Mere Gold is Not Enough: Hayek's "Denationalisation"

F. A. Hayek's Denationalisation of Money (1978) made a case for an open market in money, without legal tender laws, and without a government monopoly in currency.  

Hayek's thesis is two-fold.  First, that a competitive market in money will create currencies that are desirable for their enduring value.  Good money drives bad money from an open market.  Second, more broadly, until we have that happy day, we really cannot say what forms and formats will be acceptable or popular.

Breaking with tradition, Hayek stated that being limited to gold ("the wobbly anchor") is contrary to a truly free market.  Liberated from state control, there is no limit to the forms that money can take.  Hayek even suggested that a truly free market might see stable paper money backed by nothing but the credit of the issuer.  Paper money from one bank might promise payment in the paper of other banks.  Still other possibilities exist. 

It is easy see that if a bank issued too many notes then it would soon be redeeming them as a result of financial reporting. That is history.  For Hayek the more interesting problem was what to do when the market value of a bank's paper exceeds its issue price.

 "... but it could preserve this business only if it did in fact promptly buy at the current rate any of its notes offered to it.  So long as it succeeded in maintaining the real value of its notes, it would never be called upon to buy back more than a fraction of the outstanding circulation.  Probably no would doubt that an art dealer who owns the plates of the engravings of a famous artist could, so long as his works remained in fashion, maintain the market value of these engravings by judiciously selling and buying, even though he could never buy up all the existing prints." (Page 49)

This little book is dense with worthy ideas such as that. Most economists express three uses for money. Hayek defined four: cash purchases; reserves for future purchases; standard of deferred payment; unit of account.

F. A. Hayek apparently had little or no experience with numismatics.  Many of his theoretical claims are supported by facts known to those of us who study the art and science of the forms and uses of money. Other of his theoretical assertions are denied by the facts of history. And to be fair, numismatists, schooled in economics by publicly-funded (or aristocratic) institutions, also err when narrating the history of money.  The idea that coins were invented by merchants to make bullion more convenient for retail trade is the best example of such error.  Charles Seltman, the British numismatist who promoted that silly idea via the Encyclopedia Britannica, never worked behind a retail sales counter.   Similarly,  for all their theoretical knowledge Hayek and the other Austrians had no experience as merchants.

 Hayek says that it is unfortunate that there existed no complete history of the experience of government monopoly on money.  However, he does cite Murray N. Rothbard's monograph, What Has Government Done to Our Money (1963, 1974).  That work is little more than a sketch.  Like Hayek, Rothbard had little involvement with the artifacts.  Rothbard relied on "The Use of Private Tokens for Money in the United States," by B. W. Barnard from The Quarterly Journal of Economics, Vol. 31, No. 4 (Aug., 1917).  That academic paper reported all known issues without regard to their actual use.  Today, Bar Cents and Immune Columbia are regarded as rare and likely saw little use in their time.  Nova Constellatio tokens really did circulate.  In short, Rothbard's data was flawed because he gave weight to an academic paper instead of going to numismatists.  Any active collector of American money could have shown him (and Hayek), the material evidence they sought to support their theories.

"The early Middle Ages may have been a period of deflation that contributed to the economic decline of the whole of Europe. ... But where, as in Northern Italy, trade revived early, we find at once all the little princes vying with one another in diminishing the coin - a process which in spite of some unsuccessful attempts of private merchants to provide a better medium of exchange, lasted throughout the following centuries until Italy came to be described as the worst money and the best writers on money." (page 34)

Yet this complaint - common among historians and cited by gold bugs - ignores one of the arguments for gold-based money: with the quantity fixed by nature, each new invention, import, or innovation caused the existing money to increase in value: hard money is worth ever more over time.  That was the case in the Middle Ages as expanding trade brought more products to market.  It is also true that warlords and generals debased their coins, a common cheat in both Roman and modern times, as well.  But that negative motivation was only part of the story.  Absent new discoveries such as the mines of Joachimstal and the looting of the Americas, deflation is a beneficial consequence of hard money.   Moreover, some strong currencies, such as the English sterling penny and the Venetian gold ducat, enjoyed international reputations.  That meant, however, that they left one place and went to another.  For a local ruler to keep his coins in his realm, the issues had to be useful only locally, otherwise the locale would quickly enjoy an influx of imported goods and a loss of currency.

One solution to that is a token currency. The strength of a monetary medium, itself durable and cheap, but also a token for precious metals that do not pass hand to hand was explored by Neil Carothers in Fractional Money (New York, J. Wiley & Sons, 1930), a book that grew out of his doctoral dissertation some years earlier.  Again this data is a century old.  We know these facts; and they support Hayek's theories.

We can see an analogy to Hayek's laissez faire banking via the stock market.  Common stock certificates are a form of money; and historically their format resembled  bank drafts, being only much larger in size.  Stock certificates were issued, endorsed, transferred, and cancelled.  With or without a declared par value their worth fluctuated on the open market.

Knowing Hayek's theory you are perfectly free to use whatever moneys you prefer.  If you live in the USA, you will find Federal Reserve Notes most liquid.  But all manner of moneys are in circulation here and now, if you only know where to look for them.

