F.A.Hayek’s Final Lecture

On the evolution of Morality:
View link: Hayek lecture, video 50 min.
He explores top-down (constructionist) moral ideas vs. bottom-up selection of what has contributed to success.
Any bottom-up perspective implies change following rules of nature and not of a designing mind, as designing “constructer.” To invoke “intelligent design” is to commit a category error.

Benedict Spinoza

I once heard Albert Einstein replied to a question about his religion by saying he believed “in Spinoza’s God.” I love that citation, even if apocryphal, because it conforms with my views.
(I am like a Quaker, but with Spinoza’s God at the center of my faith – and a gun at my side.)

Here are two excellent narratives from George H. Smith discussing the ideas of Spinoza. A shorter and more lovely philosophy lesson could not introduce you well enough to this great man.

Spinoza on the Bible. (Libertarianism.org Excursions podcast, – 12:37 min. audio)

Benedict Spinoza. (Libertarianism.org Excursions podcast, – 15:21 min. audio)

Spinoza’s Ethics was not published in his lifetime, due to his fear of persecution. He was the most important atheist in modern history. He influenced all who would come after. Spinoza was rarely cited by followers who also feared persecution by openly praising his insights; but they repeated and elaborated his ideas.

Note specially the Appendix to Part One of his Ethics [Final causes]. In this essay he demonstrates how the arguments of “Intelligent Design” are not valid.
Spinoza wrote in 1674.

Einstein liked him.

Transferable Blockchain “coins”

Today individuals who buy or sell bitcoin can do it directly with someone else who completes the transaction for both sides, usually outside the Blockchain. This would be a “wallet” agent of some kind, who accepts USD in exchange for a quantity of bitcoin.

A transfer of a value in bitcoin is one direction, one time. There is no waiting period to allow for errors and corrections, as in the ACH system for US dollars. The ACH system is also a fully electronic method, like the Blockchain, of moving ownership, but only bankers can participate. It is, however, a fully duplex payments system. Trade is always two-directions, even if the counterparty is a banker. As always in human society both sides exchanging assets receive satisfaction and ownership.

The Blockchain is one directional, and final. It is a permanent and auditable public record, which a closed bankers’ loop is not. The Blockchain element (asset) is irrevocably transferred to a new owner.

Two-way exchange of assets can be barter, but more sensibly and commonly it uses a common intermediate trade token. A conventional understanding of accounting creates the Unit of Accounting, which can be weight in some cases, volume in others. Governments intervene when they forcibly separate weight from the units and totals of accounting reports.

Your bank balance, which you access for trade by means of ACH or a debit card, is an asset to you and a liability to your banker. It is a special asset due to its liquidity (bid and ask are equal, ideally). When you buy groceries or gasoline, you transfer part of this asset and acquire the new ones. The value of this asset is in its utility as a tool of communication and agreement.

Asset Barter

Macroeconomics was originally formulated memorably in Say’s Law, that “Supply creates its own Demand.” This is code for a detailed description of what could be called Quantum Economics. All human trade begins with ownership by you of an asset you can use to offer other people. With our social division of labor, we all must make these offers continually to live. The alternative to trade is authoritarian distribution and allocations.

The Payments System is an information system, but it has institutional scarcity (the “quantity of money”) and a method of assigning ownership to assets in detail. It is an accounting system, and a Unit of Accounting is central. The Unit of Accounting is no more substantive than a digit on the Blockchain, but it has separate scarcity. A further example of separate scarcity would be the “quantity of money” for UK Pound; for the Euro; and Renminbi.

Balaji Srinivasan:

Wall Street Journal weekend interview, Sept.23, 2017 by Tunku Varadarajan.

“Bitcoin is a way to have programmable scarcity. The blockchain is the data structure that records the transfer of scarce objects.”

“The internet is programmable information. The blockchain is programmable scarcity.” He elaborates: “All of these previously disparate things—from physical mail to television to music to movies to telephony—basically got turned into packets of information and got remixed by the internet. Plus things that we normally didn’t even think of as information—your Fitbit , your steps, your Facebook settings—became programmable.” It’s fair to say, he continues, “that the internet and all things downstream—search engines, social networks, ride sharing, and so on—have basically been the technological story of the last 25 years.”

“With the blockchain, everything that was scarce now becomes programmable. That means cash, commodities, currencies, stocks, bonds—everything in finance is going to be transformed, and aspects of finance baked into everything else.”

The scarcity of the information codified in Blockchain, which has an audit trail and coded ownership for each unit, has only a significant disadvantage. This proposal is one to reduce the cost of asset barter just as the Payments System is able to do – when paper currency and coins are used.

Transferable Bitcoins

The utility of the Blockchain process is that ownership of units can be transferred, one way, with encoding to indicate size, new ownership, and provenance of authenticity [i.e. its history on the Blockchain, from mining to yours].

Visualize a computer chip with all the data of some quality of bitcoin, on a chip, and you can program the chip to be held in your name, your code. If you physically gave that computer chip to someone else, they could then also change the program of the chip to make it held in their name. A process could possibly be developed to link the chip to any connected computer and update records on the Blockchain. Information on your chip could be copied to the blockchain, and you could reprogram the chip to contain a new satoshi value. If you gave it to someone else it would serve as a medium of exchange for whatever programmed quantity it showed.

