One of the major problems of this present world is that there is a dishonest, fraudulent banking system worldwide.

The potential for bank runs is just one manifestation of this.

Ludwig von Mises is reputed to have written in one of his books about how to rapidly convert to an honest (gold based) money system.

Not necessarily related to Mises' suggestions, but an actual prototype banking system has been set up (privately).
See http://www.e-gold.com
Transactions can be paid for in any (or combination) of 4 metals -- gold, silver, platinum, palladium, and in fractional ounce amounts.

BTW, in conventional checking account purchases, transactions are buyer initiated.
Credit card transactions are seller initiated, opening the door to fraud (the seller has all the information he needs to do additional unauthorized transactions once a buyer has made a purchase.)
With e-gold, the buyer intiates the transaction by transferring asset to sellers account. The seller cannot tap the buyers account.

Ludwig von Mises, "Austrian economist", noted for book "Human Action", I believe, among many others (all mine are in boxes, so I can't verify title or references)

-- A (A@AisA.com), August 14, 1999

Answers

A couple of other pro-gold standard items for the bibliography:

Alan Greenspan, Gold and Economic Freedom (As reprinted from the book "Capitalism, the Unknown Ideal" by Ayn Rand with additional articles by Alan Greenspan - 1967.), http://www.carefreegold.com/greenspan.htm

(Yes, this is the current Federal Reserve chairman! If you asked him today, he would probably repudiate his earlier writings -- at least in public. Nevertheless, he had it right back in 1967.)

Gary North, In Introduction to Christian Economics, 1973, http://freebooks.commentary.net/freebooks/docs/2236_47e.htm

Gary North, Honest Money, 1986, http://freebooks.commentary.net/freebooks/docs/2156_47e.htm

(Before he became the webmaster of one of the best-known and most-pessimistic Y2K websites around, Gary North wrote books, including these two which deal largely on the gold standard. Both are free downloads.)

My personal commentary:

As someone who has a fundamental distrust of big government, I always favor anything which tends to limit government power. This, to me, is the single best and most persuasive argument in favor of the gold standard. Unlike the modern monetary system, a gold standard is an independent instution outside of the government's power to manipulate or control. If our banking and money system are seriously damaged or destroyed as a result of Y2K, then this will hopefully at least open up a window of opportunity for the restoration of a gold standard.

-- Stefan Stackhouse (stefans@mindspring.com), August 14, 1999.

Hey A

I am not a banker. I don't have any close friends or relatives who are bankers. But I don't really believe that many of the "people" in the banking system are "dishonest". I completely agree that the "structure" of the banking system is precarious. If you read the comments of bankers on y2k and understand the types of contingency plans they are making, you will see that most bankers ar DGIs.

I am glad to see that a prototype for a gold standard is up and running. Be careful if you believe that gold is not politically managed. The USA has the worlds largest reserve stored at Fort Knox and the Reserve of many small nations sits "safely" in deep vaults in the bedrock under Manhattan.

In principle, any commodity which can be safely stored for a couple years can be used in the same fashion. For example, the bank you mentioned probably has a designated number of ounces of gold, silver, platinum, and palladium held in a safe storage. The number of ounces is published regularly as well as the number of currency units which are tied to the ounces. The only way to increase the money supply is for someone to contribute new metal to the pool. The pool may also choose to sell metal on the spot market to someone who cashes in some currency.

In the just in time economy, stored reserves are bad news because they are considered working capital which is not productive, there is some type of storage cost associated with them. So companies work hard not to have them. But on the other side, they need to hedge their price risk so they transfer the costs of storage over to the costs of doing business in the futures market. Massive short term instabilities can cascade into financial catastrophe so there are many mechanisms which help to manage risk. The futures market allows an amazing amount of price stability in general (considering the low inventories) but there is always the massive risk of major meltdowns when most players are margined to make it profitable.

After y2k, there will be a lot of companies and countries who will have an interest in building up large reserves. If these countries agreed to sell these reserves to an asset pooling system which backed a currency, it might be possible to use these reserves to more effectively hedge production costs.

Let me give an example. Corn is a major crop in the USA. Most corn is used to feed cattle and much of it is kept in the form of silage for this reason. The second most common use of corn is in the wet corn milling industry where it is used to make high fructose corn syrup which has virtually replaced sugar in many processed foods. Most of the wet corn millers are out in corn country, primarily due to costs of transporting large quantities. But in hard times, the same corn can be ground and used to feed humans. Similar aspects can be said for soy beans.

Now lets say that 30 corn and soy producing countries all agreed to establish state of the art silo systems which would be able to safely store enough corn to equal 1/2 of a yearly harvest worldwide. The corn in the silos would be sold by each country and be owned by the currency board. Companies who either produced or used corn could sell or buy corn from the bank under very strict rules which did not allow speculative profiteering. In a bad year, the corn inventory might drop, but the price should go up so that the relative contribution to the currency fund was held constant. In strong year, excess corn driving down spot prices would lower the currency value, but the same currency would buy even more corn because it retained purchasing power tied to other assets in the pool.