ALSO ON NECESSARY FACTS

Numismatics Informs Economics

Debt: the Seed of Civilization

Numismatics: the Standard of Proof in Economics
Objectivism and the Gold Standard
Money as a Crusoe Concept
Electronic Money: Coins without Realms

The Sociology of Freedom

Freedom (or the lack of it) does not come to each of us evenly and all at once.  This is explained in Harry Browne's classic, How I Found Freedom in an Unfree World.  That book is a nicely crafted restatement of a libertarian theory earlier expressed by Skye d'Aureous and Natalee Hall in "What if They Gave a Millennium and Nobody Came?"  (Libertarian Connection #13, reprinted in the 1981 Loompanics Main Catalog and in Loompanics Greatest Hits, 1984). 
          Harry Browne examined 14 common Traps that we allow ourselves to fall into, from family to job, to taxation, and including "Burning Issues" and "Rights."  Browne advocated a rational (logical and dispassionate) examination of each limitation on your own freedom.  You must recognize that for each gain, you must pay a price, in order to reap the reward. 
        Skye d'Aureous and Natalee Hall were at once broader and more concise. "An overall decrease in freedom for the general population does not mean an overall decrease in freedom for you, unless your actions are necessarily the same as the general population."  ...  "You will not suddenly become 100% free." They made 15 other points to elucidate the same principles. 
       In fact, these truths coincide with known perspectives from sociology.  Sociology looks at the variability in human cultural experiences and posits axioms of subjectivism.  C. Wright Mills coined the phrase "sociological imagination" which has taken on wider meanings than he intended.  Sociological imagination is the ability to see beyond your own social context to understand that of other people.  The Thomas Theorem says, "If men define situations as real, they are real in their consequences."   Those perspectives support the suggestions of Browne and others that you do not need to become enmeshed in the social world you happen to inhabit.  In fact, we all inhabit many such spheres of life simultaneously. 
     In particular, it is a general prediction that anyone who calls themself a Republican, libertarian, or Objectivist probably has set aside some savings in gold and silver coins that protect those savings against the ravages of inflation.  Wider still, Browne would point out that a job with a fixed salary gives you less freedom to adjust your wages.  Moreover, some would also suggest that actually working for the government might be one way to stay ahead of inflation by participating in its cause.  On the other hand, even the best-paid government employee, a GS-15 (depending in the locale), will top out at about $100,000 to $120,000 per year, confortable, but not wealthy -- and certainly not capable of going to $250,000. 
     Among the wealthiest suburbs in America, measured by household income, are four around Washington DC (Forbes here).  If you want the flexibility of private employment tied to government spending, work for a think tank or a lobbyist.  Of course, for you that might be like being paid to go to prison.  Money isn't everything.  
       Therefore, Browne generally recommends being self-employed at whatever you do best, or at least working at a regular day job that rewards you for your efforts, such as sales.  Of course, that may not be for you.  Your happiness may depend on other choices you make -- and you will pay different prices for different kinds of freedom.  But that freedom is out there.
      What people believe to be true is true in its consequences. This is also dramatized in Atlas Shrugged as industrialist Hank Rearden's legal problems with the Washington planners only reflect his personal life. Even his surrender of Rearden Metal to preserve Dagny Taggart's reputation was a result of that.  If you find yourself trapped by circumstances, then you need to create your own social reality. 

Nerd Nation

The jocks have been shoved aside.  While the Super Bowl has not withered from disinterest,  the fact remains that a significant (if unmeasured) population of  America know themselves to be geeks or nerds --  and are proud of it. 

Big Bang Theory:
Wolowicz, Leonard, Penny, Sheldon and Raj

 I  point to mainstream television programs such as CSI, NCIS, Big Bang Theory, NUMB3RS, and Psych, as well as to the foundation media such as NPR's "Science Friday" (1.3 million listeners), and the long established commercial success of the Discovery Channel and the recently rebranded Syfy ("SciFi") Channel.   It is not just that Big Bang Theory is a prime time television comedy about physicists.  To that must be added Big Blog Theory, the website that offers real physics in support of the comedy.  This is in the instant tradition of the Wolfram Mathematica pages to supplement NUMB3RS when it was on the air, 2005-2010.  On an NCIS episode, laboratory technician Abby Sciuto is waxing on about Bill Nye, the Science Guy.  Her boss, former Marine sniper Jethro Gibbs, does not get the reference.  She goes on.  "Oh," he says, "Just like Mr. Wizard."  She replies with a question mark. 


When Hugo Gernsback launched his science fiction magazines, he intended that they be for everyone.  Still, he insisted that his writers pad their stories with expositions from textbooks, to ensure that the science (however fanciful) was credible.  When John W. Campbell took over, he identified his audience specifically as educated in science, and he courted writers such as Robert Heinlein and Isaac Asimov because of their education. 

At least one good reason to take any science class.

 Fully 28% of Americans claim to have four-year degrees.  In a funny way, the show NUMB3RS reflects that.  While David Krumholtz learned his lines well, his supporting actress, Navi Rawat (Dr. Amita Ramanujan) says that she surfed the web to read popular math to help her delivery.  Beyond that, co-star Judd Hirsch actually majored in physics.  Even closer to the limit, supporting actor Dylan Bruno (Agent Colby Granger) has a bachelor's from MIT in environmental engineering.  Pauley Perrette (Abbey Sciuto of NCIS)'s degree in sociology exposed her to the related study of criminology.

Cellphones and computers have morphed into smartphones and pads.  Clearly, comedy and drama consonant with our culture must reflect that.


