Archive for the ‘Political Theory’ Category

The Real Reason for the Tragedy of the Titanic

Friday, April 13th, 2012

by Chris Berg

The disaster is often seen as a tale of hubris, social stratification and capitalist excess. The truth is considerably more sobering.

In the 1958 Titanic film “A Night to Remember,” Captain Smith is consulting with the shipbuilder Thomas Andrews. After the two realize that the Titanic will sink and that there are not enough lifeboats for even half those aboard, Smith quietly says “I don’t think the Board of Trade regulations visualized this situation, do you?”

In the run-up to the 100th anniversary of this tragedy this weekend, there’s been a lot of commentary about who and what were to blame. Left unsaid is that the Titanic’s lifeboat capacity is probably the most iconic regulatory failure of the 20th century.

The ship had carried 2,224 people on its maiden voyage but could only squeeze 1,178 people into its lifeboats. There were a host of other failures, accidents, and mishaps which led to the enormous loss of life, but this was the most crucial one: From the moment the Titanic scraped the iceberg, the casualties were going to be unprecedented.

Yet the Titanic was fully compliant with all marine laws. The British Board of Trade required all vessels above 10,000 metric tonnes (11,023 U.S. tons) to carry 16 lifeboats. The White Star Line ensured that the Titanic exceeded the requirements by four boats. But the ship was 46,328 tonnes. The Board of Trade hadn’t updated its regulations for nearly 20 years.

The lifeboat regulations were written for a different era and enforced unthinkingly. So why didn’t the regulators, shipbuilders or operators make the obvious connection between lifeboat capacity and the total complement of passengers and crew?

It had been 40 years since the last serious loss of life at sea, when 562 people died on the Atlantic in 1873. By the 20th century, all ships were much safer.

Moreover, the passage of time changed what regulators and shipowners saw as the purpose of lifeboats. Lifeboats were not designed to keep all the ship and crew afloat while the vessel sank. They were simply to ferry them to nearby rescue ships.

Recent history had confirmed this understanding. The Republic sank in 1909, fatally crippled in a collision. But it took nearly 36 hours for the Republic to submerge. All passengers and crew—except for the few who died in the actual collision—were transferred safely, in stages, to half a dozen other vessels.

Had Titanic sunk more slowly, it would have been surrounded by the Frankfurt, the Mount Temple, the Birma, the Virginian, the Olympic, the Baltic and the first on the scene, the Carpathia. The North Atlantic was a busy stretch of sea. Or, had the Californian (within visual range of the unfolding tragedy) responded to distress calls, the lifeboats would have been adequate for the purpose they were intended—to ferry passengers to safety.

There was, simply, very little reason to question the Board of Trade’s wisdom about lifeboat requirements. Shipbuilders and operators thought the government was on top of it; that experts in the public service had rationally assessed the dangers of sea travel and regulated accordingly. Otherwise why have the regulations at all?

This is not the way the story is usually told.

Recall in James Cameron’s 1997 film, “Titanic,” the fictionalized Thomas Andrews character claims to have wanted to install extra lifeboats but “it was thought by some that the deck would look too cluttered.” Mr. Cameron saw his movie as a metaphor for the end of the world, so historical accuracy was not at a premium.

Yet the historian Simon Schama appears to have received his knowledge of this issue from the Cameron film, writing in Newsweek recently that “Chillingly, the shortage of lifeboats was due to shipboard aesthetics.” (Mr. Schama also sees the Titanic as a metaphor, this time for “global capitalism” hitting the Lehman Brothers iceberg.)

This claim—that the White Star Line chose aesthetics over lives—hinges on a crucial conversation between Alexander Carlisle, the managing director of the shipyard where Titanic was built, and his customer Bruce Ismay, head of White Star Line, in 1910.

Carlisle proposed that White Star equip its ships with 48 lifeboats—in retrospect, more than enough to save all passengers and crew. Yet after a few minutes discussion, Ismay and other senior managers rejected the proposal. The Titanic historian Daniel Allen Butler (author of “Unsinkable”) says Carlisle’s idea was rejected “on the grounds of expense.”

But that’s not true. In the Board of Trade’s post-accident inquiry, Carlisle was very clear as to why White Star declined to install extra lifeboats: The firm wanted to see whether regulators required it. As Carlisle told the inquiry, “I was authorized then to go ahead and get out full plans and designs, so that if the Board of Trade did call upon us to fit anything more we would have no extra trouble or extra expense.”

So the issue was not cost, per se, or aesthetics, but whether the regulator felt it necessary to increase the lifeboat requirements for White Star’s new, larger, class of ship.

This undercuts the convenient morality tale about safety being sacrificed for commercial success that sneaks into most accounts of the Titanic disaster.

The responsibility for lifeboats came “entirely practically under the Board of Trade,” as Carlisle described the industry’s thinking at the time. Nobody seriously thought to second-guess the board’s judgment.

This is a distressingly common problem. Governments find it easy to implement regulations but tedious to maintain existing ones—politicians gain little political benefit from updating old laws, only from introducing new laws.

And regulated entities tend to comply with the specifics of the regulations, not with the goal of the regulations themselves. All too often, once government takes over, what was private risk management becomes regulatory compliance.

It’s easy to weave the Titanic disaster into a seductive tale of hubris, social stratification and capitalist excess. But the Titanic’s chroniclers tend to put their moral narrative ahead of their historical one.

At the accident’s core is this reality: British regulators assumed responsibility for lifeboat numbers and then botched that responsibility. With a close reading of the evidence, it is hard not to see the Titanic disaster as a tragic example of government failure.

Mr. Berg is a fellow at the Institute of Public Affairs in Melbourne, Australia. This op-ed originally appeared on the Australian Broadcasting Corporation’s website (The Drum www.abc.net.au) on April 11. Reprinted from The Wall Street Journal, April 13, 2012.

The Culture of Capitalism

Wednesday, April 11th, 2012

by Joyce Appleby

“There can be no capitalism, as distinguished from select capitalist practices, without a culture of capitalism, and there is no culture of capitalism until the principal forms of traditional society have been challenged and overcome.

“But it must be said – and is not often enough said – that the mores of a more traditional organization of society do not die out with the dominance of capitalism. Rather they regroup to fight again with new leaders and new causes.

“Any history of capitalism must contain the shadow history of anticapitalism, sometimes carried out in the name of a new theory, but often as a reexpression of values that prevailed before the eighteenth century.”