Facilities for storage would be located near harbors where they could be easily transfered to ships and trains. For perishable products like grains, it is obvious that a rotation would be needed. Since this would add costs, the currency would in general lose value based on the cost of maintaining storage. For this reason, the currency would have a high velocity. At the same time, it would be possible to have a second currency which was based on assets like land, developed real estate (expensive buildings in cities), expensive amortizable objects like factories, refineries, etc. This pool of currency would be stable in price with a small positive interest yield to encourage savings or longer term deposits. Once this pool was large enough that it held more than 20% of the worlds large assets (an accordingly the revenue from these assets) the currency would be managed to keep stable values and currency supply.

The management of these two currencies would have to be along a standard set of guidelines which could only be changed by the vote of a committee from multiple countries and the discussion of changes should be a very public issue.

By producing into a reserve, fluctuations in output would be dampened by use of the reserve under contracted prices. Unstable prices only benifit the traders. Buyers and sellers always win out in the long run if they can fix a price before they commit to a production budget.

This may seem like an odd idea but in principle it already exists in the form of "money market accounts". These accounts have a par value but are held stable by underlying debt. The proposed currency would be better because it would be held stable by fixed pricing of underlying assets.

-- Thom Gilligan (thomgill@eznet.net), August 17, 1999.

Thom: I'm not saying banking people are necessarily dishonest, nor even the president or owners of a middling size local bank, nor the branch managers, tellers, etc. Yes, they are likely just as clueless as the "average man in the street" about the true, fraudulent nature of the money, credit, and banking system worldwide. They do know a good racket when they see it, though, even though they may not know exactly how it works at the higher levels.

I think the officers and owners of the major banks, U.S. and foreign, the U.S. Federal Reserve governors, the officials of the treasuries of the various countries, etc., ARE knowledgeable of, and in on, the scam.

Many years ago, I saw an article re "commodity money" which I did not clip at the time, and have not since been able to find. But the essence was that a "money" could be constructed using a "basket of commodities" combining a bit of each major grain, each major metal (so gold would be only a small part of it), livestock/meats/animal products, etc. (1 oz of that, 2 lbs of this, 3 bushels of that .... would comprise a unit of the currency.) The many commodities would make the "money" more stable as even a drastic shortage or plenty of one would not effect the total all that much.

(I imagine that) accounts and payments could be in fractional units just like "dollars". (and just like "e-gold" mentioned above.)

I also imagine that the commodity markets (speculators taking the other side of a market from hedgers) would still be in existence -- and arbitrage of the components of the money vs. the money itself would still be an interesting adventure for some.

-- A (A@AisA.com), August 17, 1999.

A: Backing up to the simplistic, money is a medium of exchange invented to keep from having to figure out the relative values of eggs, cows, horses and houses.

Now, intrinsic-value media, such as gold or silver, worked well with the relatively small populations of past eras. A stable and common- sensical government (!) can readily use its "full faith and credit" to use paper money in lieu of intrinsic-value materials. Fine.

Banks as repositories and lenders are fine.

A problem arises when some folks figure out that not all money moves into and out of a bank every day. Sorta like electric power plants: If everybody on the system turned on every piece of electric equipment, all the "fuses" would blow. Electric utilities can carry maybe 40% (vague memories, here) of the potential load. "The Fed" allows as how 10% of all deposits should be "backed up" by paper. If there is a "run", Oops!

Banks' profits come from loans; the bigger the bank, the bigger the loans. So long as banks don't gamble the depositors' money in things like stock market equities, all's well. When they get into arbitrage with the depositors' money and guess wrong, again, Oops!

So banking in and of itself, no matter how big the bank, is not the problem. The problem is when bank officials confuse themselves with arbitrageurs as a matter of proper business, and get outside the realm of banking as banking was intended to be. It's not inherently in the system so much as within the greed-aspect of human nature, tied in with delusions of infallibility.

Regards, Desertrat

-- Desertrat (arthur@surfsouth.com), August 18, 1999.

DesertRat: The fractional reserve thing is different with a power company and a bank. The utility is selling you THEIR product. Usually they have enough on hand. If not, c'est la vie. The bank, on the other hand, is holding YOUR money. It had better be there when you want it.

One of the obfuscations, if not outright fraud, that the banks perpetrate is that they do not make clear that you, as a depositor, are essentially a lender. A lender to whoever the bank officials deem worthy (shopping mall builders, business equipment, etc.)

As far as I'm concerned, the fractional reserve bit is fraudulent, no matter how rationalized. Now, the banks COULD make it clear that they are lending out YOUR money, and that it may not be available if you and a whole bunch others want it tomorrow. This necesitates, in an honest banking system, that different types of accounts be established and honestly and forthrightly explained. But such honesty would seriously dampen the bankers ability to manipulate.

Types of accounts would be "current accounts" for saving and/or checking, where if your balance says $2,120.33, they better have at least $2,120.33 in cash and coin in their vault. Period. Capishe? Then, there could be short and long term investment accounts. Sort of like CDs, where you could put in $1000, but it is lent to someone for 6 months. After 6 months, that better be repaid by the borrower, or the bank has to make it good. Period. Capishe?

Now, all this means that the bank customer, the consumer, will NOT be getting interest on his current accounts. He could get interest on his investment (CD) account, depending on the interest the bank gets from the borrower and their lending results.

I know, call me naive. I guess I'm just not sophisticated enough to appreciate the virtues of an inherently unstable and fraudulent system.

-- A (A@AisA.com), August 19, 1999.