Also reflected in that broader culture, is the "CSI Effect" in real courtrooms.  At first, it was a complaint from prosecutors.  Lacking physical evidence, some found it hard to win a conviction.  Or so they claimed.  The problem interested criminologist Gregg Barak of Eastern Michigan University who specializes in the mass media affects on our perceptions of crime.  He enlisted his colleagues Young Kim and Donald Shelton.  They found, broadly, that in fact, the "CSI Effect" is really just a "tech effect."  We expect scientifically valid physical evidence because we live in a technological culture.  Beyond that, however, their numbers showed that jurors with less education demand more evidence.  Jurors with more education tend to take the prosecution's word for it.  Whether this correlates to time spent watching television, or solidarity within social classes is a different question. 

Also on Necessary Facts
Nerd Nation 2.0 (Danika McKellar, Felicia Day, and Natalie Portman)
Nerd Nation 3.0 (Dungeons and Dragons) 
Nerd Nation 4.0 (Gentleman's Quarterly)
Nerd Nation 4.5 (Mayim Bialik)
Where All the Children are Above Average

The Sanction of the Victim

"The sanction of the victim" is one of the many philosophical ideas that are dramatized in Ayn Rand's Atlas Shrugged. 

We all meet conflict every day.  You have an idea that you think would benefit your department or company.  Someone else at the table disagrees and offers a different project. Typically, your opponents do not expect you to destroy yourself to meet their goals.  Sometimes they do.  We vote for taxes; and we elect others who do much more of the same in our name. 

How would you feel, if you went into a gas station or convenience store, there behind the counter was a friendly picture of Osama bin Laden?  Would you shop there again?  What if they had a bumper sticker supporting a ballot proposal for more school funding? 

If I were absolutely consistent about not sanctioning my destroyers, I would never have had a pizza from any of the many shops  in Cleveland displaying Pope John XXIII and Pres. John F. Kennedy. I read The Fountainhead at 16, and Atlas Shrugged twice through by 17, just as I was driving and dating.  Pizza was an important part of my life. 

Many years later, I found an obscure book, from 1960-64, Merchants Make History by Ernst Samhaber.  In the narratives about caravans and caravels, the author says that a good merchant does not argue religion with his client.  Still later, writing the "Internet Connections" column for The Numismatist, I discovered that some of the largest hoards of Muslim/Arabic coins are found in Latvia, Russia, Sweden, and England.  Many examples date from the European "Dark Ages."  

USSR silver ruble from Lenin's
"New Economic Policy"

At some level, civil society requires the depersonalized interactions of the marketplace. This leaves unanswered the question of where you (or I, or anyone) draw the line when you enter into exchange with someone who does not share your values.  Here in Ann Arbor, we have a record store in the old "head shop" tradition.  The walls proudly carry anti-capitalist bumperstickers and anti-imperialist demonstration signs.  I find it ironic.  But their CDs are priced right.

Confronting Post-Modernism and Conservatism

Having just spent five years at college and university (2005-2010), I had too many professors and classroom colleagues to whom I was expected to show respect as they advocated my demise. Government regulations were merely some obvious consequences of a much deeper evil. 

Ayn Rand said, "I am not primarily an advocate of capitalism, but of egoism; and I am not primarily an advocate of egoism, but of reason. If one recognizes the supremacy of reason and applies it consistently, all the rest follows."  I first read that in 1967.  So, when I had a graduate class in criminology theory in which the required readings were post-modernist philosophy - the senses are invalid; logic is a sham; reality is socially-defined: Philosophy, Crime, and Criminology by Arrigo and Williams - I was well-prepared. 

As with most classes, of the 20 or so in the room, only about five were active participants.  I know from my first university class in criminology that many do not speak up because they know that their conservative views will be argued down by the professor.  The professor commands the classroom in many ways.  The prof can take five or 50 minutes to make a point.  A student has maybe 20 seconds.  So, when I say "the class" it is not necessarly true that everyone was in accord.  With that caveat, the class nodded along with the claim that there is no absolute right and wrong, that morality is socially constructed, usually by the ruling class for its interests, that different societies have different values, all equally valid, that imperialism and sexism (including hegemonic masculinity) denigrates these other perspectives,. etc., and of course that ultimately any absolute knowledge is impossible.

Then, a woman who worked for the sheriff's department spoke up and denounced Bernard Madoff.  The failures of his investment house impacted our county's unfortunates who were now denied non-governmental aid, especially mental health services, because those charities had invested with Madoff and now were without funds.

I raised my hand.  Wouldn't the sociological perspective include the fact that these Wall Street capitialists have their own society with their own rules?  These fund managers were in the same league with Madoff. These were not little people, but professionals, so if they got cheated, that is just an outcome in their world, equally valid for them. 

Of course there were dissenting noises from actual words to groans to raised hands.  "Wait a minute!" I begged.  "So, there is a difference between right and wrong."  (Silence.)  There is a difference between right and wrong and you can know the difference between right and wrong. 

The discussion moved on.  The professor delineated two schools of post-modernism, his and the authors'.  I was satisfied that I made my point, even if no one was persuaded into an understanding they did not come in with. 

That, too, was a classroom lesson for me. 

