Tuesday, August 23, 2011

Numismatics informs Economics

If economists actually collected and studied the media of commerce, they would avoid errors common even to advocates of capitalism.  Milton Friedman and the monetists were not much smarter than Keynesians.  In fact, even von Mises and Marx made the same claims about the evolution of gold as the highest form of commodity money.  A numismatist knows better, and knows more.

"Bad money drives good money off the market" is a cliche.  More clarity comes from adding that both moneys must be declared equal by law.  In that case, the markets will operate. People will break (avoid, evade, ignore) the law. The undervalued money will go into other channels (savings, export) and the cheaper overvalued money will circulate.  

Social sciences attempt to mimic physical sciences with concise and precise laws about complicated phenomena.  But, even astronomy is theoretically limited to a two-body universe.  Add more bodies and the nice algebra of theory must give way to laborious numerical approximations.  So, too, with economics.  Gresham's Law applies to two currencies - say the silver dollar and the gold dollar; or to silver dollars of one standard versus minor coinage of another fineness.  Reality is more complicated than that.  As Hayek pointed out, a plethora of moneys circulate.  Economists just focus on one or two issues of the government.

Unfortunately, lacking knowledge of numismatics, Hayek could not state his case empirically.  The Austrian school is rationalist, deriving universal laws from a priori assumptions.  
Spanish 8-reales "dollar" a world trade coin
of the 18th and 19th centuries, this one
chopnarked by Chinese merchants

Many conservatives across the spectrum know that the US Silver Dollar was modeled on the Spanish 8 Reales of the 1780s.   Fewer know that until 1857, Spanish money was one of about a dozen foreign currencies in silver and gold that were legal tender in America, alongside issues of the Federal government.  Many banks of the time issued paper money that promised U.S. federal silver coin in redemption but showed pictures of Spanish and Mexican coins.  (See Spanish Coins on American Notes here.) 

From the beginning of the Federal Mint, there was always a push for alternate currencies to make daily commerce easier.  The US ten-cent dime and 25-cent quarter dollar were not commonly convenient.  Many people relied on worn Spanish pistareens or "fips."  These were approximately half-reales (about 12-1/2 cents when full and new) but circulated at different values depending on circumstances.   That is a basic lesson for economists: to see what people actually do, not to prescribe how they should conduct business. 

In apparent violation of Gresham's Law, presenting a test case for hard money conservatives, the US Mint 3-cent silver and 3-cent nickel circulated side-by-side. The base metal coin did not drive the precious metal competitor from the market.  The same was true of the US Mint 5-cent nickel versus the silver half-dime.  The US Treasury also issued Fractional Paper, an emergency scrip from the Civil War that circulated alongside coinage, even after the apparent necessity was gone.  People could have demanded hard money (as small silver coins), but they did not.  The paper was good enough.  Moreover, fractional coinage - and of course the paper - was a limited legal tender, typically good only for a dollar or two, maybe five, depending on the coins and the laws of the moment. 

Like Europe of the Middle Ages, America also knew apparent "bullion famines" during which times coins were scarce.  They left the country to buy goods from abroad.  That is what money is for.  At other times, with Americans goods being exported and business at home being brisk, merchants sold off their small change at a discount to get rid of the excess.  

Eric P. Newman was president of the American Numismatic Society.  With Kenneth Bressett, former president of the American Numismatic Association, Newman wrote The Fantastic 1804 Dollar.  He is less famous generally but perhaps more highly honored among serious numismatists for his many explorations of Colonial and Early US paper money and his many monographs on other topics.  According to one presentation, delivered at a Coinage of the Americas Conference, December 2, 1984, counterfeit copper coins of the colonial era circulated for over fifty years, into at least the late 1830s in the Appalachian villages of western Virginia.  In Canada, these small copper conveniences are known as "blacksmith tokens."  

Earlier this year, Bernard von Nothaus was convicted on federal charges for issuing his own Liberty Dollars.  Any active American coin collector with a Red Book knows that private issues in gold and copper claim a long and proud history independent of the faltering efforts of the U.S. Mint.  Private silver was unnecessary because of the masses of Spanish (and English, etc.) coins circulating at the time.  We know from old records that into the 1830s many merchants in Boston, New York, etc., kept their books in Pounds-Shillings-Pence.  Business with English partners was brisk; and traditions have strength. 