From historian Joyce Appleby’s “The Relentless Revolution: A History of Capitalism” (2011).
Reprinted in The Wall Street Journal, April 10, 2012.

Abolish the IRS

Sunday, February 26th, 2012

by Joe Cobb

One of the most desired reforms of the libertarian movement would be to abolish the Internal Revenue Service. The IRS is perhaps the most despised Federal government agency, not only because it symbolizes the hated income tax but also because it is a spy center. Every employer and anyone who pays you more than $600 per year is supposed to “rat you out” to the IRS with a 1099 form (banks and brokerages do it at $10).

Although the IRS is mostly concerned with the collection of personal and business income taxes, the agency was not created in 1913 with the 16th Amendment. It was established during the Civil War and persisted even after the war ended, although the war income tax expired after 1871. The Internal Revenue Service collects revenue from inside the county, while the older Customs Service collects tariffs at the ports of entry. Before the IRS, the Treasury department had been running a bureau since 1791 to collect Alexander Hamilton’s whisky excise tax.

When president Richard Nixon imposed wage and price controls in 1971, the enforcement agency was the IRS. In my 1982 book, “The Income Tax Must Go,” the label that seemed most to fit the agency was America’s Secret Police. Although they like to trumpet the slogan that the filing of income tax returns is voluntary, and failing to file is only a civil violation of law, the force of guns and police are not absent. When you sign a tax return, the criminal penalty for perjury is attached to your signature. The IRS publicizes its enforcement powers every spring, as April comes, to use fear as a stimulant for people to file tax returns.

Misleading Proposals to Abolish the IRS

There are several misleading proposals to abolish the IRS floating in the blogosphere. One of the most prominent is the so-called Fairtax, which would eliminate the personal income tax and replace it with a national sales tax, combined with a socialist proposal first advocated by presidential candidate George McGovern in 1972 – the “prebate” to give money to everyone in advance, so they can pay the sales tax at the grocery store and gas station.

It seems the most popular part of the national sales tax idea is that individuals would be liberated from reporting to the IRS every year. But there are a number of questions about this “magic wand” interpretation of the Fairtax.

One of the questions about a retail sales tax is whether it covers the price paid for services. Many states do not tax services, and it is always a controversy whether their sales taxes, or “retail privilege tax” as in Arizona, should extend to cover the sale of services. One service a typical family might offer would be a yard sale or a garage sale. Would the Fairtax cover those activities? Would a family putting old clothes and used toys or furniture on their driveway in the spring have to register with the (what shall we call it?) the new IRS to collect the national sales tax?

The Fairtax is riddled with gimmicks to answer this question. For example, newly constructed houses would have to pay the national sales tax, but used houses would not? Maybe the yard sales are only selling used stuff, but what about the pottery or the quilting that is sold at local arts and crafts shows? What about the kids who mow lawns in the summer? Would they have to register with the IRS to collect the national sales tax? It seems the issue about collecting the tax is something the advocates of the Fairtax have some problems to explain. A government agency would be asking questions to anyone who creates a product with new labor.

Not least among the victims of the Fairtax revenue enforcement agency would be the retail stores, particularly the small retailers. Mom and pop have a small convenience store franchise. Today they submit monthly reporting tax returns to their local state sales tax agency, in most states, and sometimes they are audited. The national retail sales tax would dramatically increase the amount of money and the importance of auditing these tax collections. With every point-of-sale in the United States becoming the starting point for collecting the trillions of Federal revenue our over-sized government needs, it is hard to believe something as big and powerful as today’s IRS would not exist. The spy agency would still be there in some form, although its victims might be mom and pop instead of wage earners.

The IRS today is also the collection agency for the Social Security Administration. One of my critics from an earlier article critical of the Fairtax idea celebrated the Social Security Administration, saying it would be the agency paying the McGovern “prebate” to citizens. It was not lost on me the emphasis on “citizens,” because many of the supporters of the Fairtax prebate idea want to stress the detail it would not be paid to non-citizens, even if they are legal residents and family members of Americans. Where does this particular concern come from? Maybe from the Ku Klux Klan inspired 1924 immigration quota law? But immigration reform is another topic.

The Only Way to Abolish the IRS

The only way to abolish the IRS for real is to abolish centralized Federal taxation. Now we are getting into serious political issues about the role of federalism in the United States Constitution. The 16th Amendment and the income tax has seriously crippled the relationship between the states and the Federal government, by giving the central government more power to collect more money, and to subdue the state governments with bribery. Barry Goldwater in his famous book, “Conscience of a Conservative” (1960), devoted more pages to the destruction of federalism under the New Deal, and years since, than he devoted to a discussion of the principles of limited government at the state and local level.

As part of the Compromise of 1787, the Founding Fathers set up the House of Representatives on a population-proportional basis. The House of Representatives was the part of Congress that wrote tax and spending laws, and the Senate was only allowed to amend those enactments. This is Article I, Section 2, of the Constitution, which is most famous for setting the tax rate on slaves at 60% of the tax rate on white people. Times have changed, of course, and now the Senate is in the driver’s seat, and deal making in conference committees is where the action happens. But the original idea of the Founding Fathers deserves a new look. There are not supposed to be any slaves any more. The census mandated every 10 years was the original basis for collecting Federal taxes, and the state legislatures were supposed to decide how to collect the money.

The proponents of a national retail sales tax are trying to get rid of the income tax with something that I think is worse, instead of trying to restore federalism and to really, really abolish the IRS. The Fairtax will not abolish some agency in the U.S. Treasury with police powers to collect taxes – if not from you, then from the Mom and Pop grocery or the neighbor boy who mows lawns. There will be no escape from the federal tax police as long as the Feds have the power to tax individuals and businesses. The constitution says “No capitation, or other direct tax” and that should be restored as the general rule. The national retail sales tax is a direct tax on Mom and Pop grocery and the neighbor boy who mows lawns.

Let us stop the deception about the Fairtax and its phony claim about abolishing the IRS. It is hardly a fair tax. It is reshuffling the chairs on the Titanic as the last great hope of mankind drifts on the waters of debt and totalitarianism.

(Published in American Breaking Point, Feb.21, 2012)

States Seek Currencies Made of Silver and Gold

Saturday, February 18th, 2012

by Blake Ellis

NEW YORK (CNNMoney.com) — A growing number of states are seeking shiny new currencies made of silver and gold.

Worried that the Federal Reserve and the U.S. dollar are on the brink of collapse, lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are seeking approval from their state governments to either issue their own alternative currency or explore it as an option. Just three years ago, only three states had similar proposals in place.