The previous semester, I had a class in international economics.  The professor was a Marxist, one of the old school who believed that economics and history are sciences.  Most of the class were foreign students.  The largest fraction (6/20) were from China, but about a third were from Muslim/Arab countries.  Three were from different subSaharan nations.  The rest were from here and here; and three of us were Americans. One American was on the far left.  I held the right wing.  Most of the class were arrayed near the center.  These were business majors, largely, but populists and democrats, nonetheless.

One week, the subject was extractive industries.  Even my capitalist limits were tested by the stories of these Fortune 500 B-School looters who cozy up to dictators, strip the minerals, and leave the peoples and the lands worse off.  There was another subject that week as well.  As a graduate class, the workload was non-trivial.  I wrote on the other subject.  When the papers were handed back, the professor said that he was dismayed and disappointed.  Apparently, several people wrote about the good things these companies do, the roads, hospitals and schools they build.  It was not what he expected at all.

To me, the lesson was that people have their own ideas.  You can find agreement, or not.  Actually bringing new information that changes someone -- the teaching moment -- is rare. 

No one comes to a college or university with no ideas.  Mostly, we absorb what we learned at home.  Sometimes, new learning by young people awakens new processes.  But today's university students are not necessarily recent high schoolers away from home for the first time.  Education in America is driven by mature learners. The consequences of that remain to be seen as one generation replaces another in the stream.  For the present, I have to deny the complaints of conservatives, libertarians, and objectivists that college professors brainwash students, propagandizing them with barrages of falsehoods.  After one such session in Sociology 101, leaving the building, behind me on the stairwell were two girls, a full generation or more younger than I.  Said one to the other in a nattering tone of voice, "America sucks, America sucks, week after week it's the same stuff: America sucks."  Obviously, she was not buying what the instructor was selling.  She had ideas of her own to begin with; and change them as she might, that choice would be hers.

Misconduct in Science and Research

Recent news about procedural misconduct by scientists is easy to find.  However, searches of JSTOR uncovered zero articles about misconduct in scientific research from 1900 to 1950.  From 1950 to the present, 40 articles addressed the related problems.  An obvious upswing occurred after 1987. Gale CENGAGE yielded 56 titles, many of those reports of headline news about Jan Hendrik Schön and other immediacies.  On the other hand, if you search via Google or Bing for "research misconduct" or "misconduct in science" etc., there is no shortage of popular news stories and formal reports.  This summary from The New York Times is from 1991.  In fact, the NYT Articles database offers embarrassingly many such stories (link here).

Police chiefs know the easy generalization that 80% of your problems come from 20% of your addresses regardless of the neighborhood.  Crime is a universal problem. Nonetheless, variations in crime statistics show that predation and fraud are more common in some cities and states and nations than in others.  Harms flourish where they are wanted. 

So, while fraud in science research is known across all studies, it is now most common in health and medicine.  Tremendous funding is one factor.  Willy Sutton robbed banks because that's where the money was.  

And to be fair, living things are more complex than rocks and stars, so experimental results can be harder to duplicate. Not all researchers have the same finesse; and it is easy to believe that you have it, but your critics do not.

These same factors cause fraud in forensic science.  Joyce Gilchrist, Fred Zain, and Pamela Fish made headlines when their counterfeit lab reports were exposed.  [Annie Dookhan is added to the list.] The problems with fingerprinting go deeper (NecessaryFacts here).  As with other instances, the causal factors may be the pressure for results, the huge and easy funding for such work, and a desire to believe your own results, coupled with a faith in altruistic ends that justify any means.  But the rational choice theory of crime stands against such excuses and denials. 

According to the theory of crime based on objective psycho-epistemology, criminals act from the lack of thought.  When pressed later, words come out of their mouths, often generated by an intuitively correct feeling for what the interrogator wants to hear.  They don't mean it. 

The Office of Research Integrity of the U.S. Department of Health and Human Services reports on its findings.  Defrauding the federal government is a federal crime, no surprise in that.  Every university has some similar "institutional review board" for human and life science experiments.  No similar agencies assure integrity in the physical sciences.  None exists for criminology. 

New age and post-modernist professors teach future police officers that there is no such thing as right and wrong.  According to Stuart Henry, Bruce A. Arrigo, Christopher Williams, and Mark M. Lanier, taking their cues from Paul Feyerabend and Jacques Lacan, the Enlightenment was a Euro-centric, phallo-centric conquest.  They claim that the senses are invalid, that logic has no validity.  Such assertions are the deepest expression of academic fraud. 

ALSO ON NECESSARY FACTS
Four Books about Bad Science
Criminalistics: Science or Folkway?
Junk Criminology as Pseudo-Science
Science Fair Science Fraud
David Harriman's Logical Leap
Great Scientific Experiments
Fantastic Voyages: Teaching Science with Science Fiction

What is Literacy?

We can feel good about the fact that literacy in the United States is 99% -- until we realize that this puts the USA tied for 21st with 24 other nations, all behind Tonga (99.2), Kazakhstan (99.6), Slovenia (99.7), Estonia (99.8) and Georgia (100%).  (Data is from  this Wikipedia article which cites this United Nations Development Programme report.)  According to the CIA World Factbook table on Literacy there is no common definition, so the CIA accepts prima facie the numbers provided by local governments.  Afghanistan counts those over age 15, which is a common threshhold.  Albania counts people over nine years of age.  Averages also must be parsed out by gender. 

