Wednesday, July 29, 2009

The Importance of Jurisdiction

By Jon Matonis

Today's digital gold currency issuers are the new Lydians. During the 6th century BC, the Aegean civilization of Lydia sparked a vibrant commercial revolution through the invention of coinage. The first gold coins were struck by King Alyattes and then by his son King Croesus of Lydia sometime around 600-560 BC, and the coins served as a primary currency which significantly increased trade and commerce in the region. Although the monarchy usurped the control of money and established the prerogative of issuance, it was the Lydian people and merchants that were not only responsible for the introduction of coinage but also the early formulation of a gold standard of value through private weights and measures.

It is not a stretch to imagine that the most successful non-political digital currencies also will have some type of precious metals backing. In a digital world where trust is craved, the currency issuers with the most reliable form of "auditable" backing will have a distinct advantage. However, the legal and territorial jurisdictions of the company's administrative offices, host computer servers, and physical bullion storage ultimately may play an even more important role.

To understand why this is true is to appreciate the nature of the attractiveness of digital currencies to the average account holder. It is much more than a desire to protect value that would otherwise be held in a depreciating government currency like the US Dollar or Euro, although that is important too. Not surprisingly, it extends equally into areas such as financial privacy, political stability, and protection from confiscation.

Economically and philosophically, the aim of pure digital cash is to replicate the transactional features of a $100 bill or a 500-euro note, which primarily means that it should be anonymous and untraceable. So, why do so many right-minded people object to these features in the online world? I am sure that they would not advocate mandatory photographs and audit trails for users of $100 bills. This is an extremely vital distinction because various commerce laws are being used by governments to violently suppress the online issuers of anything that is anonymous and untraceable. It would not be acceptable to eradicate $100 bills, or even $50s or $20s, so what becomes the difference in the online world?

The major difference is that online digital cash opens up a host of previously unavailable transaction types that will not require physical presence for the exchange of paper cash. It is this potential for customer-not-present transactions which strikes fear with the authorities, because of the "dire" consequences for tax evasion and money laundering, not to mention the darker side of blackmail, extortion, and ransom. Suitcases of cash will no longer be needed at predetermined drop-off points. There won't even be any drop-off points and therefore the frequency and value of all types of untraceable customer-not-present transactions will increase dramatically in an unregulated, "parallel" economy. The morally-positive transactions, such as political prisoner border crossings and tax-free exchanges, will coexist with the morally-negative transactions just as they do today. A parallel economy in the digital sphere has enormous implications for the world's taxation authorities.

We should not take for granted the privacy rights contained within a $100 bill -- they are a wonderful thing for freedom. Jurisdictions that embrace and permit these already-existing privacy features will attract digital currency issuers and therefore thrive in the online financial world. As to the associated morality of various transactions, it is no more the responsibility of the digital currency issuer than it is currently the responsibility of the manufacturer of $100 bills and 500-euro notes. Those types of arguments around judging and enforcing the morality of certain transactions only serve to muddle the true free-market argument for digital currency.

All of these political and moral sensitivities taken together demonstrate why jurisdiction is so vitally important to the emergence and survival of non-political digital currency. Authoritative forces are lined up against its emergence from the beginning, and there will be an ongoing high-stakes battle for survival, as recently observed in the U.S. federal case against e-gold being prosecuted as an unlicensed money transmission service. International governments and police forces will all cooperate with each other in a desperate attempt to retain monetary supremacy, so old laws will be tweaked to make them applicable, and new direct legislation will be enacted to fill any voids. This scenario will play out across the globe where the larger and stronger nations exert diplomatic, economic, and possibly military pressures on the non-compliant nations.

Not surprisingly, even the U.S. government recognizes that restricting digital currencies on the Internet will require unprecedented international coordination. As stated in a 2008 U.S. Department of Justice study on Money Laundering in Digital Currencies:
"U.S. regulatory action alone will not be sufficient to suppress the money laundering threat posed by digital currencies. Even if clear and consistent regulatory measures are imposed, digital currency services established in foreign and offshore jurisdictions—which are not subject to the Bank Secrecy Act (BSA)—can be used to conduct transactions in the United States. Limited international oversight of this expanding financial service is possible through a recommendation of the Financial Action Task Force on Money Laundering (FATF)."
To be sure, jurisdictional risk is but one of many risks in the digital currency business, with the others being technological risk, encryption/security risk, audit risk, fraud risk, and business default risk. But it is jurisdictional risk that has the most profound impact on long-term viability because it is the least correctable once launched. In addressing jurisdictional risk, the digital currency issuer must consider multiple jurisdictions for each of the functional areas and perhaps even two or more jurisdictions within each functional area for redundancy. For example, both a Central American country and an Asian country for location of hosting servers would provide load-balancing and continued reliability in the event of a changing political climate against anonymous digital cash server farms in one country.