There seems to be little difference in this concept from what we know as the reloadable debit card, or gift card which might not be reloadable. One uses such a piece of plastic with an embedded chip to hold and allow the transfer of Units of Accounting (dollars, euro, et al.) and such a card can be used by a person different from the original owner (manufacturer; retail store; you

Milton Friedman Portrayed


Leo Rosten, Milton, and Rose Friedman, started a lifelong friendship while attending the University of Chicago in 1934.

“Our long friendship with Leo, now deceased, was one of the great joys of our life. He was a wonderfully entertaining, yet also wise, friend, with incredibly wide interests and knowledge.”
-Milton and Rose Friedman, Two Lucky People, p.55

Leo became a noted and influential writer; Milton became a noted and influential economist. They shared a world-view that placed great value on the pursuit of truth.

Upon agreeing to the suggestion that he host a major PBS TV series, Friedman urged Bob Chitester to contact Leo Rosten to discuss ideas for its content. Leo participated in several early planning sessions for the series.

In his book, People I have Loved, Known or Admired, Rosten wrote an essay titled “An Infuriating Man.” Milton Friedman served as the model for this essay, about “Fenwick,” in which Rosten gives voice, wonderfully humorous voice, to the tendency of most people to wish the truth not be brandished in their face.
We’re grateful to Madeline Lee and Margaret Rosten Muir, for granting us permission to include this essay in our collection of articles about the Friedmans and their ideas.

The Essay

You take my friend Fenwick [Milton Friedman]. He is an exceedingly loveable little man. His disposition is so sunny, his character so open, that even the Most Hardened Cynics, of whom my wife is International Chairman, call Fenwick “utterly adorable.” He is the very incarnation of the Boy Scout creed: “trustworthy, loyal, helpful, friendly, courteous, kind, obedient, cheerful, thrifty, brave, clean (great Scott! but he’s clean), reverent.”

Now you would think that with a personality like that, Fenwick would be just about the most popular man on our block. That is not so. Fenwick is just about the most unpopular man on our block. People can’t stand him. I have seen Sunday-school teachers with unblemished complexions, and account executives with split-level ranch houses, throw conniption fits at the mere mention of Fenwick’s name. Why? Why? I puzzled over this for years, using the finest puzzling equipment money can buy, before I discovered the answer: Fenwick is a man who goes around being logical. He even uses reason at cocktail parties.

Now, most people believe in reason the way they believe in cold showers: It’s O.K. if you don’t overdo it. Very few people are so insensitive as to go around applying logic to other people’s beliefs. The consistent application of reason to human affairs is irrational. It is also dangerous, as you shall soon find out.

The basic trouble is that Fenwick, who is very intelligent, assumes that other people are very intelligent, too. And that, believe it or not, is the way he talks to them. This makes people uneasy, for nothing is more unsettling than to be treated as if you are extremely intelligent—especially by someone you hardly know. To avoid disillusioning such a man requires that you maintain a constant state of alert, and think before you speak, which imposes cruel demands on your brain. It even makes you examine the partly packaged platitudes you have always employed instead of thinking. Few activities tire one out so rapidly.

Fenwick has no understanding of such things. I think I should tell you that Fenwick enjoys reasoning. He uses his mind the way a sprinter uses his shoes: to get from one point to another with a maximum of speed and a minimum of nonsense. Such a discrepancy between the swift and the stupid ordinarily causes hubris in the former and dysphasia in the latter, hubris being the fancy name for cockiness and dysphasia a variety of depression. But these psychological reflexes do not click on where Fenwick is concerned, because the people he outruns (or, more correctly, out ratiocinates) tend to save face by calling his speed a symptom and his skill a neurosis. Such people attain emotional serenity from believing that superior thinking is a sign of emotional disturbance. I am not sure they are wrong.

Of none of all this is my friend Fenwick remotely aware. For although he actually likes to think, even when no one is forcing him to, he also likes people. The exotic combination of cold cerebration and warm feelings throws people for a loop.

Even more enlooping, my friend Fenwick loves to learn. It does not matter what you do, like, think, or talk about: Fenwick is passionately interested in it. He listens intently to anything you have to say, which is both flattering and seductive; but if you mention something Fenwick does not know, his eyes become as wide as Frisbees and he asks where you found that out, how you know it is true, and how—assuming for the moment that you are right, which is conceivable, though unlikely—you can account for any one of fourteen cases which, if true, shoot your case as full of holes as that of the couple with two children who decided not to have a third because they had read that every third child born these days is a Chinaman. And as you bumble and blubber and flounder and flush, Fenwick sweetly soothes your ego by sighing, “Of course, you may be right … but not for the reasons you presented.”

Fenwick appears to own a brain that came equipped with a sorting device that separates inference from information, allegation from argument, illustration from proof, and preferences from conclusions. Despite this, he has more friends than I do. His friends, it is true, tend to have strong nerves and read statistics the way some men read pornography. But they are staunch, stout friends. Even the thin ones are stout friends.

In ordinary conversation, Fenwick is a fellow-traveler. He follows every chug in your train of thought—indeed, he leaps right on the train with you. And you have barely begun to pick up steam before Fenwick excitedly demonstrates that: (a) you have taken the wrong train; or (b) it doesn’t stop where you want to go; or (c) the tracks don’t lead from your premise to your expectations; or (d) you had better jump off while the jumping’s good or you’ll land in the swamp of mushy ideas you never suspected your position rests upon.