“In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System … the State’s governmental finances and private economy will be thrown into chaos,” said North Carolina Republican Representative Glen Bradley in a currency bill he introduced last year.

Unlike individual communities, which are allowed to create their own currency – as long as it is easily distinguishable from U.S. dollars – the Constitution bans states from printing their own paper money or issuing their own currency. But it allows the states to make “gold and silver Coin a Tender in Payment of Debts.”

To the state legislators who are proposing state-issued currencies, that means gold and silver are fair game, said Edwin Vieira, an alternative currency proponent and attorney specializing in Constitutional law. And since gold has grown exponentially more valuable, while the U.S. dollar continues to lose ground, the notion has become increasingly appealing to state lawmakers, he said.

The state gold rush: Utah became the first state to introduce its own alternative currency when Governor Gary Herbert signed a bill into law last March that recognized gold and silver coins issued by the U.S. Mint as an acceptable form of payment. Under the law, the coins – which include American Gold and Silver Eagles – are treated the same as U.S. dollars for tax purposes, eliminating capital gains taxes.

Since the face value of some U.S.-minted gold and silver coins – like the one-ounce, $50 American Gold Eagle coin – is so much less than the metal value (one ounce of gold is now worth more than $1,700), the new law allows the coins to be exchanged at their market value, based on weight and fineness.

Local Currencies:
In the U.S., We Don’t Trust

“A Utah citizen, for example, could contract with another to sell his car for 10 one-ounce gold coins (approximately $17,000), or an independent contractor could arrange to be compensated in gold coins,” said Rich Danker, a project director at the American Principles Project, a conservative public policy group in Washington, D.C.

South Carolina Republican Representative Mike Pitts proposed a currency system that would allow people to use any kind of silver or gold coin – whether it’s a Philippine Peso or a South African Krugerrand – based on weight and fineness. Pitts said in the bill, which currently has 12 co-sponsors, that the state is facing “an economic crisis of severe magnitude.”

Republican representatives from Washington State followed suit in January, introducing a bill that would also allow any gold and silver coins to be considered legal tender based on metal values. Minnesota, Iowa, Georgia, Idaho and Indiana are also considering similar proposals.

Many of the bills would make it possible for residents to exchange the physical coins for goods and services, so you could use coins to buy anything from groceries to a car as long as the store chooses to accept them.

However, most people aren’t going to walk around with such valuable coins in their pockets, said Vieira. Plus, calculating the value of the coins – especially if they come from different parts of the globe and are of different sizes and shapes – will get tricky.

It’s more likely that the states will create electronic depositories and accounts for the coins to make transactions easier, when and if the initial bills are passed, he said.

Utah Gold & Silver Depository is already developing a system where customers could use debit cards linked to their gold holdings. When customers swipe their debit cards to make transactions, physical gold and silver coins would be transferred between accounts in privately-owned depositories (or vaults) based on the market value of the metals.

Before deciding on a specific form of currency, some states – including Minnesota, Tennessee, Virginia and North Carolina – are considering proposals that would first require a committee to review their alternative currency plan.

The future of U.S. currency: The states’ proposals have been gaining steam among Tea Partyers and Republicans, many of whom also endorse a nationwide return to the gold standard, which would require the U.S. dollar to be backed by gold reserves.

Tea Party “father” Ron Paul is sponsoring the “Free Competition in Currency Act,” which would allow states to introduce their own currencies, and rival Newt Gingrich is calling for a commission to look at how the country can get back to the gold standard.

But it will be the individual states that could really get the ball rolling, said Vieira. Even if several of the current proposals get killed, the introduction of so many bills at the state level is drawing national attention to the issue, he said.

Funny Money: 11 Local Currencies

Of all the state proposals circulating right now, Republican-controlled states including South Carolina, Georgia, Idaho and Indiana have the best chance of passing their proposed bills this year, said American Principles Project’s Danker. If just one or two states implement an alternative currency, it could have a Domino effect, he said.

“I think we could get a couple passed in this legislative session, and that would show this is mainstream, popular and it would be a justification for more of the risk-averse states for doing this,” he said.

There are, of course, many people who think the recent push for alternative state currencies should be stopped in its tracks. David Parsley, a professor of economics and finance at Vanderbilt University, said he thinks state-issued currencies are a “terrible” idea.

“Having 50 Feds” could debase the U.S. dollar and even potentially lead the country into default, he said. “The single currency in the United States is working just fine,” said Parsley. “I have no idea why anyone would want to destroy something so successful – unless they actually wanted to destroy the country.” [Or just wanted to destroy the monopoly of the Federal Reserve - Joe Cobb]

Copyright by CNNMoney.com, published February 3, 2012.

The Capital Gains Tax

Saturday, February 11th, 2012

by Joe Cobb

Mitt Romney released his tax returns and they showed he paid a lower income tax rate than Warren Buffet’s secretary. What a shame. And he lost the South Carolina primary election, and was challenged in the Florida primary election, as a result of this misleading “fact.”

Romney is a rich man. His wealth is mostly in financial assets, which he trades and sells. He gets the long-term capital gains flat tax rate, 15%, when he sells and has gains from the sale of his property.

Warren Buffet’s secretary sells her labor. She falls into the “progressive income tax” category. The tax on labor is not a flat tax. The more she makes, the higher her tax rates go up. If Warren Buffet paid her more for her work, her tax rates might go up to 35% under current law and up to 39% under President Clinton’s law – not to mention Social Security taxes.

Mitt Romney doesn’t sell his labor. He sells his property, which he acquired with his labor some years ago, and gets the income (gains) from its value. If he doesn’t gain, he just gets some of his money back. The key detail is the “basis” of his property. That is what he paid for it, or originally invested to obtain it. If he sells his property for more than its basis, he has a gain. If he sells for less than he originally invested to obtain it, he has a deductible loss.

The Capital Gains Tax Rate

Back in the early 1920s, the Congress discovered the income tax was unfair to people who invested and held assets for many years, and then sold them for a gain. The income tax took all of the sales price and put it into their highest tax bracket the year they sold. This was especially unfair to people who had held their assets for many years, and for whom the inflation – depreciation of the “dollar” – meant their original basis was an irrelevant valuation in a unit of money that had gotten smaller.

If you paid a silver dollar for an asset in 1901 and sold the asset for $20.00 (paper) in 1946, did you make a real gain or not? The “dollar” had been depreciated to less than half its earlier value, possibly faster than the asset’s real value had gained. In the past 45 years the “dollar” has been reduced to about one-seventh of its value in 1966.