The Pounds-Shillings-Pence system itself was a radical innovation, a conceptual leap, an epistemological creation that remains unappreciated by those who are ignorant of the history of trade and commerce.  In the broad centuries we call the Middle Ages, any local authority with bullion could strike his (sometimes her) own coins. Much of it came from "plate" household goods of silver; much came from new mines. Easily a hundred different kinds of coins, struck to different standards, often of lower debased finenesses circulated.  Broadly, the old Roman pound continued, while the new German mark ascended.  To rationalize the chaos, bankers invented pounds-shillings-pence.  It did not matter how you built up the quantities, when the books were balanced, you needed 240 pence or 20 shillings (12 pence each) to make a pound (or 12 "Troyez" ounces) of fine silver.  Bankers in the Middle Ages invented abstract money of account to meet the demands of competing currencies. 
Silver penny of Hughes of Champagne,
about 1 gram: dameter of a dime.

This was spontaneous order.  No Dumbarton Oaks Agreement was needed.  No theoretical papers were published.  And no general law was enforced on all.  The Big Problem of Small Change by Thomas J. Sargent and Francoise Velde is a chronicle of monetary media in the Middle Ages.  As a time when Europe had perhaps a thousand independent polities, the stories carry meaning for anyone who wants to understand international monetary systems today.  The work has been criticized by economics professors of the Austrian school for its larger (and largely questionable) theoretical framework, but as a compendium, it is unexcelled.  

As I said in the previous post, there is no standard textbook in numismatics.  No one-volume Samuelson makes life easy for freshmen.  Nothing from any Foundation for Numismatic Education delivers "Numismatics in One Lesson" or the "The Cliches of Monetism."  You can start with the Red Book, the Breen Encyclopedia, the Garrett Collection.  But you will soon discover the new works from Whitman and Krause and Stanton.  Numismatics is active and aware, curious about new facts, fascinated by new discoveries, open to new explanations of accepted evidence... and always being tested in the largest unregulated money market on Earth.
Quinarius of Cato the Younger struck at Utica.
"Pro Per: for himself."  His own silver
financed republican resistance to
Julius Caesar.

Monday, August 22, 2011

Numismatics: the Standard of Proof in Economics

Hayek, Mises, and Rothbard, and of course Friedman,  for all their passion, lacked any understanding of numismatics.  As a result, their theories wanted facts; ultimately, their predictions and prescriptions were weak.  Sometimes, they failed. 
Hayek's Denationalisation of Money relied on Murray Rothbard's flawed monograph, What has Government Done to our Money? which delivered one anemic academic citation on tokens.  Any active coin collector could deliver hundreds of examples of competing currencies, weak and strong, successful and disastrous. 

Most people call it “coin collecting” but numismatics is the art and science that studies the forms and uses of money. This includes stock certificates, bank drafts, military decorations and fine art medals as well as coins.  Numismatics is one of the last unregulated markets. In the USA, there are no government licenses or special regulation. There are few college courses on American campuses. Validation, such as it is, is by ad hoc standards of conduct set within the hobby by private organizations: the American Numismatic Society, the American Numismatic Association, the International Association of Professional Numismatists, and the Professional Numismatists Guild. These groups set standards far above any government laws. For instance an ANA dealer can be banned from membership for selling a single counterfeit item, and ignorance is not an excuse. Two complaints - complaints alone - are enough to cost a dealer his membership.  The ANA offers seminars on its Colorado Springs campus. They also provide a range of self-study materials and grant a master’s certificate in numismatics. 

Of the perhaps six million Americans who claim to "collect coins" only a couple dozen attend ANA seminars each year.  Numismatists are autodidacts. 

That is why academic economists overlooked the very study which tests, proves, or discards their theories.  As a hobby, the engagement is personal, direct, participatory.  There is no standard textbook.  As hobbyists, we allow ourselves whimsy which academics apparently misunderstand.  One of the foundation books about early American copper cents is called Penny Whimsy. The author, psychologist William Sheldon, was a charlatan and thief.  The leading research organization is a club called the Numismatic Bibilomania Society.  Their "journal" is the Asylum.  Their weekly email list is the E-Sylum.  The Paper Money Collectors of Michigan know more about the actual history, forms, uses, successes and failures of circulating notes than any coterie of bankers.  They call their 8-page newsletter The Ragpicker. Their current president, William Brandimore, is also an editor of one of the most authoritative compendiums of United States Paper Money.  