Yes, my friends, Fenwick comes pretty (sic) close to being that most odious and exasperating of human types: the persistent thinker. He may even (I hate to suggest this) be an Intellectual. An Intellectual is a man who shamelessly uses his brain most of the time. No one, of course, uses his brain all of the time; such a man would be a monster—he would not dig sand piles by the sea, or fall in love, or observe Mother’s Day.

Oscar Wilde, who was diabolically clever (and just as superficial), once quipped: “I can stand brute force, but brute reason is quite unbearable. … It is hitting below the intellect.” Fenwick, a beamish fellow, never hits below the intellect. He is always kind, fair, patient, moderate—which greatly increases his unpopularity. Do you follow me? Fenwick is so fair in discussions that people can’t even accuse him of using unfair tactics, than which nothing is more aggravating when you are wrong.

I once heard Fenwick explain to a cocktail party full of decent, taxpaying liberals why it is that no socialist society, however well-intentioned, can give its masses anywhere near the standard of living of a competitive or capitalist society. After the dumbfounded humanitarians had finished stamping their feet, screaming “Reactionary!” and otherwise increasing their psychiatric bills, Fenwick kindly compared the postwar achievement of West Germany with East Germany, of Japan with Red China, of Italy with India, of France with Soviet Russia. He gave several of his listeners the veritable jim-jams by going so far as to compare the economy of Cuba before and after Castro, and the G.N.P. of liberated Africa before and after European imperialism.

If that episode doesn’t tell you what kind of screwball Fenwick is, let me cite another. Fenwick and a friend of mine from Washington, a sociological Meistersinger named Rupert Shmidlapp, were talking about minimum wages, which Congress had just voted to raise from $1.25 an hour to $1.40—and ultimately to $1.60.

Fenwick stunned Shmidlapp, whom I had forgotten to brief in advance, by mournfully remarking that the minimum-wage laws would of course create unemployment, and that these particular laws would wreak havoc precisely among those unskilled workers (Negroes, teenagers, Puerto Ricans) they were supposed to help.

“What?” gulped Shmidlapp.

“To begin with,” said Fenwick, “the American wage-earner today gets twice $1.40 an hour, so the bill is not going to affect him——-”

“The bill is designed to help the unskilled and the undereducated,” retorted Shmidlapp.

“An admirable intention,” beamed Fenwick, “because a tragic proportion of that group is unemployed. But if employers aren’t hiring them at $1.25 an hour, is there any reason on earth why they will hire them at $1.40?”

I poured a stiff drink for Shmidlapp.

Fenwick continued: “Surely the unemployed will have less chance of finding a job under the new, higher minimum-wage laws than they had under the old.”

“What?” cried Shmidlapp. “Can you prove that?”

“Yes,” said Fenwick. “Every time minimum wages have been raised, the ratio of unemployed teenagers has risen—and mostly among Negroes and Puerto Ricans, who are the teenagers it seems absolutely insane, if you look at the crime rate, to force onto the streets with nothing to do! … Don’t you agree that every time you raise the minimum, you must push more unskilled or inexperienced or poorly educated or discriminated-against workers onto the unemployment and relief rolls?”

Instead of repairing his fences, Shmidlapp attacked on the flanks. “What about the greedy employers,” he demanded, “who cruelly exploit their workers by not paying them enough to live on?!”

A twinge of pain crossed Fenwick’s boyish features. “Oh, very, very few employers can hold on to their workmen if they pay them less than the workers can get elsewhere.”

“It isn’t what they can ‘get,’ it’s what they’re worth!” Shmidlapp thundered.

“Only God can decide how much a man is ‘worth,’” sighed Fenwick. “Let us consider the best wage a man can get— for his labor, services or talent——”

“Some men just can’t live on that! Or feed and clothe their children! Or pay their medical bills!” This was Shmidlapp at his best.

“We certainly ought to remedy that,” said Fenwick. “No American who wants to work should go hungry because of the objective (and therefore efficient) forces of supply and demand. Let us by all means give and guarantee the poor a minimum income; that does far less economic and political damage than a minimum wage. A minimum income does not discriminate against the black, the illiterate, the inept——”

“Do you mean to stand there and tell me”—Shmidlapp was too agitated to notice that Fenwick was sitting, not standing— “that no workers are actually helped when Congress raises the minimum wage?!“

“Oh, some workers will have their wages raised from $1.25 to $1.40 an hour,” said Fenwick, “but far more will not get a job they might have gotten at $1.25! And fewer teenagers and Negroes will get on-the-job training, which they desperately need. It is just too costly to train them at $1.40, much less $1.60 an hour—especially for skills that take long training periods. This makes a raise in minimum wages absolutely heartless,” mourned Fenwick. “It prices decent, innocent, willing workingmen right out of the labor market!”

“Then why does Congress pass such laws?” shouted Shmidlapp.

Fenwick blinked. “Are you suggesting that Congress never passes foolish or short-sighted——”

“I am asking why, if minimum wages are so goddam stupid, far-sighted humanitarian leaders like Lyndon Johnson and Hubert Humphrey and Governor Rockefeller support them?!”

“Politics,” chuckled Fenwick. “Or innocence. Or ignorance. Or all three. Politicians and labor leaders get a lot of public credit for raising wages, and considerable private satisfaction in imagining all the good they have done.”

“I happen to know that many business leaders, Republicans and conservatives, favor minimum-wage legislation!” swooped Shmidlapp.

“Of course they do. They can be just as wrong, ignorant, or selfish as anyone else,” said Fenwick. “Many of them are manufacturing products in the North——”
“What does geography have to do with it?” demanded Shmidlapp.