I once worked a project where my manager was an ethnic Estonian.  He told me that during the worldwide depression of the 1930s, Estonians counterfeited postage stamps in preference to money.  He said that measured by the number of books published annually per capita in the native language, Estonia was second only to Iceland in literacy.  I never checked the figures from the 1930s, but today's numbers are available.  By this standard, the USA, which publishes the most books overall, is again 21st, behind Israel (20) Hungary (19), Estonia (14), Iceland (2), and the Vatican City (1). 

The table is at the bottom of this post.  I compiled the numbers from the usual sources via Wikipedia: books published annually; and 2010 population estimates.  I found it interesting to look at the number of people per book.  At the Vatican City it is four.   Here in the USA, it is over 1100. 

Of course, it is important to read the data.  The UK greatly leads the USA in books published annually, but literacy in English extends to the USA, Australia, etc.  My own copies of The Wealth of Nations and The Communist Manifesto were published in the UK, but bought (used) here in the USA.   The same must be recognized for Spanish and Chinese.  Hong Kong and Taiwan lead in literacy, but the mainland is third in total books published.  Also, literacy in ideographs can be problematic.  In a college class in Japanese for Business, I learned that it is paradoxical that a nation with 99% literacy has markedly fewer readers of newspapers.  To read a newspaper requires knowing about 3000 kanji characters.  I do not know what it takes to be literate in Chinese in China, but 3000 characters seems about right, given that Ogden's Basic English lists 850 words. 

The United Nations Development Programme and the CIA both agree that literacy is a measure of prosperity and freedom.  Thus, it is telling that Arabic does not appear in the top tier.  In Iran, it is Farsi.  The most populous Muslim nation is Indonesia, where Arabic is a foreign language.  As the home of Mecca, with its small population, Saudi Arabia could be like the Vatican City, but it is not.  And that speaks to the economic and political poverty of the Arabic nations. 

Spain is joined by Argentina and Mexico as a top producer of books.  That compounds the magnitude of the raw numbers.  So does the aggregation of the UK, Canada, the USA, and Australia.  To balance that consider the linguistic isolation of leading producers such as Israel, Hungary, and Vietnam.  At the other extreme, India is a nation with five official languages.  Its rank (45th) does come as an aggregate of all books against total population.  Still, when contrasted with China, Taiwan, and Hong Kong, the internal lingusitic barriers explain much of India's poverty.

Where does all of this leave the USA?  And how does the Internet impact the statistics?  What does it mean to be a nation of bloggers and tweeters? 

ALSO ON NECESSARY FACTS

Money is Speech

Money as Press and Speech

Money as Speech and Peacemaking

Start the Presses!

Click to see full chart of statistics.

Another Example of Unlimited Constitutional Government

Regardless of how stringent the constitution, the government always can be expanded.  Does the legislature have a right to establish its own reference library? The Library of Congress serves that purpose, and serves the nation secondarily.  Here in Michigan, the legislature has its library - open to the public at their request on our behalf.  They also have a museum.  A legislative museum might seem to be out of bounds, but certainly not every archive comes in the form of a book.  The government must have the right to record its own actions.  By extension, those acts - the papers; the artifacts - would become meaningless without a record of the cultural context.  So, a museum would be appropriate to support the knowledge base of the government.  How far would it be extended?

One of the young librarians, Will Tuchrello, in the South Asia department (which has Southeast Asia), saw that I was a serious researcher and he found a desk for me in a "researchers" room so I did not have to be out in the reading room. I also had a place to store a heavy bag of nickels which I used at the copy machine. I could also keep my books on the desk until I finished with them. My research really sped up!
[...]
But I am happy to report that Dr. Tuchrello was promoted up through the ranks and is now the Director of the LOC's Southeast Asia office in Jakarta, Indonesia. He travels the region looking for references, posters, maps, etc. to purchase to send back to the LOC. The LOC also trades American publications with countries too! The LOC could not have found a more dedicated person for the job! 

Howard A. Daniel III, E-Sylum Volume 14, Number 06, February 6, 2011
NUMISMATIC BOOK MUTILATION AT THE LIBRARY OF CONGRESS here

So, in a strictly limited constitutional republic, it could be necessary to have librarians traveling the world trading on behalf of the government.

ALSO ON NECESSARY FACTS
Unlimited Constitutional Government (January 2011 blogs) here.
An Objective Foundation for Government

The Cure for a Failing Empire

If you were a druid from 180 AD and had Merlin's insight, what could you tell the emperor Marcus Aurelius about the coming collapse of the Roman Empire, and how to avoid it?  That is the question raised and answered by Ugo Bardi, a professor of chemistry at the University of Firenze (Florence, Italy).  Prof. Bardi is also an active writer on the problem of "Peak Oil" and its consequences for our civilization.  His essay on Peak Civilization, delivered first as a talk to the Association for the Study of Peak Oil, was reprinted by the Financial Sense blog here.  It runs 24 pages and bears a complete reading. 

Bronze sestertius of Marcus Aurelius.
Reverse: Minerva, goddess of war and wisdom, holding her owl.

Prof. Bardi's thesis is that the Middle Ages were the cure for the collapse of the Roman empire.  He makes a good case; and it deserves investigation, because there is more behind the theory that he does not address, but which speaks to our civilization and what we can expect to be the cure for America's failing empire.