All is not lost.  academic economist George Selgin's work, Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775-1821, came out in 2008.  He provided a thrilling, yet accurate narrative, backed by citations. His research explains the catalog of facts long known from Dalton & Hamer's The Provincial Token-Coinage of the 18th Century (1910).  The standard compendium for American tokens was Lyman Lowe's Hard Times Tokens (1899), which has been continuously updated by new research by Russell Rulau.  Rulau also edits a more general book on American merchant tokens through the 19th century.  

Other specialists have devoted their passions to stock certificates, wildcat banknotes of Ohio, Indiana, Wisconsin, etc., ancient Greek, Roman, Jewish, Turkoman, and Celtic coins, as well as American and Canadian emergency scrip of the 1930s,  and, of course, the full array of U.S. government coins and notes.  From the copper crosses of Katanga to Chinese cash and Siamese gambling tokens, and the rich array of Arab-Islamic issues across 1000 years on three continents, even the monetary uses of woodpecker scalps and cacao beans have been studied and reported in print and at conventions by "coin collectors."  (Conventions feature judged, museum-quality exhibits touting arcane and abstruse subdisciplines.)

Hayek's Denationalisation of Money could have used some evidence.  He relied on Murray Rothbard's monograph, What has Government Done to our Money? which delivered one anemic academic citation on tokens.  Any active coin collector could deliver hundreds of examples of competing currencies, weak and strong, successful and disastrous.  

To be fair, numismatists could benefit from an infusion of free market economics.  It is true that our convention bourse floors put Wall Street to shame.  However, I stopped visiting one collecting discussion board when we had a disagreement first over Morgan-Stanley's naked shorts on silver futures, then over coal mine tokens. Some writers found general support for their declamations against greed, profiteering, and the exploitation of workers.  I was left the odd man out for defending speculators and industrialists.  I found that ironic in a hobby that buys and sells money.

New research continues.  Whitman Publishing and Krause Publications release new titles every month.  Their smaller competitors such as Stanton and Money Tree are active as well.  Some of these standard references, known now for 100 years, are sirens - at once lures and warnings - for the limitations of academic economics.  

Also on Necessary Facts:

Sunday, August 14, 2011

Response to "Global Warming Cooling Off?"

I followed my bachelor's in criminology with a master's in social science because that let me tailor some cognate electives to my interests in global crime and modern criminology.  In addition to classes in international monetary systems and multinational enterprises, I had geographic information systems and remote sensing.  The other day, I met William F. Welsh, my professor for remote sensing, for brunch.  Bill directed me to the RealClimate blog which carried a rebuttal to the "Misdiagnosis" paper by Roy W. Spencer and William D. Braswell.  (See the post immediately before this one.) 

“Misdiagnosis of Surface Temperature Feedback”
Filed under: Climate Science— mike @ 29 July 2011
Guest commentary by Kevin Trenberth and John Fasullo

The paper’s title “On the Misdiagnosis of Surface Temperature Feedbacks from Variations in Earth’s Radiant Energy Balance” is provocative and should have raised red flags with the editors. The basic material in the paper has very basic shortcomings because no statistical significance of results, error bars or uncertainties are given either in the figures or discussed in the text. Moreover the description of methods of what was done is not sufficient to be able to replicate results. As a first step, some quick checks have been made to see whether results can be replicated and we find some points of contention.

About the site, it says: "RealClimate is a commentary site on climate science by working climate scientists for the interested public and journalists. We aim to provide a quick response to developing stories and provide the context sometimes missing in mainstream commentary. The discussion here is restricted to scientific topics and will not get involved in any political or economic implications of the science."

This Mastodon was found in Rush Township in 1944
and has been called the 'Owosso Mastodon'.
The bones are on display at the Exhibit Museum
at the University of Michigan in Ann Arbor Michigan.
Over the past year, Bill Welsh and I have had many short exchanges on this, but never been able either of us to lay out fully our understandings and questions.  Ultimately, it is complicated. 

That Earth's climate changes is obvious.  That weather patterns and weather cycles change is also true by observation.  That cities have microclimates different from the surrounding countrysides is fact.

Dr. Welsh remains committed to anthropogenic global warming.  I remain unconvinced.  Unlike others who debate this, we are able to have brunch and talk about other things, as well. 

Wednesday, August 10, 2011

Has Global Warming Cooled Off?

Despite record tempertures across the continguous USA, especially in the upper and lower Great Plaines, advocates of anthropogenic global warming (AGW) have been reticent.  With drought gripping Texas, the opportunity seems too good to miss.  Yet, the news is bare.  Perhaps the paper by Spencer and Braswell in Remote Sensing is the cause.  Perhaps the over-riding economic news pushed the story away.  Maybe, like climate and weather, the causes of this "hole in the reporting layer" are many, perhaps unrelated, and not well understood.