Administrative offices may be part of a legal entity in a faraway, remote jurisdiction and have physical staff and buildings in a large, populated city, thereby placing them in a different territorial jurisdiction. Both jurisdictions are important to consider because both will have differing legal statutes related to the issuance and management of anonymous, untraceable digital currency. It is not the objective of this analysis to promote one jurisdiction over another, primarily because ideal jurisdictions will be in a constant state of change due to their political nature. However, it is possible to look at some selected jurisdictions of existing digital currency issuers.

One such issuer established a Panamanian international business corporation (IBC) as a holding company with a subsidiary Haitian company as the administrative general contractor and a subsidiary Burmese corporation as the payment system operator. In addition to distributing legal jurisdiction risk, this structure served to insulate the administrator from the business risks associated with default of the operator. Another issuer established the administrative body in the Seychelles with operations and customer support outsourced to a Malaysian company.

For administrative legal jurisdiction, Panama, Belize, Costa Rica, Nevis, and Seychelles have been popular because of their banking secrecy heritage, minimal tax structure, and/or their distance from the reach of the U.S. legal system. They are decidedly not one of the 32 member countries of the FATF international body. Establishing in non-FATF member jurisdictions can be a double-edged sword for the digital currency customers because untrustworthy issuers may be insulated from judgments related to fraud, so issuer reputation will be of paramount importance to overcome that concern.

In the case of territorial jurisdiction, it is not always clear where issuers maintain their physical presence because they have mostly been small, movable organizations capable of operating virtually. Diligence should be observed if loosely guiding or operating a digital gold currency entity from a shareholder's home country, such as the United States, because territorial jurisdiction will prevail regardless of where the corporate entity was formed. Since legal and territorial jurisdictions are different from an enforcement perspective, the issuer ideally should establish separate legal entities for each location.

For the location of international bullion storage, issuers have selected domiciles that have a longstanding reputation of storing precious metals, such as Zurich, London, and Vienna. Now, Dubai is an up-and-coming storage center for precious metals in that it is already one of the largest centers for trading gold managing one-fifth of global annual gold production. Geographic diversification in vault selection makes sense in a world where established financial centers have experienced increased pressure to eliminate financial privacy, and the threat of asset confiscation persists.

The complete jurisdictional framework for digital currency issuers is a multinational structure of various corporate entities that have either subsidiary relationships within the framework or pure outsourcing arrangements to separately-owned entities. They will function best when they have considerations for distributed risk and redundancy built in and when they utilize best-of-breed locations for the particular functional areas.

This article was also published in Digital Gold Currency Magazine (August 2009).

For further reading:
"Fab Four: The 4 Best Asset Havens in the World", The Sovereign Society, June 2008

Monday, July 27, 2009

Upcoming Themes to Explore

The following themes are some of the issues that will be explored in upcoming posts to this economic blog:

The Importance of Jurisdiction - innovative digital gold currency issuers are the new Lydians and with a proper jurisdictional framework they have the potential to challenge central bank supremacy;

Issuer Market Updates - a periodic overview of active digital gold currency issuers will be provided including details such as jurisdiction, bullion storage, and auditing provisions;

A Parallel Economy - via anonymous, untraceable digital cash, a precise and probable business path is suggested for the leading digital currency to achieve coveted "reserve currency" status'

The Cryptography Behind Anonymous Cash - the burgeoning field of applied cryptography drives the mathematical science that makes anonymous value and its transfer possible;

The Exchangers - digital currency exchangers provide clearinghouse and lender of last resort functions in the online economy.