This is not new.  It is not mainstream reading, but it has been said before.  Basement Nukes the Consequences of Cheap Weapons of Mass Destruction by Erwin S. Strauss (Mason, Michigan: Loompanics Unlimited, 1980) asserted many of the same conclusions, though from different data.  Strauss earned a B.S. in physics from M.I.T. and is well-known in science fiction fandom.  His father was a diplomat; and Strauss grew up in Washington D.C.  (Wikipedia here).   For Strauss, gunpowder was the operative paradigm for the limitations of our empire.  Castle walls fell to cannonades.  The result was the nation-state which replaced the baronies and dukedoms of the Middle Ages.  In our time, according to Strauss, the inability of those nation-states to protect their people from cheap weapons of mass destruction will result in a world of gated communities, connected via telecommunication. 

In contrast and support, Ugo Bardi's thesis is that the Roman empire was at its limit in 180 AD: the emperor was camped on the frontier, fighting Germans.  The empire could not raise enough soldiers to defend the extensive borders; and so, it took on native auxiliaries.  The empire had grown by plundering gold and silver which went to pay the soldiers who extended the empire.  Once there were no more rich cities to drain, the money ran out.  Meanwhile, farmland was showing depletion.  As agriculture was contracting, the bureaucracy was growing: fewer sources of taxable income had to meet ever greater demands for taxes. 

The solution for Rome, according to Prof. Bardi?  Give up the extensive empire: disband the armies and turn them into civic militas to defend locales.  Stop cultivating old lands: plant trees; let the land recover.  Disband the bureaucracy.  Reduce taxes.  The result: the Middle Ages.  Localized communities, invested in themselves and their own defense, carried civilization forward.

The medieval cities were strong because they offered new opportunities.  "Stadtluft macht frei" - City air makes you free.  Max Weber's monograph The City (1921) describes a medieval society very familiar to Americans: a society of legally equal citizens, based on trades and crafts, where the citizen militia was armed with guns.  Whereas the manor was afiliated with a monastery, the city housed a university. 

Even after the nominal "fall" of Rome in 476 AD, Latin lived as the common language of Europe even into the 19th century.  (Carl Friedrich Gauss published Theoria residuorum biquadraticorum, Commentatio secunda in 1832.)  In the High Middle Ages of the 12th century the "Aquitaine Renaissance" brought new literary flourishes to common Latin.  The Roman Catholic Church, of course, also continued some old traditions: when Diocletian reorganized the Roman empire in 297-299, he created the diocese as an administrative unit.  And, in answer to Bardi's plea via Merlin to Marcus Aurelius, the bureaucracy was pledged at least nominally to austerity.  The Italian Renaissance of the quattrocento revived much from classical antiquity, of course, but added something wholly modern, even unique in history to that time: individualism.  

The fine art medal was invented by Antonio di Puccio Pisano in 1439.  Today, the standard catalog of Renaissance medals is called, appropriately enough, The Currency of Fame.  Not only was that attitude contrary to the Christian doctrine of humility, it would have shocked the Romans of the Republic who made crimes of both ambition and consumption.

As things continue, they change.  There is no surprise in that.

What, then, does the future hold for our empire?  Certainly, contraction.  Taxation must recede: there is no more to be looted.  Six of the 25 richest suburbs in American today are outside Washington D.C. (See Forbes magazine here.)   They have money, but they create no wealth.  Obviously, that cannot continue. 

  The new institution of the Middle Ages was the castle guarding a manor and estates.  That, too, had roots in the Roman empire.  In our future, the institution to replace the nation-state has grown past its roots: the corporation. 

Corporate money, good on corporate grounds.

Corporations go back to Rome; and the laws which empowered medieval universities as legally independent entities come from there, also.  But the modern corporation, the joint stock company, is a creature of modern capitalism.  Corporations can do what governments cannot: generate wealth.  Globalist corporations independent of weakening nation-states can bring stability.  Economically diversified and geographically distributed corporations are at once flexible and governable.  But the future is not so much about terran geography as it about the virtual terrain of cyberspace.

The operative resilience of such a society is that not everyone needs to be in a corporation.  Indeed, they cannot.  Historically, the independent merchant has been at the mercy of guardians who both protected and plundered: you could pay a robber baron's toll or take your chances through Robin Hood's forest.  In a new world of global enterprise, connected in cyberspace, the independent creator can trade for profit in a virtual world where the might that makes right is available to anyone with a three-digit IQ and three fingers of forehead.   Home-based technologies that we only now see outlined such as molecular manufacturing and nanotechnology will be eclipsed by intellectual crafts we cannot even predict. 


Corporate money that is transferable -
especially when cash would be awkward.

Between now and then, however, we must endure the modern equivalents of Visigoths and Huns. 

But it is not the end of the world.  It never is.  In the November 2009 issue of The Celator, I placed an article about the great fairs of medieval Champagne.  Research for that revealed to me a so-called "Dark Ages" rich with trade.  The courts of Charlemagne and English kings were in contact with the Muslim east.  Merchants carried the goods.  Trade was encumbered by risk and adversity... but when is it not?

From 1934: A B&O Railroad certificate held by Credit Suisse.

Cities existed millennia before Rome became the city that ruled an empire; and cities will continue, of course. Nation-states will continue, as well.  Global markets will continue.  Outer space will be explored and colonized, certainly orbital space.  The seabeds will be colonized.  The Arctic and Antarctic will be settled. The future will be shaped by corporations. 