Apparently, there was a conference in Lisbon July 11-14.
"Evidences that global Earth temperature is on the rise are mounting together with signs that the Earth system may go through significant forcing. This offers a great opportunity to update the views about the Earth system, think globally, take a new look to old problems, seek for new ideas and solutions, challenge current paradigms of energy use, and of land and ocean resources exploitation."

More attention came to the paper by Spencer and Braswell in Remote Sensing.
"NASA satellite data from the years 2000 through 2011 show the Earth's atmosphere is allowing far more heat to be released into space than alarmist computer models have predicted, reports a new study in the peer-reviewed science journal Remote Sensing." New NASA Data Blow Gaping Hole In Global Warming Alarmism by James Taylor, Forbes, Wednesday, July 27, 2011.

That story from Forbes, linked from Yahoo News,  echoed loudly in conservative, libertarian and Objectivist blogs and discussion boards.  The article itself was less sanguine. 
From the Abstract: "Here we present further evidence that this uncertainty from an observational perspective is largely due to the masking of the radiative feedback signal by internal radiative forcing, probably due to natural cloud variations. That these internal radiative forcings exist and likely corrupt feedback diagnosis is demonstrated with lag regression analysis of satellite and coupled climate model data, interpreted with a simple forcing-feedback model."

In other words: We don't know.  No hole was blown in climate theories. Any of the AGW models theories may be right... or wrong...  The immediate data from Spencer and Braswell only suggest that more study is needed. 
It is concluded that atmospheric feedback diagnosis of the climate system remains an unsolved problem, due primarily to the inability to distinguish between radiative forcing and radiative feedback in satellite radiative budget observations.
In simple terms, radiative changes resulting from temperature change (feedback) cannot be easily disentangled from those causing a temperature change (forcing).
[A]ll of the IPCC models therefore exhibit net positive feedbacks. Also, since all climate models have net feedback parameters greater than zero, none of the climate models are inherently unstable to perturbations.
Note that the differences ... exist not just at zero time lag, which is where feedback estimates from these regression coefficients have previously been made, but for several months when radiative flux leads and lags temperature. Also, note the change in sign of the radiative imbalances ... depending upon whether radiation leads or lags temperature. As we will see, this behavior gives us clues about the relative roles of forcing versus feedback in the data.
[W]e are still faced with a rather large discrepancy in the time-lagged regression coefficients between the radiative signatures displayed by the real climate system in satellite data versus the climate models. While this discrepancy is nominally in the direction of lower climate sensitivity of the real climate system, there are a variety of parameters other than feedback affecting the lag regression statistics which make accurate feedback diagnosis difficult.
We hypothesize that changes in the coupled ocean-atmosphere circulation during the El Niño and La Niña phases of ENSO [El Niño/Southern Oscillation] cause differing changes in cloud cover, which then modulate the radiative balance of the climate system. ... [F]or the ocean-only data, the signature of radiative forcing is stronger over the oceans than in the global average, suggesting a primarily oceanic origin.
Read it for yourself.  "On the Misdiagnosis of Surface Temperature Feedbacks from Variations in Earth’s Radiant Energy Balance," Roy W. Spencer  and William D. Braswell, Remote Sensing,  2011, 3, 1603-1613. Online here.

Sunday, August 7, 2011


Def Con makes the news.  This 19th convention wins more attention than the first one did.  Now billions of people own computers, and are online - even nominally poor people.  For years, the mainstream media have reported breaches of financial information revealing the personal details of millions of people. Successful attacks against the computers of government agencies - Defense, the FBI, the Senate - are only passing news.  And then there was Wikileaks.  

Just as defenders of the Second Amendment point out that the instrument is not the offender, so, too, is there another side to hacking.  The moral high ground does not get much attention.  Steven Levy’s Hackers: Heroes of the Computer Revolution first came out in 1984.  (It enjoyed a 10-year and then a 25-year publication.)  Hacking is only figuring things out, reverse engineering.  Hacking is the discovery of new aspects to the known.    Knowing how big computers worked, they invented the little ones we have today.  Way back when, even in science fiction (for instance the World of Null-A by A. E. van Vogt, or Isaac Asimov’s Multivac stories), the expectation was for one or a few large machines. Expectations of personal computing were rare, until the advent of “cyberpunk” also about 1984, defined perhaps by the release of the Apple Macintosh.  (See the iconic commercial here. )  

Today, our community colleges teach computer literacy, computer programming, computer repair, computer security, website design, e-commerce, and many more permutations.  In 1984, you had to figure it out for yourself.  And, largely, you stlll do.  The leading edge of computing moves ahead of college classes.  It must, by definition.