This is called “money illusion” and most people are fooled by it. A yardstick and a scale will measure weights and measures, with honest calibration. A bank account or an asset price, are floating on the sea of uncertainty because nobody knows what a “dollar” will buy next year. The measurement of value in “dollars” is a floating exchange rate with the future.

But the basis of an asset you purchased is fixed in time by the rules of accounting. Your capital “gains” might be fictional, and the real picture is that you lost value. Too bad. The current law is against you. They will tax your imaginary “gain.”

But there is a solution: “indexing” your basis for loss of value, measured in the accounting units of money. The tax code uses indexing each year to adjust for inflation (depreciation of the dollar). The tax brackets for labor are widened and the standard deductions and personal exemptions are numerically increased, which really just keeps them the same. For example, if you earmed $10,000 in 2005 and $12,800 in 2011 you would be earning the same real income, and the income tax recognizes this with indexing.

But the U.S. Treasury opposes putting something like “indexing of basis” into the tax code. They say it would “cost too much revenue.” The government wants to confiscate the phony “gains” from inflation when people sell property. This reminds me of an imaginary conversation between Hitler and Goebbels in 1943. Imagine if one of them had said, “Yes, I know it is wrong; but we need the labor.” When the government uses inflation to confiscate the value of your property, it is just like using phony tax accounting to confiscate your life’s work.

We don’t know if Mitt Romney came out ahead or behind, because we don’t know the inflation-adjusted value of his sales, from which he got his taxable income. But he paid the legal rate, which is 15%. Of course it is smaller than what would be his tax rate if the income was from punching a time clock, like Warren Buffett’s secretary. But is it “unfair”?

Stupid Idea: Flat Capital Gains Tax *

The tax rate on capital gains should be the same as the tax rate on labor, but the way capital gains are measured should be changed.

In the beginning, 1920s, the tax writers in Congress granted capital gains a special 40% tax exclusion as a concession to the idea that holding an asset for several years is a different thing than earning the same amount of income from current labor. It was current labor income, interest and dividends that the income tax was supposed to focus on.

Capital gains were an odd-ball factor that had to be treated differently, since several years were accrued in the capital gain. The tax on income is one year at a time. Congress realized there had been inflation during World War I and the capital gains exclusion was a “fix” for the accounting problems. Whatever your gain from the sale of property, held for more than a year, might be, you would only pay 60% of the top marginal tax rate on your gains.

Today there is not any “exclusion” for capital gains, but there is a special lower tax rate of 15% for that income. As Mitt Romney’s problem illustrates, there should be tax reform to have capital gains pay the same tax rate as labor income, but there should be an adjustment for the money illusion, the accounting value of the basis of the property that is sold. It should be indexed for inflation for all the years it was held.

Since the rate of inflation, the depreciation of the “dollar,” is an uncertain and variable thing, a far better idea would be to allow owners of assets to adjust their bookkeeping. If you purchase something for $100 you should be able to compute the inflation factor on that original amount when you sell it. If you held the asset for 10 years and the dollar shrank to half its value, you should be able to claim a basis deduction from your sales price of $200, and pay tax only on the real gain.

Does the Treasury department really “need” the revenue more than Americans need justice in the tax system?

Published in American Breaking Point, Feb.6, 2012
______
* A flat tax is not stupid, it is smarter than a “progressive” tax, but it is stupid to have a different tax system for labor. It only incites envy. I advocate dividing the issue and having a single tax rate for both labor and capital gains, and then to have a decentralized Federal system for them both. See my book in this web site.

Corporations are People Too !

Saturday, January 28th, 2012

by Joe Cobb

Corporations are people too, but as Stephen Colbert says, “only people are people.” Good point, but is a corporation like a house or a car? Anyone you talk to at a corporation, like a customer service representative, is a human being. They may not be as educated as you, so they may be slow in helping you with a customer service problem. But, after all, they are people.

Corporations are people too. The customer service representative will try to help you. The government public employee will insult you, as happened to me last week in Glendale. I was calling to get an inspection to my newly installed solar voltaic system. I bought the panels myself from a supplier in California. I hired an unlicensed guy to mount them on my roof according to specifications. I hired a professional (high priced) solar company to make drawings for me. I paid those paperwork guys my entire subsidy from SRP for those drawings, about $1,200.

But I got no working solar panels because the damned City of Glendale inspection departent is very inefficient. I have been personally jerked over for more than two years, since I first bought my broken down house, and spent $450,000 renovating it. It now appraises for $100,000 with a $193,000 mortgage (flex rate can go up to 12.5%).

I am sticking with my house; we love it. It was my dream to build the inside of a house; the exterior is mostly the same. We tore out walls and rebuilt stairs and bathroom, dissolving two small bedrooms in the process to make a giant, walk-in spa area.

I don’t care if my house is appraised at only $100,000. That is good because it keeps my real estate taxes low. The Federal Reserve keeps my mortgage down, by purchasing bonds.

People need to own bonds, to save for pension funds and life insurance. Mutual of Omaha is a big owner of government bonds. It is a big corporation. Warren Buffett lives there.

Humans Organize: Ask the labor unions.

A corporation always begins as a few friends with an idea, and turns into a project to recruit specialist helpers. That is how a business begins. Then it becomes important to make a “corporate identity.” Tom+Jerry+Sylvester becomes the TJS Corporation.

What does that mean? Did a new human person get born by the joint sex of Tom+Jerry+Sylvester? Ha Ha.

The efficient purpose of corporate personhood is to allow those who hate those guys to sue them in their corporate name, instead of having to name them individually on a petition for tort relief. [Use my number, not my 10,000 individual names (shareholders)].

Once a corporation has achieved “perceived wealth” in the market, its shares of stock are almost as liquid as money itself. Warren Buffett is offering to buy BSNF with shares of his own Berkshire Hathaway. This is not a merger; it is an investment by Buffett. But he will pay for it with his own money – shares of his company. He is not a bank, but he has become a “bank of issue.”

I am not critical of someone offering a form of barter, even a form of financial barter. It is very good that our legal and social system permits the enforcement of long term contracts, like debts and investments. So cheers to Warren Buffet for initiating one more step toward true free asset banking.

Free Asset Banking

The simple idea that you should be able to spend your money anywhere or any time when a seller is satisfying your requests. You should be able to offer any price and he should be able to decline a too low offer. But then you negotiate, like equals.