ALSO ON NECESSARY FACTS
Capitalist Culture
Monsters from the Id
Art & Copy

Counterfeiting and the Tragedy of the Commons

It does not take much research to read far too much about the glut of counterfeit numismatic materials manufactured in China and sold on eBay.  Chinese counterfeit factories purchased old U.S. Mint equipment, old dies, and other tools.  Their work destroyed the markets in Seated Liberty coins and Trade Dollars, but any coin, even the most common, is a potential target.  Not surprisingly, some have faked the certifcation holders of PCGS and NGC. At conventions and shows, numismatists display educational exhibits of counterfeit coins in real holders and bogus coins in  bogus holders.  The federal government does nothing. 

On the other hand, ahead of the Super Bowl, enforcement against phony NFL gear is vigorous.

So far this year, Immigration and Customs Enforcement (ICE) and other agencies participating in "Operation Interception" have confiscated 36,273 counterfeit trademarked items nationwide, with more expected through the weekend. The value of the haul thus far: more than $3.56 million.   (Full story from CNN.com for February 5, 2011, is here.)

This is an example of the tragedy of the commons.  The NFL trademarks belong to someone.  Those someones are also wealthy.  So, they get the government to pay attention when they are victimized, and rightfully so.  With collectible numismatic material, no one owns the images and designs.  (One exception is the Sacagawea Dollar, owned by artist Glenna Goodacre, and licensed to the U.S. Mint.)

Of course, counterfeiting an old silver dollar is also a federal offense: money is money; and all federal money is the lawful obligation of the U.S. Treasury, no matter how old it is.  With some exceptions, such as Gold Notes, all U.S. money is legal tender.  But, of course, no one spends rolls of 1872 Seated Dollars or even 1922 Morgans.  So, the actual threat to the govenment is minimal: individual collectors take the losses.  The real threats are from counterfeit paper money; and the Federal Reserve is a private institution.  By comparison, the Bank of England is also like our Fed, nominally private, with a government-appointed board of governors.  Bank of England money carries a copyright notice.  Counterfeiting is a crime, not so much because it wrong to defraud people - though there is that - but mostly because it transgresses the intellectual property of the banks.  Since no banks issue Bust Dollars or Capped Bust Half Dollars, enforcement is lax.

This story from About.Com exposing a Chinese counterfeiting factory dates to April 2, 2008.  The Collectors Universe message board (NASDAQ symbol CLCT) for September 27, 2009, carried a summary (read here) of Dr. Gregory V. DuBay's talk at that summer's ANA convention in Philadelphia, revealing more about the depth and breadth of numismatic counterfeits from China.  His system for classifying Chinese dies was included as an appendix in the first edition of the  Red Book Professional Edition, but was deleted from the second edition.  I spoke on the same subject at the ANA convention in Pittsburgh in 2004.  The information I presented was not new or original with me: I only gathered examples from others... and all too easily... 

This is a known problem.  Nothing is done because no one owns it. 

To Make Money

In "Francisco's Money Speech" from Atlas Shrugged, Ayn Rand claimed that the phrase "to make money" was invented in America.  We changed money from a static quantity to be looted to the product of the free and active mind.  That etymology is not correct but the claim is compelling. 

In the New York Times "Freakonomics" blog for January 20, 2011, Fred Shapiro cited the Oxford English Dictionary: "the fact is that the Oxford English Dictionary documents the expression “to make money” back to 1457."   Later that day, reader Claude posted a citation from Cicero.

 Cicero, de Divinatione, 1. 111 (written 44 BC): Milesium Thalem, qui, ut obiurgatores suos convinceret ostenderetque etiam philosophum, si ei commodum esset, pecuniam facere posse, omnem oleam, ante quam florere coepisset, in agro Milesio coemisse dicitur. (“Thales of Miletus, who, in order to confound his critics and show that even a philosopher could make money, if there is an advantage, is said to have bought up an entire olive crop before it began to flower.”)  — Claude

That same passage was cited a few years ago when the subject appeared in Mark Liberman's blog, "Language Log" (March 15, 2006) .  Liberman quoted from a source in 1472:  

"R. CALLE in Paston Lett. (1976) II. 356, I truste be Ester to make of money..at the leeste l marke.  (I believe that in modern orthography this would be "I trust by Easter to make of money..at the least one mark".) The letter's context makes it clear that Richard Calle was not writing to Margery Paston about a counterfeiting scheme. The quantity expression "1 marke of money" is antique, but the sense in which Paston anticipated "making" that amount seems contemporary enough." 

(That blog is worth reading through as the discussion ranges deeply.  Apparently, the transliteration is not "1 marke" but "L marke" i.e., 50 marks.  But all of that at your leisure...)

The origin of "to make money" came up on David Veksler's "Objectivism Online" message board.  So, I ran it through Babelfish.  Even among Europeans, different cultures express differently the creation of profits and the making of money.

English: A business creates profits when it makes money.
German Ein Geschäft verursacht Profite, wenn es Geld verdient.
Dutch: Zaken leiden tot winsten wanneer het geld maakt.
Italian: Un commercio genera i profitti quando fa i soldi.
Spanish: Un negocio crea beneficios cuando hace el dinero.
Portuguese: Um negócio cria lucros quando faz o dinheiro.
French: Des affaires créent des bénéfices quand elles gagnent l'argent.

