real Bills Doctrine is a dangerous idea when applied to a central bank that has no true market-based restrictions on issuance. The fractional-reserve free banking contingent within the Austrian School would largely agree with this notion too. (For the anti-fractional-reserve Austrian viewpoint on real bills, please see Did Real Bills Enable the Growth of Trade? by Robert Blumen.)

Lately, I have become a regular reader of Dave Harrison's Trade With Dave, which covered Keiser's original interview with Jaitly in July 2011. Dave also writes a lot about how the Austrian School of  economics is "being co-opted by the progressive political movement through a very crafty scheme known as Libertarian Paternalism." He sums up the entire Keiser - Woods, Fekete - Mises debate nicely:
"What is relevant, at least from Dave’s perspective is how the debate revolving around gold is most definitely rising in the consciousness both inside and outside the Beltway. Just this week, as you probably read, the Republicans are forming a 'gold commission' as part of their official platform pre-convention. You can attack this subject matter on lots of levels. There’s a debate at the lowest level that I would say is where the powers that be in the Republican Party are coalescing around the subject matter. There’s a debate at a slightly higher level between the libertarians and libertarian paternalists which is how I would describe the debate between Max and Tom and the Fekete – Mises smackdown that I have provided numerous links to below. That’s a very interesting and highly educational debate which I would encourage anyone who wants to expand their mind should dive right into. But there’s a third level to this debate.  That level is about free will, [and...] human consciousness."

For further reading:
"Sandeep Jaitly, Ludwig von Mises, Ayn Rand and the Gold Standard Institute", Darryl Robert Schoon, August 28, 2012
"I Hear a Train a Comin, It’s Comin Down the Tracks", Robert Murphy, August 24, 2012
"Testimony on fractional-reserve banking", Larry White, July 2, 2012
"The New Austrian School of Economics", Antal Fekete, May 15, 2010

Monetary Laws of the United States

In painstaking detail covering two epic volumes, Mr. Matt Erickson has laid out the steps leading to the full political appropriation of the monetary unit in the United States (July 2012).

Monetary Laws of the United States, Volume 1, Narrative 
Monetary Laws of the United States, Volume II, Appendix