“Well, northern manufacturers are delighted to force up their competitors’ costs in the South* ; in that way, businessmen in the North won’t have to face the desirable effects of that free-enterprise system conservatives and Republicans love to extol.”

“But opinion polls show that the public——”

“The public,” sighed Fenwick, “is not well-informed about economics, and will pay for its innocence. Increased minimum wages lead to increased costs, which lead to higher …. Then many honest, low-wage earners in the South (where the cost of living is lower; which is one reason wages there stay lower) will become disemployed. And many more of the young and no-skilled, in Harlem no less than Dixie, will remain more hopelessly unemployed than they already are.” Fenwick regarded Rupert Shmidlapp innocently. “Tell me, honestly: Would you rather work for $1.25 an hour or be unemployed at $1.40?”

While Shmidlapp was wrestling with many unkind thoughts, Fenwick gave his guileless smile: “I am strongly in favor of wages’ rising—which is entirely different from raising wages. Let wages go up as far as they can and deserve to, for the right reasons, which means in response to demand and supply and freedom to choose… Take domestic servants, Mr. Shmidlapp. Why maids, cooks, cleaning women, laundresses have enjoyed a fantastic increase in their earnings. And notice, please, that domestic servants are not organized; they don’t have a union, or a congressional lobby. Or take bank clerks ….”

But I can’t bear to go on. I guess you can see why Fenwick is so unpopular. The man is infuriating.

P.S. Outraged letters should be addressed to P.O. Box 146, Tierra del Fuego, where I shall be spending the long, hard winter.

Reprinted from PEOPLE I HAVE LOVED, KNOWN OR ADMIRED by Leo Calvin Rosten, copyright © 1970 By Leo Calvin Rosten.
Used by permission of The Rosten Family LLC


* John F. Kennedy was once quoted a saying he intellectually knew that the minimum wage was harmful, but the owners of the mills in Massachusetts who had to compete with the rising Southern mills convinced him it was politically necessary to change his mind. The first minimum wage law threw something like 400,000 black tenant farmers in the South out of work, replaced by machines.

What is the Quantity of Money?

We understand the Quantity of Money as a “quantity” (trillion dollars, lump sum) but it is not quite the same kind of thing as a trillion “gallons.”
First, to get such a “quantity of money” it is necessary to add up your bank balance and my bank balance, and everyone else’s bank balances. This becomes absurd. Should you include the informal cash accounts and FRN’s circulating in Africa?

    But the basic idea is that the sum total of all the “money” anyone might be able “to spend” is an important “quantity.”

Notice which labels, above, I have put into “scare quotes.” I want to emphasize in the comments below how those terms are not what you might have first believed the words mean.

In the Beginning, there was god and he created gold and silver. This is a good enough “creation myth,” and we don’t need to care about it. The central picture from this myth is the idea of a finite quantity in the universe for gold, or silver. The idea becomes fixed that somehow the fixed quantity of these metals is a critical economic detail, because Prices are quoted in the names and references of these metals, throughout history.

But the genuine innovation in the use of money among mankind was when somebody invented the Unit of Accounting. When the first cattle herding early man made a trade with his neighbor, perhaps trading half a bull for the other man’s daughter, the Unit of Accounting was invented, as also was the concept of “CREDIT” = Latin verb = “He trusts, he believes.”

Coinage came along much later, and it was always a free market coinage until the Roman Empire. The advanced Egyptians did not at first make coins. They had excellent scales and could weigh the gold dust and alloy the ore. No problem. No coins needed for repayments of credit-due in the markets of Egypt.

Coinage with government seals was a signal of the alloy or purity of the coinage, as in Lydia, which had a particular alloy of silver to offer in coined form. It made their mining product more exportable, because it was stamped for authenticity and purity: an early trademark.

The Roman victor in the civil war, Octavian Augustus Caesar, came to Rome and closed the mint at the temple of Juno Moneta, where Senators had always had their copper, gold and silver ore hammered into recognizable Units, of relatively standardized sizes. This had been a private-religious, not a government, activity. The Senator who minted his coins chose its face design, often a god or family event.

The family of Marcus Brutus celebrated his assassination of Julius Caesar by coining an image of that glorious republican deed. Augustus did not appreciate this, and closed the mint. Only coins with his face on them were permitted, which he used to buy votes in the Senate and among the Plebeians (he was an elected Tribune, with “veto power” also).

Ever since, a tradition of government monopoly of money has caused much mischief.

What Determines “the Quantity” of Money?

The conceptual Quantity of Money is not a “monetary aggregate,” measured by statistics such as M-1, M-2, M-[et al]. It is the same idea as your own bank account limit today. The hypothetical sum of all bank accounts is an exaggeration, since many such accounts hold fungible credit allowances, not “money.” Aggregates are treacherous epistemologically.

You should think about this idea as if I asked you “What is the quantity of bond asset values in society?” Surely the total quantity of bonds is important, as an asset class. As a macroeconomic valuable, surely this must be important. It certainly represents a monetary quantity, as bonds are a relatively liquid form of financial wealth, easily traded for other assets (houses, factories, government deficit finances). Maybe the total aggregate of corporate Aaa bonds would be something like M-7 and who knows what government bonds are? (Perhaps M-0?)

What makes it possible to calculate the asset value of a bond is to look at its annual dividend payments (or notional future dividend payments) and the current market interest rate for its security class, based on risk, etc. What some buyer will pay for it, based on some valuation calculated on its return.