I can save my money any way I want to do. Most people cannot save because they are undisciplined, but those who can save or who have won the lottery, or who chose their parents well, can think about managing savings and even checkbook money.

It is easy today to open an account at a discount brokerage, like Scottrade, and put a few thousand in an account. Why should you put your money there instead of in Wells Fargo?

The banks want you as a customer because, on the average, most of you leave a surplus of your money in your bank accounts. You know you always want your bank account to be big enough for next week. But the banks invest your money while you are paying no attention to it. This is actually a good thing, because they know better how to invest your money. They will just keep it safe for you.

Corporations are People Too

The choice is between letting the investment departments of the big banks choose how to invest your money? Or perhaps look at some ways to invest it yourself, very safely, in some direct commodity or bond purchases.

People will be helping you. You can see in someone’s face whether they are honest. Trust your feelings.

The financial corporation you choose will open an account for you and accept a deposit. With a bank, you deposit and they say ‘Thank You.’ You spend it from their Visa or MasterCard. Good system.

Another tactic is to cut out the middleman. If you have some money to save, you should also think about directly investing it. A brokerage account at a company like Scottrade would do you well. I “bank” at Scottrade; my Visa card and checkbook spend from that account. It is money. I like to invest in gold exchange traded funds. Just like money, but in gold.

I have no “set up” like other libertarian writers. I am an advocate of free competion in currencies, and this is an example of how the full freedom of money and banking will be emerging.

Corporations are people too for (1) the convenience of plaintiffs; and (2) because customer service representatives are the face of a corporation, and senior executives are the generals and admirals of the business. We understand the value of generals and admirals. Sometimes they make mistakes. Then they lose money and go broke.

Corporations are people organized to follow a business plan. It has an organization chart, like Captains and Seargents in the army. And it gets the job done. Customers are happy – they come back repeatedly.

Customers come back to their service corporations when they have problems or questions and get some satisfaction. So, why do we criticize “corporations”?

Corporations are made up from all the people who are working as a team to satisfy customers. It is systematic. It is like rowing a skiff down a river race. All pull together.

But in reality those are people who are choosing to work as a team, inder the direction of their generals and admirals.

Santorum

Saturday, January 7th, 2012

I don’t like the guy. He is a specimen of the worst kind of Republican, a “big government conservative” who scores nearly Zero on the Nolan chart‘s personal freedom axis.

I am adding my little help [Here] to promote Santorum’s “Google problem.”

The Result that Socrates Died For

Saturday, July 16th, 2011

Democracy is the worst form of government except for all the others that have been tried. – Winston Churchill

For tyranny is a kind of monarchy which has in view the interest of the monarch only; oligarchy has in view the interest of the wealthy; democracy, of the needy: none of them the common good of all.

Tyranny, as I was saying, is monarchy exercising the rule of a master over the political society; oligarchy is when men of property have the government in their hands; democracy, the opposite, when the indigent, and not the men of property, are the rulers. – Aristotle, Politics

Democracy and Debt

The U.S. debt-limit “crisis” is dominating the news on television and in the print media. The problem is that democratically elected governments will vote for spending programs and then will resist tax increases to finance them. Governments sell bonds to get the extra funds. Then the savings of millions of people are absorbed in “safe” government bonds. How much economic progress in the world economy is retarded by the ability of governments to borrow money, which is then not available to use for productive private investment?

To be sure, some government investments are productive, like building highways, sewers and hydroelectric dams – but the question is always what cost-benefit calculations are made, and what artificially low rates of discount are used? Any cost-benefit analysis will show a net present value benefit if you do the math to get a desired result. Government funded projects that are “estimated” to be profitable are often based on false math, just as the benefits of new aircraft carriers for the navy are based on very subjective theories about the future “need” for them.

Democratic government is a collective system of decisions. Nobel laureate Kenneth Arrow of Stanford University proved that democratic systems of voting cannot make coherent selections of priority in choosing among alternatives. For example, a democratic voting process can choose Option A in preference to Option B, and Option B in preference to Option C, but then choose Option C in preference to Option A. [A>B>C>A] That would be considered dysfunctional in a single family or business, since it does not confront economic reality.

So the U.S. Congress, and in Greece, Portugal, Italy and almost everywhere else, governments choose to run deficit budgets and borrow money from the investors who have a surplus, and who believe governments will never default. Greece and Portugal are today testing that theory, and the United States government is making investors hold their breath.

The Moral Argument against Debt

Maybe if one of the big governments, like the United States, simply defaulted it would change the “faith” in sovereign debt. Maybe as Thomas Jefferson believed, the system of government borrowing is actually immoral. He wrote that for a current legislature to borrow money, which would be repaid by yet unborn taxpayers, the current generation is committing the worst form of taxation without representation. The Tea Party spokesmen are talking about government debt and saying much the same thing about grandchildren. Maybe repudiating it would be a moral thing to do, in spite of good arguments about respecting contracts and property rights.

The U.S. House of Representatives is proposing a Balanced Budget Amendment as part of any debt-limit increase bill. The main argument against this idea is

(1) it would be about as effective as the 9th Amendment, which is wonderful but toothless;
(2) it is ephemeral, since it would have to be ratified by 38 State legislatures, all dependent on Federal money; and
(3) it would almost certainly end up justifying tax increases under a democratic system that seems to prefer welfare spending.

As much as I hate taxation, maybe the best system would be a constitutional mandate requiring every bill for government spending to be coupled with a specific excise tax. The current fiscal system generalizes tax collections assessed on wealth or income or sales price or property value assessments.

Generalized taxes are a big pot of money, commonly just forecast or estimated by “experts” on the basis of econometric models of future revenues. Those are all statistical guesswork, and they are frequently wrong. A brief examination of the accuracy of government revenue forecasting over the past 50 years provides no confidence in this magic art. What I want to suggest would be some very specific excise taxes, or even a capitation on every baby’s head.

Government spending is always very specific and detailed. Pork or earmarked spending would not be popular if it were not specific. Government spending is written into the law and beneficiaries can even sue in court to receive their payments. Thus, government deficit spending is built into the democratic process. Government borrowing and debt is required automatically by the incoherent system of “A > B > C > A” decision-making.

Milton Friedman pointed out the real burden of taxes on society is how much government spends, not how much revenue it collects. Spending uses up real resources and denies them to other economic activities. When a member of Congress or a State or city legislature votes for spending, they are voting at the same time for a tax collection. Somehow specific tax assessments ought to be tied visibly to the spending. When individuals go to the store and buy something, they see the cost and they evaluate the hoped-for benefits. It is a clear decision, not affected by the problem Prof. Arrow identified.