In French you win silver when you create blessings - Cyrano de Bergerac was Catholic, of course.  Germans deserve the profits that are brought into ultimate objectivity - strict morality and academic metaphysics. While the Dutch do make money, being good Calvinists, they bear the burden of their winnings. 

ALSO ON NECESSARY FACTS
Atlas Shrugged, Part 1
Reflections on Atlas Shrugged, Part 1
John Aglialoro Does not Shrug
Anthem as a Graphic Novel

Money as Speech and Peacemaking

Athens c. 450 BCE

“Francisco’s Money Speech” is a monologue from Atlas Shrugged.  If you do not know the soliloquy you can find it online at Capitalism Magazine courtesy of the Ayn Rand Institute.  As dramatic as it is, the essay is as negative as positive, a denial that money (or the love of it) is the root of all evil.  The broad and deep anti-capitalist prejudices in education and arts leave us with few investigations into the benefits of money.  Pink Floyd’s hedonist plaint, Gordon Gecko’s short “Greed” speech, and Larry the Liquidator’s “Amen” are about the top of the heap in common culture.  

Oddly enough, Ludwig von Mises agreed with Karl Marx that money derived from trade and that by natural selection, gold and silver became the best forms of commodity money.  (Compare Mises, Human Action, Chapter XVII “Indirect Exchange” with Marx, Capital Volume One; Chapter Two: “Exchange and Volume,” One Chapter Three: “Money, or the Circulation of Commodities.”)  In our time the across the political right wing, it is perhaps impossible to find anyone who describes themselves as conservative, libertarian or objectivist, who does not believe this.  

Summary of Traditional Moneys

In fact, money did not begin with trade, trade did not begin economic calculation, and the true power of money is not what you can get for it – though that is, indeed, powerful – but what it says to you and for you. ("The Technology of Ritual Exchange is now on the new Washtenaw Justice here)  Historically, in human and perhaps proto-human development, friendship came from the exchange of gifts.  When strangers met, giving and receiving almost anything at all avoided conflict. 

In The Economy of Cities, Jane Jacobs posited that the cities derived from permanent hunting camps, not from agricultural settlements.  Successful hunters exchanged their bounty, more for novelty than for need.  According to Jacobs, grains that were not eaten before the next gathering were tossed aside.  When they grew, agriculture was discovered within the city walls.  The need for space took agriculture outside.  According to her theory, where today we find pastoral people, somewhere near the center of their range, we can find a lost city.  

If gold and silver as money derived from trade as economic calculation, then tin and copper (and bronze) would be the basis for money.  And there is support for this.  We know bronze blocks the shape and size cowhides.  The first Roman metal money was in blocks of the stuff, weighing one pound, cast with the images of pigs and elephants. The value in silver and gold is that they can be exchanged for bronze.  At the same time, however, there is no doubting the beauty of precious metals.  That, too, is valid.  Durable, uniform and malleable, they excel over other pretty stones and attractive feathers.  But as such, they have no utility except exchange.  Fundamentally, the value in money is that it allows us to make peace.  Economic calculation then becomes possible, but that is not the origin of money.

Once coinage was invented, money took on a new dimension: it carried images, and eventually words.  For pre-literate and proto-literate people, coins spoke in symbolic images.  Ancient coins were read in a depth of meaning that even numismatists too often glide past.  But no one mistakes what Junius Brutus meant when he issued coins celebrating the Ides of March.  Roman imperial coins announced military victories and the subsequent enslavement of peoples, as well as the emperor's tours of the provinces, the liberality of his gifts to the people, and the renewal of his appointment to office by the senate.

Even in the Dark Ages, coins carried so many words that they had to be abbreviated.  Historically, in obedience to the Commandments, coins from Muslim nations displayed no images, but announced, “There is no god but God; and Mohammed is the prophet of God.”  In China, from ancient times to the 19^th century, the common cash coins carried four characters, at least two of which were the political message of the emperor, just as our presidents announced a “New Deal” or a “Great Society.”  In the 18^th and 19^th centuries, privately struck coins in England and America carried explicit political messages threatening revolution and touting our rights – and celebrating hard work and free trade with beehives and handshakes.  In America of the 1830s, one series of tokens lampooned Andrew Jackson as a jackass with a law degree; another showed the general, sword in hand, taking responsibility for an empty treasure chest.  Today, we use paper money and the typical Federal Reserve Note carries twenty different messages from the letter seal of the bank to the printing plate position, from the Eye over the Great Pyramid to “In God We Trust.”   

Pan American Airways

Stock certificates from the great age of capitalism carried vignettes.  Generic deities posed with wonderful machines.  Some of those demi-gods sported slide rules and calipers.  Goddesses of agriculture delivered bounties via railroad. The goddess of Gulf States Electric delighted her child with sparks from a generator.  

As the Internet eclipses print, we no longer purchase bank checks dressed up with icons and messages.  Electronic money is anonymous, surrendering its powers of speech and peacemaking.  But the foundation remains.  On the Internet, that overt trust is too easily exploited, but it could not be stolen by the dishonest if it did not exist.  Each exchange minimizes conflict and allows an opportunity for friendship. 

ALSO  ON NECESSARY FACTS

Money is Speech

Money as Press and Speech

Start the Presses!

Republican Rebels