What makes it possible to calculate the Quantity of Money is to look at the interest rate the Federal Reserve pays on excess reserves, which are the commercial banks’ basis for financing loans and creating new M-1 deposits for borrowers. Reserves are most importantly used for interbank clearings. When the Fed offers an “opportunity cost” of 1.0%, no borrower will get a loan by bidding lower than 1.0% – and higher capital restrictions and regulations will further make the banker cautious about increasing his part of the M-1 aggregate supply.

This is a form of “dynamic control.” It helps the central bank to work toward balancing the aggregate supply of what it can offer (“dollars”) for what the borrowing-part of the world economy wants to have, to make more liquidity in payments and trade. The ACH and SWIFT networks are very important, and need to be kept liquid for daily settlements. The “lubrication” of trade.

Gold as an Asset in the Future Payments System?

So, from an “Austrian Economics” perspective, how does the theory of Von Mises accommodate this new system of the quantity theory? Gold is not part of the “money supply,” nor is any form of specific commodity legal tender. It is all electronic today.

I would point to the later work of the Austrian economist, F.A. Hayek, who published “Denationalisation of Money” (1976) and proposed floating exchange rates as a formal, and privatized, system. He had earlier published “Monetary Nationalism and Economic Order” (1938) and the new global view of currency competition is more realistic. There are seven major currencies traded today, and thus seven central banks are in competition, with a bit also of cartel behavior. The governments believe such power is necessary, as did Augustus. Income taxes depend on these Units of Accounting.

Some new Blockchain products are offering to entitle units of gold weight in ownership on the public ledger. Any asset can be attached and entitled on the blockchain used for it. Logically, units of gold and silver will become popular as a store of value if they can be traded even more liquidly on a blockchain, and cashed for other assets (including one of the seven majors).

Open an account, among the many new ones and see how it works.

[ footnote:

  1. Public Law 99-185 (31USC5112) notwithstanding, although I wrote it; defining a bullion ounce of gold as $50 and thus a “dollar” = 2% of the current exchange rate XAU/USD.
  2. The ‘$50’ detail was added by Democratic staff, under Rep. Frank Annunzio (D-IL) at the insistence of the numismatic lobbyists, to make obvious the “legal tender” quality of the coin.
  3. Curtis Prinz was the chief of staff for Rep. Annunzio.

It plays only a nugatory role in the payments system, but it is “legal tender.” ]

    This essay will be expanded.

Is “inflation” the Only Answer to Exploding National Debt?

I wonder if those wild claims of people who sell bonds and gold coins can actually be true? I have my doubts, which I wrote about in 1985, published in Reason magazine.{tk] My claim is that it is not in the U.S. Congress nor Treasury’s self-interest “to inflate” nor even to make people worry about “an intention to inflate” the value of the U.S. currency – down to Zero value, or perhaps merely less than last decade.
[footnote TK: Reason headline writers assigned my essay a misleading title, “A Dubious Debt Doubt,” but that was just being playful.]

It is indeed not only dangerous to talk like that, or suggest it, but it is totally suicidal for a government running a fiscal deficit.

What can “to inflate away the debt” possibly mean, in today’s context?

In the fairy story the king has a big debt and he decided not to pay it off in the gold coins like he received when he sold his bonds. Instead he would print up little paper certificates, saying “this is a coin.” Then the bond owners would have to go away, receiving “payment” in this new “legal tender.” But that tells you about paying off the king’s debt.

What happens the next time the king wants to borrow from the money lenders?

The money-lenders’ demand for the king’s bonds is the dominant factor in this process. The king cannot force people to buy his bonds; they hide their wealth and pretend poverty. What is one supposed to do in confronting a tax on wealth?

The U.S. National Debt Must Be “Rolled Over” about every 6 Months.

In my 1985 article, I showed statistics current at that time about the maturity structure of the U.S. government debt held by the public. I have not done the updating research, but that is a simple search engine question. The situation is undoubtedly worse, with the government running up the entitlement spending.

Interest rates are determined by the Federal Reserve, in relationship to the international capital markets, so it is difficult (i.e. impossible) to predict any future rates, or values, there. Yet, there is a “model” of human behavior that tells me IF the government sent a signal it might “play with the idea” (run a scenario in a computer model?) of inflating away the national debt, indeed the free market, worldwide,


Imagine what would happen to the foreign exchange rate of the U.S. Dollar? The recent years of a “strong dollar” and falling oil (priced in “dollars”) would be ancient history. Consider what has happened to the UK currency exchange rate, an instantaneous indicator of demand for a Unit of Accounting (“pound sterling”).

It would be sudden. No warnings. It would be a sudden “crash” one day, without warning, when something silly like a careless remark by the President – who really does not understand international finance – sends the whole “confidence game” into the toilet. The British experience on June 24 is a lesson worth learning, when a government’s Unit of Accounting falls out of favor with international bond traders.

Wait for it. It is in our future.

The Unit of Accounting

On October [tk] 1968, Mark Bickhard and I met in New York city at a “convention” Murray Rothbard had summoned to found his Radical Libertarian Alliance. Karl Hess was there, who left early to lead some confrontation with the military at Fort Dix in New Jersey as an anti-war gesture (“new left style”).

Mark and I visited other people in NYC, among them Murray Bookchin, a well known, published anarchist. Bookchin was expounding to us about his “system” for a communal society. He had some idea of the “distribution” of production using computers, but it was not choate.