Monday, July 20, 2009

The Fall of Wall Street and The Rise of The Virtual Street

By Saad Fazil [1]
Sunday, July 19, 2009

While the “real” economy has been tumbling for the past two years or so, social applications, online gaming, and the virtual economy have proven to be fairly resilient [2] in the face of the economic slump.

Saturday, July 11, 2009

Monetary Historian Vieira Plans Reprinting 'Pieces of Eight'

The Gold Anti-Trust Action Committee published the June 2009 reprinting announcement by Edwin Vieira Jr. for his seminal work, Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution. Originally published in 1983, the book is a landmark achievement in constitutional law and in dissecting how the State has usurped the control of money, establishing the prerogative of issuance. An earlier review of the book by James Turk is also available at GATA.

Also, watch Dr. Vieira's excellent video on "Economic Federalism".

Thursday, July 9, 2009

Virtual Cash Meets the Real World

By Cherise Fong
Thursday, July 9, 2009

There's gold in them there screens: Real-money transactions in virtual worlds are finding new legitimacy.

While China is seriously cracking down on the exchange of virtual currencies for real cash, virtual economies backed by newfound legitimacy elsewhere are quickly gaining ground in the real world.

On June 24, 2009, the role-playing game 140 Mafia launched on Twitter, following in the footsteps of highly lucrative games Mob Wars and Mafia Wars on Facebook (and now iPhone) to link virtual-currency exchanges to real-money transactions.

In March 2009, MindArk -- creator of the MMORPG (massively multiplayer online role-playing game) Entropia, where one player famously bought an island for US$26,500 in 2004 -- saw its wholly owned subsidiary Mind Bank granted a banking license from the Swedish Financial Supervisory Authority.

The new license allows Mind Bank to be the first bank to directly incorporate real-money transactions with virtual-world activities. Selling virtual assets directly between players for real-world cash has been strictly prohibited by most game publishers, which find themselves looped out of the profits.

What has been profitable in the meantime to some hardcore players of World of Warcraft and EverQuest (and other games) is "gold farming" -- accumulation of "gold," weapons and other status symbols of a seasoned player -- followed by the online auction of such assets or user accounts.

Since games publishers began policing eBay for this type of unauthorized activity, several Web sites such as PlayerAuctions have adopted a PayPal-like approach in order to broker the trading legally, acting as an open marketplace for player-to-player exchange of digital assets.

Dual-currency economies

However younger games (often aimed at younger audiences) are ditching the conventional subscription-based model of the above games to adopt the "freemium" model, which lets users play for free, but allows them to enhance their experience by purchasing accessories or other premiums through micropayments.

Frenzoo, a "3D fashion game for girls", is one game that has adopted this model. CEO Simon Newstead explains: "The idea with dual currencies is that there is a paid currency [Gold Coins], which is paid for using real money and exchanged between sellers and buyers. In addition, there is a second currency -- a free or so-called 'earned' currency [Silver Coins] -- which is gained through activity and progression in the world or game."

"In this way," he continues, "the economy can recognize different forms of contribution, and in newer economies these can also be traded between each other. For example, people earning currency and selling it to people who have less time but have real money."

Mirrored economies

As one of the first successful virtual economies, Second Life's huge marketplace includes objects and services for sale, as well as a real estate market.

In 2008, more than $100 million worth of the world's Linden dollars were bought and sold on Second Life's official LindeX exchange, according to its Web site.

"In Linden Exchange, the U.S. dollar part of the transaction is via PayPal, a well-known entity, so there's a certain amount of trust that comes with it," says Darrly Chang, co-founder of D&D Dogs, a two-man freelance venture that sells virtual dog pets and avatars to Second Life residents.

Recently, however, business has slumped along with the real-world recession.

"We'll continue to see a proliferation of alternative currencies associated with specific platforms and communities, much as frequent-flier miles are associated with individual airlines or even networks of airlines," says Dan Jansen, CEO of Virtual Greats, which specializes in creating branded, copyrighted material for virtual worlds.

"In the longer term we may see a global standard for virtual currencies, but it will take some time."

Golden e-currency?

James Turk, chairman of digital-gold company GoldMoney, agrees.

"But," he adds, "inevitably digital gold currency will make significant inroads in global commerce because it lowers the cost of transacting with one another. Reducing transaction costs creates more opportunities for global commerce."

