Pat Gunning wrote:
>John Médaille wrote:
>>I am enjoying this discussion, but a 
>>clarification, please. James is arguing in 
>>favor of the FRS, and Pat against it. I had 
>>assumed that Pat was for a gold system, but he 
>>says that while he would like that, he is not 
>>actually proposing it. In which case, what are you proposing?
>
>John, I am proposing a 100% reserve system in 
>which the government controls the quantity of 
>currency (federal reserve notes and coins).
Thanks for the clarification, Pat, but I didn't 
see the mechanism. Are you saying the gov't 
should control the quantitity of (money? 
currency?) by just printing it? I don't 
necessarily disagree, I just want to understand what you are saying.
>I would prefer a commodity-based system like a 
>gold standard in order to completely avoid the 
>possibility of discretionary monetary policy. 
>However, I don't think that this is politically feasible.
Well, it wouldn't have been feasible in the last 
two weeks, when the price of gold fluctuated up 
and down by about 10% in either direction. I 
don't know of anybody who could do business under 
those circumstances. How would you price things? 
You would have to look in the paper each morning 
to find out if your money would buy a loaf of bread or just a slice.

I might like it, because I own a bit of gold, and 
it would have to go to about $60,000/oz. to 
"back" (whatever that means) all the money in 
circulation. So there would be a transfer of 
wealth in my direction. Unless, of course, the 
Gov't just decided to seize all the gold at an arbitrary price.
>I have two purpose in mind here. First I want to 
>emphasize the uncertainty entailed in all saving 
>through intermediaries as well as the 
>uncertainty-mediating function of 
>intermediaries. Second, I want to keep in the 
>forefront the methodological point that 
>production (or research) must be made in accord 
>with a regard for consumer interests for 
>economists to treat it as investment. I sensed 
>that James may have been neglecting this, although I was not sure about this.
I am not convinced that all research is done for 
commercial purposes. For example, few historians 
of economics conduct their research with the 
object of making a killing in the market. I think 
they do it because that's what they love to do, 
and as long as they are in a profession that 
frees them from having to worry about the market allows them to do this.

>James had written: "locking up our dollars in 
>safety deposit boxes would simply deprive 
>borrowers the funds they otherwise could have 
>received from financial intermediaries to 
>invest, hire workers, and increased production 
>in the economy." Let's not forget, I meant, that 
>intermediaries also help to decide which types 
>of investment will be carried out. They are not 
>mere conduits, like a copper wire. They are 
>living beings who can be tricked and who can 
>make serious errors. Indeed, many were tricked 
>and did make serious errors toward in the middle 
>of the current decade. If getting rid of the 
>FDIC and the fractional reserve system can 
>reduce the harmful effects of these mistakes, 
>wouldn't that be a good thing? (Of course, I did 
>not recommend that dollars be locked up. I 
>recommended that depositors should have the 
>presumptive right to stop a depository 
>institutions from lending out their deposits. If 
>a person wants to deposit her funds in a lending 
>institution, she should be allowed to do so. But 
>she should also have the option of depositing 
>funds in a pure depository institution. The 
>fractional reserve system presumes against this. And to what end?)
The problem I see with a FRS is that it 
privatizes a public power. Why should the banks 
have the power to create money? We bail the banks 
with borrowed money they create. Something is not 
right about that. We will be paying interest on 
the money they (or their Chinese counterparts) 
lend us to give to them. What's wrong with this picture?

John C. Médaille