“This is a long piece, but no longer than strictly necessary. It refutes a few of the most common claims advanced by Greenbackers, opponents of the Fed who believe the solution is to transfer its money-creation monopoly directly to the government.”
This is a false claim on the part of Thomas Woods there is no monopoly on money. The government may give privileges to certain banking institutions and prevent some alternatives from coming into existence however no one forces you to use Federal Reserve Notes. People do use alternative currencies such as Bitcoins and mountain hours. I might add neither mountain hours nor Bitcoins are based upon commodities. Having governments issue money does not stop people from using their own money nor do people who inherently support governments issuing money support monopolization.
“(1) that the Fed is “privately owned” (the Fed’s problem evidently being that it isn’t socialistic enough)”
The Federal Reserve is pretty darn capitalistic it is run for the benefit of banks. Of course Thomas Woods throw out the over used Word “socialism”. Of course what “greenbackers” are against is government borrowing money and then taxing you to pay the interest on this borrowing. This process is essentially a form of “socialism” for the rich. Though it all depends on how one defines “socialism”.
“Money emerges from the primitive system of barter, in which people exchange goods directly for one another: cheese for paper, shoes for apples. This is an obviously clumsy system, because (among a great many other reasons I trust readers can conjure for themselves) paper suppliers are not necessarily in the market for cheese, and vice versa.
A money economy, on the other hand, is one in which goods are exchanged indirectly for each other: instead of having to be a hat-wanting basketball owner in the possibly vain search for a basketball-wanting hat owner, the basketball owner instead exchanges his basketball for whatever is functioning as money – gold and silver, for example – and then exchanges the money for the hat he wants.”
“We know from our earlier analysis that money has to emerge on the market as a useful commodity, and that the state theory of money, whereby money has value only when and because the state declares it to have value, is untenable.”
It is funny to see that Thomas Woods still believes in the Barter myth.
Money did not originate in societies through barter that isn’t to say it can’t come about that way but for the most part Money comes about through government and lw.
“Note that there is nothing in this process that requires government, its police, or any form of monopoly privilege. The Greenbackers’ preferred system, in which money is created by a monopoly government”
This is a strawman having the government create money does not necessitate monopoly. Nobody will force you to transact in a certain currency.
“Second, even if government did try to impose a paper money issued from nothing on the people, it could not be used as a medium of exchange or a tool of economic calculation because no one could know what it was worth. Are three Toms worth one apple or seven fur coats? How could anyone know?”
This is nonsense the market would simply determine the value of the government issued money and calculation would be done from there. Here Thomas Woods invents problems.
“Free-market money, therefore, is commodity money.”
To the extent that there is free market money people use Electronic currencies and people use hours based currencies. Nothing commodity based about either Mountain hours or Bitcoin. Even under a gold based system people people don’t really use the gold they use the gold backed certificates. Gold is at best a form of savings. This statement contradicts much of Austrian economics. Austrians will often say that you can’t predict what markets will do here Thomas Woods is trying to predict what the markets will do.
“So free-market money does not enter the economy as a loan.”
You would still for the most part have to get a loan from a bank to get this commodity money and the commodity money would still enter in the economy as a loan. So yes gold would be debt based.
“The free-market’s form of “debt-free money” also doesn’t require a government monopoly, or rely on the preposterously naive hope that the government production of “interest-free money” will be carried out without corruption or in a non-arbitrary way.”
This is ludicrous. Gold has often been upheld by governments. Gold has been made legal money and has been made good for payment of taxes.
“Remember, once again, that when people pay banks interest on their loans, these interest payments themselves will in large measure be spent into the economy by employees of the bank. The same unit of money can thus be used to pay principal or interest on multiple loans as it circulates again and again. There is no reason that bankers or anyone else would want to earn profits and never spend or invest them, unless someone happens to be a fetishist deriving pleasure from literally rolling in the money itself. This is unusual.”
The short answer to paying off the debt is this because not every dollar of bank profit is spent into the economy and much these profits are re-lent into the economy thus these profits become part the growing debt bubble.
“The Greenbacker objection assumes that demand for loans is infinite. Like zombies, we’ll continue to demand loans no matter what the interest rate, and banks will always be able to find more people willing to take on more credit.”
This is because it is true. Look at how stupid people are with money. People will often get loans despite not being able to pay them. This is an example where Austrian economists assume completely rational humans. In order for people to continue their ongoing living expenses they may continue to get loans in perpetuity.
“Markets can remain irrational longer than you can remain solvent.” – John Maynard Keynes
“First of all, no one can expect to print pieces of paper with his face on them and spend them into circulation. Nobody would accept them, needless to say, and as we have seen, it is impossible for money to be introduced ex nihilo in this way. The only kind of money that can emerge on the free market is one that, at least at one time, had been considered a useful commodity.”
This complete nonsense there are hour based paper money systems that people willingly accept. Banks have been creating paper money for years and people willing accepted it. A great deal of the money created during the free banking years was paper money. This is another example of Thomas Woods trying to predict what the market will do.
“In short, there is no need to replace the Fed with another government creation. There is no good reason to replace the Fed’s monopoly with a more directly exercised government monopoly. All we need for a sound money system are the ordinary laws of commerce and contract.”
This is false the Federal Reserve System does not have a monopoly. There are other alternative currencies that can be used and foreign currencies can be used. In some parts of the US Gold has been declared money. The Federal Reserve may receive some degree of protection on the part of the government but it isn’t an outright monopoly. No greenbacker suggests granting a monopoly only that government should create money. No one ever suggests out right banning alternative currencies.