In March 2009, GoldMoney launched a dedicated iPhone application allowing its account holders to exchange gold and silver units within minutes.

Putting a trendy iPhone application that allows people to manage their own digital gold on par with other popular banking applications branded by well-established banks brings e-currency a step closer to the modern mobile end-user.

Furthermore, GoldMoney is firmly anchored to real-world assets and individuals, notably strictly forbidding anonymous accounts -- unlike the former incarnation of the pioneering company E-Gold, whose founder this month ends his six-month house arrest in Florida after pleading guilty to money laundering-related crimes.

So how realistic is the prospect of a single, global, digital currency?

"It all comes down to trust," says senior economist Frederic Neumann.

"We trust the government to guarantee our 'virtual' money for real currency. [With digital gold] the gold standard is guaranteed by a private company. Governments already have several hundred years of sovereignty engrained in people's minds, so that trust is very difficult to establish."

For further reading:
"Exploration on Operation of Online Virtual Currency", Hong Wu, Hui Peng, and Youwei Zhu, May 23, 2009
"Two-Way Exchange of Virtual Currency: Future Tendency and Inherent Risks", Hui Peng and Linyu Niu, March 7, 2009
"Real Currency Economies: Using Real Money in Virtual Worlds", Billy Harris and Andy Novobilski, January 2008

Tuesday, July 7, 2009

Lawrence White on Free Banking

Professor Lawrence H. White presents "Free Banking" at Universidad Francisco Marroquín in Guatemala on June 24, 2009 in this video provided by New Media. Considered one of the leading scholars on alternative monetary systems, he is the author of The Theory of Monetary Institutions (1999) and Free Banking in Britain: Theory, Experience, and Debate, 1800-1845 (1984). White will be joining the faculty at George Mason University in the fall of 2009.

White also spoke with Dr. Mike Beitler of Free Markets radio on May 7, 2009. He discussed free banking versus central banking, lack of central banking in Panama, fractional reserve banking, and other monetary topics.

For further reading:
"The Federal Reserve System’s Influence on Research in Monetary Economics", Lawrence H. White, August 2005

Sunday, July 5, 2009

One Global Digital Gold Currency...The Devil´s Work Indeed!

By Mark Herpel
American Chronicle
Thursday, April 2, 2009

Digital Gold stands firm as a protector of personal wealth and value

I am constantly amazed at the bad information I see and read regarding digital gold or digital gold currency.

Senior Fellow, Director of International Economics and quite possibly the hardest working man over at the Council on Foreign Relations, Mr. Benn Steil, mentioned digital gold more than two years ago in his article, "Digital gold and a flawed global order". He offered a positive viewpoint and forward looking statements regarding the future of digital gold. Here is what Mr. Steil had to say:

Digitized commodity money may then be in store for us. Gold banks already exist that allow clients to make and receive digital gold payments—a form of electronic money, backed by gold in storage—around the globe. The business has grown significantly in recent years, in tandem with the dollar´s decline. As radical and implausible as it may sound, digitizing the earth´s 2,500-year experiment with commodity money may ultimately prove far more sustainable than our recent 35-year experiment with monetary sovereignty.

However, in the recent news headlines, it seems that not everyone completely understands Digital Gold Currency and the powerful role it can play in everyday commerce.

This month I have been inundated with no less than 36 Skype discussions and emails regarding Mr. Bob Chapman´s piece from "The International Forecaster" and GoldSeek news. The article is entitled, "Staggering Deficits In A Depressionary Economy". [1]

How did Mr. Chapman, or anyone for that matter, get the ridiculous idea that Digital Gold Currency is big government´s global tool to control and spy on the population?

Who said that digital gold will allow governments to control every aspect of my life? Ridiculous!

In the past decade, Digital Gold Currency has been a safe private banking and commerce financial tool for millions of users. It has only been, in just the last 36 months, that the U.S. Government has made an attempt to regulate its use within their borders. The wild prediction that there could, should or would ever be ONLY one digital world currency backed by gold is laughable.

Private Digital Gold Currency companies have been in operation for more than ten years. DGC (digital gold currency) is a private value transfer solution which is always issued by a business and not a government agency.

Digital gold is an everyday guaranteed solution to the never ending problems of inflated national currency. DGC is NOT government issued legal tender.