    Mark Bickhard asked Murray Bookchin what was his “unit of information” in his imaginary computer economic-information system? (“Bits” of some variant; associated with “what value?”)

Mark Bickhard went on to become a Professor of Philosophy, Robotics, and Psychology at Lehigh University. He has published several books and articles further developing his early ideas.

The Unit of Accounting

To me, his question introduced the concept of the “Unit of Accounting” as the key detail to the question about money and “the quantity of money.”

    1. The Unit of Accounting is


It can have a Sum Total. That becomes “the quantity.” It also becomes the basis for CREDIT. Credit is any form of “asset” based on a promise of future payments (the “liability” of some obligor), and of course those are traded as well as held to maturity. Some of those liquid assets are called “nearly money” by economists.

    For example, what your banker owes you on your current statement is called “money” because it is only one step removed. But it is not as fungible (in some contexts) as BenFranklin F.R.$100 notes.

See further discussion of where this analysis of the Unit of Accounting, and its central role in “money,” are explored:

A Flexible Exchange Rate World.

Units of Accounting example: gold grams.

A “Concrete” Unit of Accounting.

Modest Proposal for Kilo Gold US Treasury bonds.

Gold As a Parallel Currency.

Financial Planning Requires a “Concrete” Unit of Accounting

Financial Planning Requires a “Concrete” Unit of Accounting

If you want to see a financial system that promotes savings and investments, a society needs a “concrete” Unit of Accounting. Economists have taught for 100 years that “money” is just worth the trust people put into it. What happens when such trust fades?

    The conceptual “concrete” detail of this idea is that it makes the financial paper (bonds, deferred payments), which could use this Unit of Accounting seem “more trustworthy.”

Visualize the problem most people face when challenged by financial planning decisions, such as for a distant retirement. What is the frame of reference in which someone is supposed to weigh some future value (in “dollars”)?

    [ Pretend you are not as well-informed about finance and economics as the professionals you are consulting. How well can they predict the future?]

A lifetime of retirement beginning in 20 years, planned in “dollars,” cannot be compared to any standard of living referent (rental costs, food costs, taxation) in terms of familiar “dollars” today. The numbers do not allow a comparison of values because they have no relation except as the passage of time may reveal. You have to predict the Consumer Price Index 20-40 years from now.

    What will a dollar get you next year? Less?

No one can successfully do financial planning today in terms of “dollars.”
A gold coin would remain a gold coin and whatever your deferred-payment contract says, it would promise to pay you that equivalent way (in the same kind of gold coinage). Creditors could be paid in a gold coin, but more likely in some transfer of ownership of other paper assets to discharge the debt, but denominated in the gold coinage. Final settlements could be done by any other, different paper-credit methods (at the option of the obligee).

The supposed “stable price level” objective of measuring, would be knowing or trusting the relative value of something you want/need, and what you can trade to obtain it. We might not be able to predict the exchange rate of an ounce of gold vs. a pound of beef in 25 years, but it would not be a whim of imagination.

    I would be more comfortable thinking about coin vs. beef than about $100 today vs. $1,000,000 in 25 years, and wondering which would be more valuable?

Net present value calculations collapse to the shortest time horizon when future money values are uncertain. “Uncertainty” is subjective.

The “unit of accounting” in your mind should possess some “object permanence.” It ought to be a foundation of “Constitutional Money” to have the government’s Unit of Accounting be a concrete thing. In the old days of 1785 and 1792, the “dollar” was an object – a silver coin. Your property is your private ownership; so would a coin-object be;

    . . . but what is the status of the “account balance” your bankers owe you in promised bank-draft credit to pay your expenses? Do you use direct debits or checking? If your “account balance” happens to be denominated in government-accounting units ( “d-o-l-l-a-r-s” ), you should have a right to know if those are not shrinking or “melting away” as a matter of government (or Federal Reserve “central planning”) policy?

Your banker relies on Federal Reserve Accounting-Unit U$D, his reserves on deposit with the Fed.
“F.R.A.U.D.s” would be an insulting acronym for those accounting units.

See also Gold As a Parallel Currency.

Basic Budget and Appropriations Reform

Congress has only completed the full budget and appropriations process on deadline four times since 1977. It becomes more challenging in an election year when many members want to avoid politically sensitive issues — such as healthcare and the environment — which could scare off voters.

As we get closer to the Sept. 30 deadline and the Nov. 8 election, Congress will continue to forego the budget process. Instead they’ll pass a stopgap extension of current funding levels that could ignite another fiscal crisis, or government shutdown, later this year. It is the annual “Continuing Resolution” authorizing continued agency and payroll spending, and Social Security checks, without new Congressional action for the rest of this year.

    “Deadlines? We don’t respect no stinking deadlines!”
    – as might have been said in a famous Bogart film.

The majority, 73%, of American voters are against these kinds of shenanigans and don’t want Congress to increase spending. They know there ought to be a limit on how much money can be put on “America’s credit card.”

The folks in Washington — the president, Congress, Democrats, Republicans — they’re all to blame. But they don’t seem to care. It’s spend, spend, spend; we’ll spend what we want. The budget — what budget? — be damned.

An advocacy group sends out “Uncommon Wisdom Daily,” A Division of Weiss Research and write under the name “Uncommon Wisdom Daily Team.” Thank them for the opening four paragraphs of this message.