In a democratic system, the main process is deception, even self-deception. The French philosopher, Frederic Bastiat, described democratic socialism as the belief that each person can live at the expense of everyone else. For the survival of a free democratic society, or to avert eventual fiscal collapse, some way to clean up the deception is essential.

Democracy and Social Conservatism

But the problem of democracy is more serious than simply the irrationality of the fiscal system, which votes for spending but refuses to vote for taxes.

Consider the issues of individual rights, like freedom of religion or unpopular speech. If these were put to a popular vote, the social conservatives would vote against the specific examples that might be on a ballot. Socrates was put to death by a popular vote in classical Athens because he was accused to saying offensive things about religion and corrupting the youth. Many social conservatives today would vote without hesitation to ban Hustler magazine.

Even socially progressive voters want to ban what the Supreme Court has identified as First Amendment rights in political campaign financing. This should come as no surprise to students of the “progressive movement” that expanded democracy in the United States 100 years ago. One of its first achievements was the 18th Amendment and Prohibition – which were a triumph of feminism in that era.

Democratic referendum voting is the main political tactic for anti-gay activism. The gay rights movement has won its liberties primarily from court decisions, not from a vote of the people. When the Iowa Supreme Court declared marriage between gay partners to be legal, the justices were recalled by popular vote. In California, Proposition 8 by popular vote repealed private marriage vows.

In Egypt today, a new political party has been organized with surprising speed, the Nour Party, which reportedly is set to gain a majority in the upcoming elections. This is an ultraconservative Islamic party. According to a recent news report, it has been formed because the Muslim Brotherhood is seen as too moderate.

It should be no surprise that popular democracy is more likely to give political power to social conservative movements, as against individual rights or free speech – or freedom of religion. If the majority can vote for social or cultural conservatism, or for unlimited government debt, we get the result that Socrates died for.

The Failure of Al Gore

Thursday, June 30th, 2011

by Walter Russell Mead

The following quote from The American Interest blog site is highly recommended. Mead explains why the political agenda of the Global Warming or Climate Change movement has failed. Nothing politically will be done about it, except in local areas.

Gore’s failures are not just about leadership. The strategic vision he crafted for the global green movement has comprehensively failed. That is no accident; the entire green policy vision was so poorly conceived, so carelessly constructed, so unbalanced and so rife with contradictions that it could only thrive among activists and enthusiasts. Once the political power of the climate movement, aided by an indulgent and largely unquestioning press, had pushed the climate agenda into the realm of serious politics, failure was inevitable. The only question was whether the comprehensive green meltdown would occur before or after the movement achieved its core political goal of a comprehensive and binding global agreement on greenhouse gasses.

That question has now been answered; the movement failed before it got its treaty, and while the media and the establishment have still generally failed to analyze these developments and draw the consequences, the global climate movement has become the kind of embarrassment intellectuals like to ignore. Like the Club of Rome, Y2K, the Iraq Study Group and President Obama’s management of the Middle East peace process it is something polite people try not to think about. This is why Al Gore is less visible than he used to be, and his views are less eagerly sought: the polite world and its ready handmaid the press know Gore has failed but does not want to think or write about why.

The global green strategy was a comprehensive, unified and coordinated one. Green activists around the world, in some countries empowered because proportional representation gives fringe groups disproportionate political influence, would unite around the push for a single global solution to climate change. The global solution involved a treaty to be negotiated under UN auspices that would be “legally binding” and subject the emission of greenhouse gasses to strict global controls. Developing countries would receive massive transfers of official aid ($100 billion or more a year) to compensate them for the costs they would incur in meeting carbon targets; developed countries like the United States would face stricter targets still. The target for the treaty was to cap global emissions at levels believed to keep the global temperature rise this century to two degrees centigrade.

To reach this Valhalla, a political strategy was put in place; it is the strategy that the former vice president is still gamely trying to push in his Rolling Stone article. It has failed.

The idea was to develop and present a scientific case that global warming was happening, that it was caused by human activity, and that its consequences in the near future were so devastating that a binding and effective GGCT (Global Green Carbon Treaty) was the only way out.

Politically, the framers of this approach could count on the support of green movements worldwide, on diplomats and UN officials constantly looking for new missions and new budgets, on anti-capitalist or anti-growth forces who want to slow down or reverse the process of capitalist economic development reshaping the world, on Europeans and others concerned about the rapid rise of Asia and the shift of political power from west to east, and on a group of economic interests and financial market wizards who stood to make hundreds of billions if not trillions of dollars from the massive reorientation of the world economy the green program would require.

To make the case for a proposition like this, one needs to make the following argument: that the cost of inaction is unacceptably high, that the proposed measures are both feasible and effective, and that there are no easier or cheaper methods of accomplishing the goal. This is no special set of high hurdles invented for the purpose of frustrating the greens; it is the basic test that any proposal in any arena must pass.

In the global warming debate, this involves arguing first that the evidence for rapid and destructive climate change is rock solid, second that the global green agenda can be put into place and will work if it is, and third that there are no less costly, less intrusive or more workable alternative policies to the green agenda as it is now understood.

From the beginning, the movement was dogged by what proved to be a fatal flaw. That problem was and is the sheer expense, complexity and unwieldiness of the GGCT. The political goal of the global green movement is so enormously complicated, so economically expensive, so administratively difficult, so dependent on the coordination and cooperation of so many different powerful political interests with radically different agendas that its adoption was extremely unlikely.

Any serious discussion of the merits of the GGCT would be fatal because the more the world reflects on the topic the more the world’s diplomats, policy makers and opinion leaders realize just how utopian and unworkable this “strategy” really is.

The global green treaty movement to outlaw climate change is the most egregious folly to seize the world’s imagination since the Kellog-Briand Pact Kellog-Briand Pact outlawed war in the late 1920s. The idea that the nations of the earth could agree on an enforceable treaty mandating deep cuts in their output of all greenhouse gasses is absurd. A global treaty to meet Mr. Gore’s policy goals isn’t a treaty: the changes such a treaty requires are so broad and so sweeping that a GGCT is less a treaty than a constitution for global government. Worse, it is a constitution for a global welfare state with trillions of dollars ultimately sent by the taxpayers of rich countries to governments (however feckless, inept, corrupt or tyrannical) in poor ones.