Yes, on a global scale, there could be one financial category known as "digital gold currency" however that category could contain thousands of private brand name gold currencies. Here are some examples:
  • GoldMoney gold grams
  • e-dinar (digital gold dinar and silver dirham)
  • Pecunix grams
  • iGolder gold grams
  • Webmoney WMG purse gold grams
  • c-gold grams
  • CryptoBullionReserve GoldGrams
  • GoldNowBanc GoldGrams
  • PC GoldGrams
  • Gold-Pay grams
  • Wontongold Grams
These are all currently functioning private Digital Gold Currencies.

Digital gold is unlike national currency. In the case of government issued paper money, one U.S. Dollar does NOT equal the value of one euro, yen, ruble or pound. National paper currency has floating exchange rates. However, one gram of digital gold always equals one gram of any other digital gold in any other country around the world. Gold is universally accepted by weight, no matter what brand name it holds. Gold backed digital units are the perfect candidate for a global digital currency.

One Gram = 1 gram = one gram

A digital gram of "Bob´s USA Gold" is identical to one gram of "Benson & Co.s" Singapore digital gold, which is also guaranteed to be exactly the same as a gram of "Amr´s XtraOrbit Egyptian" digital gold. Any private currency backed by gold can be easily exchanged for any other digital gold currency with no loss from exchange rates or additional fees which are always present with a paper currency exchange.

The concept of one global currency backed by gold should not mean ONE government issued digital currency. A global digital currency backed by gold should be understood to mean thousands of privately issued gold currencies or brands of currency. The public needs to recognize that digital gold currency is already in use today around the globe, it is NOT some devil which government henchmen dreamed up to control the masses. Digital gold is a private banking solution which offer extraordinary personal security and protection from inflation.

Digital gold = Freedom

Here is Mr. Bob Chapman's statement from "Staggering Deficits in a Depressionary Economy" (March 14th, 2009):
We are hearing more and more about digital gold as a private-bank solution to potential devaluation of fiat currencies. The May/June issue of the CFR´s, Foreign Affairs magazine, Benn Steil a senior fellow and director of International Economics, who has been on loan from the parent Royal Institute in London since 1996, says digital gold, "although a niche business at present, gold banking has grown dramatically in recent years in tandem with the dollar´s decline." Mr. Steil was the Illuminist who drew up the plans for the North American Union and the Amero. If there is digital gold out there somewhere we haven´t heard about it.

The new approach to a world currency obviously will be digital gold. This way they can introduce a one-world currency backed by gold to make it acceptable to the world public. The digital nature means government would know every aspect of your financial life and would control you and your country. The gold storage would, of course, be controlled by the Illuminists. The elitists have come to the conclusion another fiat currency is not going to be acceptable. This is why JP Morgan Chase, Citicorp and Goldman Sachs talk in terms of $2,000 gold and UBS projects $2,500. Historically such benchmarks are usually and normally exceeded by prices from $3,000 to $7,000.
When did Digital Gold become big government´s tool for spying?

Here a newsflash, the government already keeps a very close watch on the population through bank accounts and credit cards. Since 9/11 U.S. government agencies already, "...know every aspect of your financial life... and control you and your country" as Bob states. Digital gold won´t bring government agencies any further into your bedroom than they already are, that is an outright lie.

Bob also makes this statement in his article, "If there is digital gold out there somewhere we haven´t heard about it." Well, anyone reading can get on over to, (WMG), or and try it out. Stop trying to demonize one of the best digital assets Americans have in the uphill battle to protect their wealth.

Digital gold is a protector of personal freedom and property rights. Private digital gold companies stand for freedom and financial privacy.

"To improve our money system it is neither necessary nor wise to destroy our present system. It is only necessary to produce a better product and to introduce it gradually."--Dr. Edward Popp, "The Great Cookie Jar", 1978

In all fairness I must disclose that I did email Mr. Bob Chapman and he responded saying that I just misunderstood him. After that response, I immediately re-read his article along with Ben Steil´s article(s) and a few others. I think I understand completely. Citizens in today´s world are moving away from the centralized greedy megabanks and towards local, smaller, decentralized level financial playing fields and that usually means gold or silver.