As for those breaches in security, revelations of weaknesses are better than a fallacious faith in non-existent strengths.  You know that when you shut off your computer, except for the clock and few other things, most of what is in memory is lost.  RAM is volatile.  

Working on a master’s degree at Princeton, J. Alex Halderman (blog here) figured out the “cold boot attack.”  Pour liquid nitrogen on an electronic circuit and when power is removed, you still have time to physically transfer the circuit and re-power it.  

Today, Dr. Halderman teaches at the University of Michigan.  His latest hacks involve voting machines.  He remotely programmed one in Washington DC to play the Wolverine fight song, “Hail to the Victors.”  En route to a conference in India, the police of the world’s largest democracy detained him at the airport for several days, and then shipped him back, not allowing him to speak to the  convention.  Voting fraud is nothing new; but the means of carrying it out are.  You need to know that.  Your governments are not going to tell you about it.  Someone else will.

The upside to hacking can be pure whimsy.  At a meeting of ArbSec (formerly DefCon 734), one of the attendees demonstrated a desk telephone with a cellular telephone built in.  We see people walking and driving on their phones all time, but a desk phone catches your eye.

We accept our wifi connections without a second thought.  There was a time when telephones were a monopoly.  The average home paid about $8 a month and the average business about $35 a month - and a “data grade” line cost even more.  You never owned your equipment: it belonged to Ma Bell (or other); and you leased it.  

Hackers invented the hardware such as the Hayes Smartmodem and software such as Xmodem that enabled ordinary homes to use their voice grade lines to carry computer messages.  FidoNet was born - and vigorously opposed by telephone monopolies that attempted to bring the full power of state regulation down on the creators and users of BBSes (electronic bulletin board systems).   Ultimately, they failed.  The Modified Final Judgment broke up the Bell monopoly.  Fax machines go back 100 years, but only became common after 1984.  Our cellphones were the “car phones” and “radio phones” of a previous generation - available only to the wealthy.  Answering machines were advertised in the early 1950s, but no one could afford them.  

But if we enjoy the technical wonders, we also know that we are left exposed.  Banking, credit, and medical information are all vulnerable to inadvertent (or intended) compromise.  That applies also to corporate information, of course.  

A few years ago, I guarded a jewelry factory.  Employees exited through a metal detector.    One evening on her way out the door, one of the computer people stopped at our desk.  She waved her cellphone at us.  “Which is more valuable,” she asked, “an ounce of gold or next season’s designs?”  

Hackers are not interested in stealing fashion designs.  However, they are very competent at warning us that the computers on which we write, draw, and communicate, are not secure.  Google is one company that pays rewards to hackers who find security flaws.  More should.

In security, we often run “red team” exercises where someone attempts physical access.  Sometimes overzealous managers whose pass keys, gate cards, and passwords let them in think it proves something to sneak up on a guard.  It proves that the manager is misdirected.  But the concept is valid.  

Cryptographers know a historical narrative in which clever people made up "unbreakable" codes and ciphers which skilled analysts (those with “cipher sense”) broke easily.  Cryptographers know that only someone who has broken codes and ciphers is qualified to design them.  So too, with computer security, or security in general: “Set a thief to catch a thief.”

From my curriculum vitae:
Quoted on computer hacking in “A sociology of hackers,” Sociological Review Vol: 46 Issue: 4 (11/1998) by Tim Jordan and Paul Taylor; and in Hackers: Crime in the Digital Sublime by Paul Taylor, London: Routledge, 1999; and in Hacking: Digital Media and Technological Determinism by Tim Jordan, Cambridge: Polity Press, 2008.
“Protecting Data With Cryptography,” (2-part series) NADGUG Focus, Austin, Texas, April 1994 - May 1994.
“Online with the Super Hacker,” Loompanics Annual Catalog, Port Townsend, Washington, , January 1994.
“Property Rights in Cyberspace,” Loompanics Annual Catalog, Port Townsend, Washington, March 1993.
“Did Thomas Jefferson Wear Mirrorshades?” Loompanics Annual Catalog, Port Townsend, Washington; , January 1991.
“Software viruses,” Data General Review, September, 1989.
The Code Book, 3rd edition, Loompanics Unlimited, Port Townsend, Washington, 1987.