For this treaty to work, China, India, Nigeria and Brazil and scores of other developing countries must in effect accept limits on their economic growth. The United States must commit through treaty to policies that cannot get simple majorities in Congress — like sending billions of dollars in climate aid to countries like Iran, North Korea, Syria and Pakistan, even as we adopt intrusive and expensive energy controls here at home.

The green plan is a plan for a global constitution because the treaty will regulate economic production in every country on earth. This is a deeply intrusive concept; China, Nigeria, Myanmar, Iran and Vietnam will have to monitor and report on every factory, every farm, every truck and car, every generator and power plant in their territory. Many states do not now have and possibly never will have the ability to do this in a transparent and effective way. Many others will cheat, either for economic advantage or for reasons of national security. Many states do not want their own citizens to have this knowledge, much less the officials of hostile foreign powers.

Moreover, there will have to be sanctions. After all, what happens if a country violates its treaty commitments? If nothing happens, the entire treaty system collapses of its own weight. But to work, enforcement will have to mean penalties greater than the advantages from cheating. Who will monitor output around the world, assess performance against commitments, levy penalties and fines — and then enforce those decisions when they are made?

There are no real answers to these questions and can be none. No institutions exist with the power and resources to play these roles; the world’s jealous nation states will not consent to create them.

The dream that the menace of global warming will cause humanity to overcome its ancient divisions and unite in a grand global coalition is sophomoric. Rising CO2 levels will not cause the world’s governments to accept and enforce international policing of the most intimate details of their economic lives. If the menace of nuclear war can’t create world government, the menace of global warming won’t do it either.

The case for the Kellog-Briand Treaty is actually much stronger than the case for the Global Green Climate Treaty. The scientific evidence that war is dangerous and becoming more murderous, more risky and less acceptable every day needs no complex calculations and no computer models to convince a skeptical public. There can be few people on earth who do not understand and fear the horrors of modern war; nothing could be more evident and obvious than the danger that future wars pose to the human race.

Compared to the GGCT, the Kellog-Briand treaty against war was a piece of cake. A Kellog-Briand Deux would be easier to write, easier to negotiate, easier to ratify and easier to monitor than the green treaty of Al Gore’s dreams. A treaty banning war involves monitoring a few easily measurable and generally visible activities. The line between what is permitted and what is prohibited is much easier to draw in the Kellog-Briand case than in the GGCT, and many fewer activities would have to be covered — meaning the negotiation process would be less cumbersome and contentious. Violations are easier to check as well. It is much easier to see that a state is mobilizing an army than it is to monitor the millions and billions of economic activities to be regulated by global warming treaty.

The global greens don’t want to talk about any of this. They don’t want anybody to reflect on the obvious truth that a GGCT will be either ludicrously weak, unratifiable in the US Senate or unenforceable. (Like the Kyoto Protocol it could well be all three.) They are building a bridge to nowhere, and attacking anybody who disagrees as a flat earther.

They want to talk about science, not history, policy and the realities of international life. The science, they say, is “settled.” (Never mind that far better researched subjects, like human nutrition, are far from settled and that we are still watching governments build and deconstruct food pyramids as the “settled” scientific consensus continues to change.) Don’t tell me my solution is stupid, say the greens — the problem is real!

Mssrs. Kellog and Briand could have said the same thing: how can you be against our treaty campaign? Don’t you understand that War Is Bad? Are you some kind of war-denialist?

Mr. Gore’s work up to and including his latest Rolling Stone essay has taken a demagogic rather than intellectual approach. His method of arguing is to trumpet the science of climate change and to make ad hominem arguments against its opponents. The science is clear, it is settled, and the opposition against it is funded by people with an economic stake in denial. I am right about the science and my opponents are a bunch of evil opportunists in it only for the money.

That is Mr. Gore’s position, and it is his entire position. He says nothing about the feasibility of the proposed GGCT or its cost effectiveness. That, presumably, we must take on faith. There is nothing to discuss about policy. It is essentially the cry of Chicken Little: “The sky is falling and we must run and tell the king.”

Thus speaketh Al Gore: the world is burning down and so you must immediately follow my plan for fixing what’s wrong. He does not discuss whether his plan is feasible; to anyone who objects to the ponderous, unwieldy Rube Goldberg style green treaty agenda, Gore simply bellows: “What’s the matter you soul-dead, hired flack of the evil oil companies, don’t you believe in Science?”

Al Gore’s logic is exactly like the genealogy of the man who boasted that his line of descent went all the way back to Julius Caesar — with only two gaps. Gore’s ironclad argument has only two gaps: he presents no evidence that the GGCT is either feasible (that it would be efficacious if put into practice and that it can in fact be put into practice in a reasonable time frame) or economical (that it is the cheapest and most effective means of reaching the goal, and that the cost of the fix is less than the cost of the problem).

This is the method of the global green movement as shaped by Al Gore: an ever-crescendoing invocation of blizzards, droughts, locusts and floods aims to stampede the populace into embracing one of the most dubious and unworkable policy prescriptions ever presented to the public eye.

As a strategy it was as stupid as the treaty itself. Many countries are not influenced much by public opinion; China’s approach to the issue has consistently focused on China’s national interest rather than on any utopian dreams of green global governance. Key actors in Copenhagen and elsewhere have looked to cash in on what they see as a neurotic western overreaction; the number and power of such actors ensures that no global treaty will ever reflect the concerns and priorities of green activists but will be warped and distorted to serve the special interests of powerful countries.

Meanwhile, excitable climate activists inevitably stretched the available scientific evidence to build public support in the west. Like Dean Acheson at the dawn of the Cold War, they were “clearer than truth” in the interests of persuading the public to back what they considered to be an ambitious but vital agenda. As evidence of the exaggerations and inaccuracies trickled into view, public confidence in the scientific case for global warming fell and the greens are still scrambling to recapture the intellectual authority they lost in 2009-2010.

The real issue here is not climate science. It is true that, as many critics attest, Gore fundamentally misstates the nature of the scientific discussion of climate change and, especially, the extremely complex questions associated with interventions in it. He overstates what is known, disregards the inherent uncertainties involved in the study of a complex system like the climate, understates the significance of the remaining gray areas, and demagogues the science to get more out of it than his case really merits. The contrast between the intellectually unscrupulous propaganda he makes (the green-friendly UK has ruled that Gore’s Oscar winning film can only be shown in schools if teachers alert students to its errors of scientific fact) and Gore’s self-presentation as a condescending, de haut en bas Great Explainer patiently enlightening the rubes so infuriates many of his opponents that they cannot help themselves. They start arguing with him about hockey sticks and CO2.