Every concerned citizen I´ve met is angry that their life saving and family nest egg just lost 40% of its value in the past two years. Everyone I meet seems mad that their job was shipped overseas in the past few years because manufacturing is not too expensive to do in the United States. Every person I know is angry at the Congressional big spenders for blowing through $3 Trillion dollars on bailouts and stimulus packages. I believe I understand it completely, it´s crystal. People want sound money.

The advances of today which give us digital gold instead of shiny gold coins for retail commerce should make NO difference in anyone´s ability to recognize honest money. The advantage of using digital gold as money is clear, gold cannot be created with a few keystrokes like excess bank loans. Digital gold gives citizens the ability to protect the population´s wealth just as freshly minted U.S. gold coins did back in 1792.

America was founded on gold and silver money. In previous decades all U.S. money was backed by gold or made of silver. It was good enough for Thomas Jefferson and it is good enough for today´s Americans.

There is nothing wrong with using digital gold currency as money and people like Mr. Chapman need to either rethink their position, clarify their writing and stop spreading rumors.

In the free Internet world, thousands of creative minds have already been building private currencies for more than a decade. Since gold is still considered money as it has been for thousands of years, the use of digital gold will continue to grow as a safe harbor protecting value from the approaching financial storm.

Digital gold currency is the number one monetary advocate for individual rights, privacy and freedom.

Georgia, Missouri, Washington State, Maryland, Montana, Colorado, Indiana & Previously New Hampshire

Today, there are about a half a dozen states with pending honest money legislation which includes the use of privately issued Digital Gold Currency for commerce and in the collection of taxes and fees. Here is one example from Indiana Honest Money:
Requires the treasurer of state and fiscal officers of political subdivisions to: (1) maintain one or more electronic gold currency accounts with a designated electronic gold currency payment provider; and (2) conduct all monetary transactions of the state or political subdivisions through electronic gold currency accounts. Provides that an electronic gold currency payment provider must use an electronic gold currency unit that constitutes a monetary unit of account and represents a claim of title to and ownership of a specifically defined, fixed weight of gold held by an independent specie vault. Specifies that a specie exchange with which an electronic gold currency payment provider associates must conduct the business of exchanging gold and silver coin, legal tender of the United States, and the electronic gold currency of the electronic gold currency payment provider.
I believe that in the very near future privately issued digital gold will be in much wider use throughout the US and around the world. However, there certainly will not be just one issuer and the gold currency could never originate from a government agency. There will be thousands of different private issuers and brand named Digital Gold Currencies in use protecting citizens wealth and privacy.

America was built on gold and as the United States sails past the $14 Trillion dollar debt level, I am very surprised to see any intelligent person trying to downplay the importance of sound money like Digital Gold Currency. Credit cards and fiat money are much bigger villains.[2]

1] "Staggering Deficits in a Depressionary Economy", Bob Chapman, March 14, 2009

2] "Credit Card Fraud Is Funding Terrorist Networks: Not Digital Gold Currency", Mark Herpel, American Chronicle, July 14, 2008

Mark Herpel is the editor of Digital Gold Currency Magazine and resides in Panama. This article was also published in DGC Magazine (April 2009).

Saturday, July 4, 2009

Book Review: Good Money

The Mises Institute published a review of George Selgin's 2008 publication, Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775-1821. Professor Selgin tells the fascinating story of the important yet almost unknown episode in the history of money—British manufacturers’ challenge to the Crown’s monopoly on coinage.

In the 1780s, when the Industrial Revolution was gathering momentum, the Royal Mint failed to produce enough small-denomination coinage for factory owners to pay their workers. As the currency shortage threatened to derail industrial progress, manufacturers began to mint custom-made coins, called “tradesman’s tokens.” Rapidly gaining wide acceptance, these tokens served as the nation’s most popular currency for wages and retail sales until 1821, when the Crown outlawed all moneys except its own.

Good Money not only examines the crucial role of private coinage in fueling Great Britain’s Industrial Revolution, but it also challenges beliefs upon which all modern government-currency monopolies rest. It thereby sheds light on contemporary private-sector alternatives to government-issued money, such as digital monies, cash cards, electronic funds transfer, and (outside of the United States) spontaneous “dollarization.”