The Budget Process is Awkward – and Unnecesary

The United States Congress did not adopt a fiscal year (July 1 – June 30) until [tk] 1890. The law that set it up said the president would submit an annual budget for Congress to consider. The budget law has been changed since then but the idea of “budget planning” is still at the center.

Budget planning is the technique of private business and individuals to lay out numbers for spending and cash inflow for a future period. It is a different process from government fiscal planning. An individual prepares a forecast budget to use both to see how future payments might be divided and also to watch out for new things that violate planning assumptions. In other words, budgets are used to discover as you go along how far you are deviating from your plan.

Government budgets cannot perform that last function. Since appropriations are a law, Congress does not have any time “to modify” the spending except to increase it frequently during a fiscal year and regardless of results.

A Modest Proposal

I was fortunate to serve as a Senate staff member for a Senator on the Budget Committee, 1987-90 (Symms, R-ID). I watched the process and generally it is a systematic analysis and focused way “to plan” the new fiscal year. It controls appropriations, which come later from different committees. But it is never really followed.

What happens are continual “emergencies” and “supplemental” appropriations during the fiscal year, on-going, and at the end of every few years also a Debt Limit Increase confrontation.

Each September 30, the fiscal year ends. Appropriations Laws all expire. Agencies cannot keep paying their staff employees, and beneficiaries stop getting payments on October 1. That never happens because Congress always passes a “Continuing Resolution” to keep on keeping on as if the prior budget appropriations had not expired.


My proposal is to stop at that enactment.
Let the “Continuing Resolution” become the full law governing appropriations for one more full year.

This gives time for the non-money side of Congress, all those Members who do not serve on the Budget Committee nor the Appropriations Committees, also to take some role in supervising and reviewing what their money is actually buying.

If a program is not performing, it deserves NO increase, and if the dollars appropriated shrink due to Federal Reserve policy, let that be the rate of cutting real spending.

Supplemental appropriations are going to happen anyway, for other programs. There is time to look at all the programs, EVERY YEAR, and to evaluate ex post facto how much to reward them for performance.

Government Accounting with Gold Grams

Questions have been raised:

Why the “gram of gold”?

Discussion: When the Unit of Accounting, itself, is a “policy instrument” there is no independent element for the voting public to look at, to rely upon, and specifically the buyers of US Treasury bonds should know they are being promised something in the future that is more than just “a policy instrument” of value.

Quote from Isaac Newton

    “Gentlemen, in applied mathematics you must describe your unit.” He instructed the Royal government.

Newton fixed the gold content of the British coinage, which is unchanged today although in 1931 the “paper pound” (GBP) became the UK government’s accounting unit, and UK domestic legal tender.

[Newton citation from Isabel Patterson, The God of the Machine (1943), who was making a similar claim about unreliable “paper” (policy instrument) money.]

The gram of gold is a unit of mass (weight; density) and the Unit of Accounting could be just referencing something from the physical universe. “Gram” as a Unit happens to be convenient as the name of a measurement, and in financial affairs “traditional” in the sense of gold having been so long used as money (along with silver). Social conservatives may insist on “troy ounce,” an apothecaries’ measure, but those “names” are subject to “re-definition” moreso than the designation of mass in the Systeme International.

Why Not a Tabular Standard, with a diversified group of commodities?

Discussion: Proposals for a tabular standard have been around since Stanley Jevons and Simon Newcomb, and have never been taken seriously by the world of finance, or governments. Perhaps tabular standards are the “most rational” method of establishing a Unit of Accounting. I particularly like the Greenfield Fama Hall (GFH) commodity concept, which Greenfield and Yeager analyzed. The best part would be the government would not issue any of the “currency,” which might be created by banks for that Unit of Accounting, privately as credit (deposits).

When the government “defines” a Unit of Accounting for itself, which it uses in the bond market, then the private sector will create deposit accounts and private loans in the same Unit of Accounting. This is just “monkey see, monkey do” anthropology. The banks would also have assets denominated upon maturity in that Unit of Accounting, so their new credit liabilities would be “backed” sufficiently to promote “confidence.”

    1. When the “dollar” is just a “policy variable,” there is no basis for long-term confidence in it. No financial planner can tell a client, “you will have ‘X-value’ in the future.”
    1. Who knows?
    Its value is a “policy variable,” and policy can change.

If the payments system can already accommodate Visa and Mastercard, with FX transactions seamlessly executed, different Units of Accounting are already not any serious problem for a modern economy (and probably not for more primitive systems, where traders are very wary and alert). Local pricing would probably always be done in traditional, familiar customary (“dollar, euro, yen, yuan”) units and labor wage rates would optimally be local also to match the local pricing practices. Tourists don’t seem to have many problems with the payments system if they carry plastic.

So, “Why the Gram of Gold” and it is because it is a Unit that can serve for Accounting, and be independent from any government policy.

Why Not Fix the Dollar-price of gold?

Discussion: The fixed weight definition of “dollar” from 1900 was 1.5046 grams of gold, until F.D.R. debased it and Nixon abolished it in 1971 (it was a “policy instrument”).

Fixing the amount of gold defining ‘One Dollar’ is not technically different from defining dollars in terms of a composite of other commodity prices, as in a tabular standard, but a single tangible referent is “more concrete” in people’s minds, which begs the question: “Why not just use the weight of the metal to which the government’s Unit of Accounting is supposed to refer?”

The answer is that “defining” the “dollar” as something else leaves it as just a “policy instrument” with a value that can change with new policies. [Politicians and crony capitalists want the “flexibility” of that option.]