This is exactly what Mr. Gore wants; it moves the argument onto his strongest terrain. Whatever one thinks of the scientific evidence for climate change, Gore is on much stronger ground when he argues that the earth is warming than when he argues that a great green global treaty on the lines he proposes can ever be either adopted or enforced. There are a great many scientists and scientific journals who agree with Mr. Gore about climate change. Perhaps they are all frauds and mountebanks — but that is a tough case to make in the court of public opinion. Once the argument moves to science it goes into complex and tricky terrain from which the broad lay public will draw only uncertain conclusions. Gore does not win the scientific argument as decisively as he would like — but his opponents cannot deliver a political death blow there, either. The lay public perceives angry experts and dueling theories with a large but not totally convincing preponderance of evidence on Gore’s side.

There is, however, no serious evidence in either history or political studies to suggest that his approach to the problem can ever be adopted or will ever work. Like war, global warming may well be real — but that doesn’t mean a treaty can help.

The green movement’s core tactic is not to “hide the decline” or otherwise to cook the books of science. Its core tactic to cloak a comically absurd, impossibly complex and obviously impractical political program in the authority of science. Let anyone attack the cretinous and rickety construct of policies, trade-offs, offsets and bribes by which the greens plan to govern the world economy in the twenty first century, and they attack you as an anti-science bigot.

To argue with these people about science is to miss the core point. Even if the science is exactly as Mr. Gore claims, his policies are still useless. His advocacy is still a distraction. The movement he heads is still a ship of fools.

It is a waste of time to talk science with Al Gore. It is a waste of time to listen to him at all. That, apparently, is what the world at long last is beginning to understand. The policy makers and the heads of state who only two years ago were ready to follow Gore up the mountain have softly and quietly tuned him out.

These days, he can’t even get his picture on the cover of Rolling Stone.

Published June 27, 2011, by The American Interest blog site

See also “The Failure of Al Gore: Part I (June 24, 2011)” and “Part III (July 1, 2011)”

Gold Clause, legal and financial application

Sunday, June 19th, 2011

Review of The Gold Clause by Henry Mark Holzer
[Amazon link]

Investors have long understood that money issued by governments is not a stable measure of value. Throughout history governments have debased money, clipped coins, repudiated debts, and used inflation for public policy. The 20th century saw the triumph of paper (credit) money after World War I and even the fiction of some link to gold was eliminated in the 1970s. Today, under the Articles of Agreement to the International Monetary Fund, governments can link their currencies to commodities except gold, although none do so.

The avowed mission of most central banks, like the U.S. Federal Reserve, includes a promise to control inflation and keep the value of money stable, but the success rate is nothing to be proud of. The current debt crisis in the Euro zone is always linked to whether the European currency will survive the stress if Greece defaults. The volatility in foreign exchange markets is testimony to the unreliability of the value of government-issued money.

Yet most people never think money could be different – money comes from government, and it is a government monopoly. This book suggests an alternative, entirely private, and hopefully safe from government policy. The classical gold standard evolved as a way to give stability to the value of money. During and after the Civil War, bonds and notes were almost always written with a gold clause to spell out a particular value in terms of gold coin because the Union and Confederate governments had both resorted to printing press inflation during the war.

Henry Mark Holzer has compiled a reference book with all of the important court cases in the history of gold clauses in U.S. law, including the 1935 Supreme Court decisions that nullified gold clause contracts. The book further analyzes the current situation with gold contracts and gold clauses once again having been legalized by Congress, and he offers some important conclusions for anyone seeking to use a gold clause in notes and bonds, leases, or other contracts for future payment.

In simple terms, Holzer recommends never to write a gold contract with any reference to legal tender or government money in any form. Although Congress made the ownership and use of gold legal in the 1970s, and some recent court cases have upheld gold clauses, the power to nullify them is still in the Constitution. But Holzer points out the Supreme Court has never ruled out the right of private parties to make contracts for delivery of particular weights or volumes of commodities. His concluding chapter, “How to Use the Gold Clause Profitably,” sets out the rules as he understands them: (1) never denominate the debt in currency dollars; (2) make the debtor owe repayment in kind, either by weight or by specific form of coin, such as Krugerrand or Maple Leaf. If the debt instrument is likely to be under the jurisdiction of a U.S. court, it might be wise to avoid gold coin from the U.S. Mint. He cautions against using the price of gold to be an index of value because that indirectly brings government money into the contract.

Holzer offers this suggested language on pp.170-171:

“Debtor hereby borrows from creditor 100 ounces of gold bullion, of .999 fineness, and agrees to repay same to creditor on or before December 31, 1987 [for example]. If, for any reason, it shall become illegal or otherwise legally impossible for debtor to repay the aforesaid gold, the event causing such illegality or impossibility shall automatically convert debtor’s obligation to one requiring the repayment of an amount of silver bullion which shall be equal to what the value of gold would have been at the time of repayment, all values to be established by the Zurich fixing.”

There are additional considerations in writing a debt contract, such as rates of interest, which have been regulated under usury or consumer protection laws. Holzer discusses these in historical perspective, but generally such regulations have only affected contracts written for repayment of amounts of government money.

Holzer suggests that standardized futures contracts might serve as a form of insurance for bullion-denominated debts but does not elaborate whether those also bring government money indirectly into the debt contract. If debtors or creditors felt the need to hedge a fluctuating gold price, it should be done independently of the debt instrument itself. Certainly this is how existing bonds and notes denominated in foreign currencies are hedged, although swap contracts, which are widespread in international currency transactions, are currently in doubt due to regulations required but not yet written under the Dodd-Frank statute.

One thing is clear, both in this book and others Holzer has written in his career as a law professor and expert on monetary history, government policy is always the source of financial uncertainty and legal tender laws make things worse. Movements in gold prices that may only be due to depreciation of paper money are taxed under capital gains rules and some governments impose sales or value added taxes on gold transactions. When it suits policy makers to prohibit or regulate private markets, property rights are threatened.

The uncertainty of property rights and future regulations are the principal cause of slow economic growth because people who need to plan for the future cannot predict what is coming. Using gold as a unit of value, measured only by its weight and fineness, has traditionally been one way to stipulate a definite future reference. After all, what will “one dollar” be worth next year? One troy ounce or one gram of gold will be exactly unchanged.