George Selgin is Research Fellow at the Independent Institute and BB&T Professor of Free Market Thought at West Virginia University. His research covers a broad range of topics within the field of monetary economics, including monetary theory, monetary history, macroeconomic policy, and the history of monetary thought.

Praise for Good Money

“George Selgin’s story of how private enterprise solved a monetary problem that threatened seriously to retard the Industrial Revolution is a splendid piece of historical analysis. He has done an incredible job of unearthing all of the details of what went on in Britain in the late eighteenth and early nineteenth century. It is a fine example of historical research.” —Milton Friedman, Recipient of the 1976 Nobel Memorial Prize in Economics

“Almost all previous research and publication in the two contingent fields of the history of coinage and the metal industries has formed a dichotomy between two different groups of specialists: economic historians and numismatists. . . . A great strength of this book is that Selgin has mastered both bibliographies and integrated the fields. Two further aspects of the work, which enhance its academic status, lie in the extensive deployment of primary sources (particularly the Boulton archive, the Boulton and Watt papers and the records of the Committee of the Privy Council on coin) and the wide range of themes covered. . . . The prominent sub-plot in Selgin’s book breaks surface in the introduction, the conclusion and in the robust defence of ‘genuine’ private commercial tokens. He is clearly at one with Herbert Spencer (and The Independent Institute, a promoter of private enterprise and co-publisher of the book), in challenging—or at least questioning—the claims of the state to what has always been one of the earliest, most universal, and most ruthlessly enforced public monopolies. In exploring these issues, Selgin reveals much about the dynamic of the British economy in this period and the fractious relationship between private enterprise and the apparatus of the state.” —Economic History Review

Watch George Selgin present his book's core thesis at the Austrian Scholars Conference, March 14, 2009.

Lew Rockwell interviews George Selgin on "Libertarian Coinage".
Listen to George Selgin discuss the book on a radio interview.

Friday, July 3, 2009

Judy Shelton Says Let's Abolish Legal Tender Laws and Go Back to the Gold Standard

The Wall Street Journal (February 11, 2009) published "Capitalism Needs a Sound-Money Foundation" by Judy Shelton, author of Money Meltdown: Restoring Order to the Global Currency System.

In the article, economist Shelton discusses "The Indiana Honest Money Act" and the broader states' rights efforts to pass legislation which would legalize the option to transact business in gold, silver, or electronic equivalent within the particular state.

Modelled after Dr. Edwin Vieira's proposed language and his "The State Electronic Gold Currency Plan, Part 1", Part 2, and Part 3, similar gold money bills for legislation have been introduced in the following states:

Colorado, "The Colorado Honest Money Act"
Georgia, "Constitutional Tender Act"
Missouri, "Electronic Gold Currency"
Montana, "Montana Sound Money Act"
New Hampshire, "Gold and Silver Coin and Electronic Currency"
Ohio, "Ohio Honest Money Act"

Federal Reserve Bank of Richmond Interviews George Selgin

Steven Slivinski interviewed George Selgin for the Federal Reserve Bank of Richmond's Region Focus magazine (Fall 2009). The interview covered free banking, the gold standard, the fractional reserve question, and Selgin's recent book on private token coinage.

An abbreviated version including photograph is available here.

Wednesday, July 1, 2009

Toward A Free Market Monetary System

The Mises Institute reprinted Friedrich Hayek's "Toward A Free Market Monetary System" on its website on November 21, 2008. The article was also included in Good Money, Part II: The Standard in The Collected Works of F.A. Hayek, along with Hayek's paper delivered at the 1981 VISA International Annual Conference in Athens, Greece, "The Future Unit of Value".

Published by the University of Chicago Press in 1999, volumes five and six in The Collected Works of F. A. Hayek concentrate on Hayek's work on money and monetary policy. Launched at the centenary of his birth, these volumes bring forth some of the economist's most distinguished articles on monetary policy and offer another vital addition to the collection of Hayek's life work.

Good Money, Part I: The New World includes seven of Hayek's articles from the 1920s that were written largely in reaction to the work of Irving Fisher and W. C. Mitchell. Hayek encountered Fisher's work on the quantity theory of money and Mitchell's studies on business cycles during a U.S. visit in 1923-24. These articles attack the idea that price stabilization was consistent with the stabilization of foreign exchange and foreshadow Hayek's general critique that the whole of an economy is not simply the sum of its parts.