    • What kind of “confidence” is that supposed to inspire? Does the motto on the paper money say “In God We Trust” because we cannot trust the money itself, or the government that issues it? [motto was first used in 1862 on paper currency; the Greenbacks; “god” instead of “gold” or silver to be trusted]

[When will another president, like F.D.R. and Nixon, decide to break the promised, fixed XAUUSD exchange rate?]

My favorite acronym: F.R.A.U.D.= Federal Reserve Accounting Unit Dollar.

The Optimal Currency Area for Capital Markets is the World as a Whole

To step outside the question of whether a government should have a monopoly of some currency area, what might be an “optimal” currency area? Some things are traded mostly locally, and others are traded mostly globally. It might be useful to have a world-wide, single Unit of Accounting for capital assets and corporate balance sheets, particularly if the company has multinational operations.

The existing system of “national currencies” drives the current strength of the U.S. Dollar. But that is accidental.

To sensibly discuss and compare different values, a “standard” for measuring changes in relative financial values is essential: We have the SI for standards in all other fields, except accounting and finance. Measuring length or weight is standardized. Measuring “dollars” is variable. Measuring the same assets in euro, pounds, yen, or yuan is even more fuzzy.

In a world of floating exchange rates, and flexible commodity prices, to use the free market price in any currency Unit of Accounting, measured against the continuously changing “exchange rate” of a gram of gold, allows both flexible exchange rates among different Units of Accounting and a firm alternative basis for balance sheet accounting – eliminating “money policy” and exchange rate uncertainties.

    Governments, of course, should be discouraged from “fixing” their paper to the gram of gold because that would prevent any beneficial adjustments in the local labor market from flexible exchange rates. Governments should be encouraged to issue long-term bonds denominated only in kilograms of gold, not in paper Units of Accounting.

A single common Unit of Accounting in the capital markets (“gram”) would facilitate international diversification of equity ownership and remove capital movements measured in that Unit of Accounting largely from impacting floating exchange rate values, since “exchanging money” would be unnecessary when “trading” financial assets denominated in gold grams. As gold grams displaced other Units of Accounting in balance sheets, showing historical cost of assets in “gold gram” units, demand for some paper Units of Accounting might decline.

Theoretically a single world capital market based on gold-gram accounting could eliminate any transactions or exchange costs (with technology, e.g. blockchain) improving market performance. Issuing US Treasury bonds in Kilograms of fine gold would represent a dramatic innovation in the financial world, because the slow roll-over of maturing US Treasury bonds financed by the Kilogram bonds would not affect private wealth by a problematic “fixing” of a gold price for “Federal Reserve Accounting Unit Dollars.”

Since “policy Units” of Accounting can “float,” A Unit that DOES NOT CHANGE is worthy of being used as a basic “relative-measure-referent” for Balance Sheet asset values (thus my recommendation for a SI referent, to the gram of gold and introduction of US Treasury Kilogram Bonds). The depreciation of paper makes balance sheet numbers over time less and less useful.

  1. The chemical element, Au, will not change (object permanence), and
  2. The measure of its mass in SI units will not change – by policy. The SI unit of mass is not a “policy variable.” It is ideal as the name of a Unit of Accounting for quoting and measuring relative prices for other assets. Offering the Kilogram bonds would establish a reserve asset for insurance, annuities, and private debentures. They would become the asset side of private balance sheets with liabilities similarly denominated.
  3. The exchange prices for gold in every other Unit of Accounting are available 24/7 as public information, in real time without delay or “statistical adjustments.”
  4. All the historical data needed for any tax calculations would be readily at hand.
  5. Any change in the future relative value of gold against other real goods and services is arguably more stable and predictable than government policy. As we wrote in my essay on financial planning,
      “We might not be able to predict the exchange rate of an ounce of gold vs. a pound of beef in 25 years, but it would not be a whim of imagination. I would be more comfortable thinking about coin vs. beef than about $100 today vs. $1,000,000 in 25 years, and wondering which would be more valuable?”

Although the Unit of Accounting is used centrally in the payments system – paying our bills by exchanging bankers’ debts – the “measurement function” of allowing balance sheet assets to be “historically-valued” over time, and traded, sold, or mortgaged is also critically important. Assets can be traded, and pledged for credit. Credit is liquid; most assets are not. All such pledges are made in the name of the credit-Unit of Accounting.

The “Flexible Gear” of Bank Credit

The “credit process” in action is the “flexible gear” in the economic system that Hayek discussed in The Pure Theory of Capital (1941). “Credit-money” spends itself just the same as “asset-money.” The trick is to assure it is honored in payments (a vanishingly small cost for someone with assets, connected to the ACH or card networks). Bankers know the risks and technology to assure payments are honored.

The Units of Accounting people may locally use (“euro, yen, dollar, yuan”) are not any difficulty, because they all exchange quickly with each other in the FX markets. The Visa and Mastercard networks, and others, seamlessly make foreign exchange conversions.

For its own payments and tax collections, the US Treasury has an Exchange Stabilization Fund (31 Stat. 5117) to be used for balancing foreign exchange, and that Fund could also be used to convert “dollars” to gold grams for internal accounting. The US holdings of IMF SDRs are in that Exchange Stabilization Fund, as assets held by the US Treasury, as well as other foreign currency and “gold certificates” issued by the Federal Reserve in 1934 when all gold was nationalized by Congress under F.D.R.