Good Money, Part II: The Standard offers five more of Hayek's articles that advance his ideas about money. In these essays, Hayek investigates the consequences of the "predicament of composition." This principle works on the premise that the entire society cannot simultaneously increase liquidity by selling property or services for cash. This analysis led Hayek to make what was perhaps his most controversial proposal: that governments should be denied a monopoly on the coining of money. Taken together, these volumes present a comprehensive chronicle of Hayek's writings on monetary policy and offer readers an invaluable reference to some of his most profound thoughts about money.

For further reading:
"Hayek's Plan for Private Money", Robert P. Murphy, July 18, 2005
"Market Standards for Money", Friedrich Hayek, Economic Affairs, Volume 6 Issue 4, April/May 1986
"The Case for a Genuine Gold Dollar", Murray N. Rothbard, 1985

George Selgin on Free Banking

Professor George Selgin of West Virginia University talks with EconTalk host Russ Roberts about free banking and competitive note issue on November 17, 2008. Selgin is also the author of The Theory of Free Banking and Less Than Zero: The Case for a Falling Price Level in a Growing Economy.

Selgin will return to the University of Georgia in the fall of 2009.

Interview with e-gold CEO

Douglas Jackson, a pioneer in the digital gold currency business, sat down with a radio journalist in 2007 to discuss the benefits and operational details of the e-gold system.

Why Fractional Reserve Banking Is More Libertarian than the Gold Standard

The Foundation for Economic Education has made this insightful and provocative audio available from Jeffrey Rogers Hummel, "Why Fractional Reserve Banking Is More Libertarian than the Gold Standard" (July 15, 2008). The debate has a colorful history within the Austrian School tradition as evidenced by the papers below for further reading. I agree with economists White, Selgin, and Hummel that the existence and practice of fractional reserve banking is neither anti-Libertarian nor anti-Austrian.

Dr. Jeffrey Rogers Hummel is an economic historian with expertise in the American Revolution and the Civil War. A dedicated teacher and gifted scholar, Dr. Hummel is the author of Emancipating Slaves, Enslaving Free Men: A History of the American Civil War (1996). Dr. Hummel has also been published in many academic journals, including the Journal of Economic History, Texas Law Review, and Journal of Austrian Economics. In 2001-2002 he was honored as the William C. Bark National Fellow at the Hoover Institution at Stanford University.
After receiving his B.A. in history from Grove City College, Dr. Hummel went on to become a tank platoon leader in the U.S. Army in the 1970s. He later received a Ph.D. in history with a minor in economics from University of Texas at Austin. Today Dr. Hummel is a faculty member in the Department of Economics at San Jose State University, where he lectures on both economics and history.
For further reading:
"The Case Against the Fed Book Review", Randy Radic, May 19, 2009
"100 Percent Reserve Money: The Small Change Challenge", George Selgin, March 2009
"Hayek's Plan for Private Money", Robert P. Murphy, July 18, 2005
"Legal Tender Laws and Fractional-Reserve Banking", Jorg Guido Hulsmann, Summer 2004
"Should We Let Banks Create Money?", George Selgin, Summer, 2000
"Banks Cannot Create Money", Jorg Guido Hulsmann, Summer 2000
"Why Private Banks and Not Central Banks Should Issue Currency, Especially in Less Developed Countries", Lawrence H. White and George Selgin, April 19, 2000
"In Defense of Fiduciary Media-or, We are Not Devo(lutionists), We are Misesians!", George Selgin and Lawrence H. White, 1996
"Free Banking and the Free Bankers", Jorg Guido Hulsmann, 1996
"A Critical Analysis of Central Banks and Fractional-Reserve Free Banking from the Austrian School Perspective", Jesus Huerta de Soto, 1995
"Fractional versus 100% Reserve Banking", Morris J. Markovitz, June 1988
"The Case for a Genuine Gold Dollar", Murray N. Rothbard, 1985
"Gold and Free Market Banking" (video), Lawrence H. White, "The Gold Standard: An Austrian Perspective" Conference held in Washington, DC, November 16-17, 1983
"Gold versus Fractional Reserves", Henry Hazlitt, May 1979
"The Gold Standard and Fractional-Reserve Banking", Joe Cobb, September 1975