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It Smells Like the Poop of a Thousand Rams

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October 21, 2010 – Comments (28)

The title of this blog is dedicated to the funniest eight-year-old I've ever encountered.  When I explained to him that I didn't like Qatari summers, he sighed and lamented, "In the summer morning, Qatar smells like the poop of a thousand rams..." 

Who talks like that????

As colorful as that sentiment is, I could easily use it to describe the quack monteary theories I have investigated over the years.  They smell like the poop of a thousand rams......

Here's one:

Hi, my name is David in Qatar and I'm a money printer!  I call my money Qatards.  The value of my Qatards is determined by the market.  Here's how it works.

I go to the computer store.  I tell the owner of the store, Bob, that I would like to buy a computer from him.  Bob says no.  He's never heard of me and doesn't consider a Qatard money.  It has no backing. 

I reply, "Oh sure it does. The backing is the computer, which I will pay 700 Qatards for. I will hold the computer in reserve as a liability.  Then I will sell it to the community for 700 Qatards, which they will acquire in exchange with you - you have to spend this new money, right? - and the money will effectively be cancelled out.  You will be able to sell your computer, pay your employees, and no new money was created."

So Bob went along with my plan.  He was now the owner of 700 Qatards and I had a 700 Qatard liability (one computer.)

As long I promise Bob that I will sell his computer to remove the 700 Qatards from circulation, I am not a counterfeiter.

Is This For Real?

This is an actual theory proposed by Mike Sproul, Professor of Economics at Cal.

"The Fed is not a counterfeiter because it puts its name on the money it prints, recognizes that money as its liability, keeps assets against that money, and stands ready to use those assets to buy back the money it printed. A private person who does the same thing is not a counterfeiter, but if that private person printed “the Fed’s (not their own) money” then they would be a counterfeiter. They would not put their name on the money, would not recognize it as their liability, would not hold assets against that money, and would not use those assets to buy the money back." - Mike Sproul, Dec 2009

By Mike's logic, I am not a counterfeiter as long as I don't put the Fed's name on my notes.  Of course, I complied and called them Qatards. =D  According to Mike, I have merely increased the ability of people to engage in mutually beneficial exchange.  I am some kind of hero.  My guidance counselor was right after all!

The Big Question

I have merely increased the ability of people to engage in mutually beneficial exchange

Notice what I didn't say.  Where's the word "voluntary" in that statement?  It's missing, right?  Was the transaction voluntary?

In my hypothetical scenario, Bob the Computer Store Owner did enter into a voluntary exchange.  But what happens when Bob attempts to pay his employees with Qatards?  Will they happily accept them in lieu of real money?  What if Bob had refused to accept Qatards at all?  How can I get every person in the community to accept Qatards, no matter how many I print?

That's the Big Question, the one that Mike Sproul and most modern macro theorists dance around.  Government force is implied, nay, welcomed!  If I can back my money with the force of a gun, driving all other monies out of existence, then I can pay Mike Sproul a handsome salary to convince you that I'm not a counterfeiter.  (Just kidding, Mike. I'm sure you don't see it that way.)

You have to respect the sheer audacity of the economics profession to rubber stump theories that require violence in order to hold true. 

The Verdict

This theory smells like the poop of a thousand rams.

David in Qatar

28 Comments – Post Your Own

#1) On October 21, 2010 at 5:25 PM, eldemonio (98.53) wrote:

Sounds like Mike Sproul is Qatarded.

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#2) On October 21, 2010 at 5:26 PM, Valyooo (99.41) wrote:

haha great quote

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#3) On October 21, 2010 at 6:17 PM, catoismymotor (24.55) wrote:

You've been using solvents in small unventilated spaces, again, have'nt you?!

Thanks for the fun blog.

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#4) On October 21, 2010 at 6:46 PM, BillyTG (29.15) wrote:

You should email him the question or this post.  I do that all the time, and usually get responses.  Just be polite and sincere.  Most academic types are used to a little criticism or questioning, and actually enjoy the chance to bolster or refine their own positions with ideas they might not have considered.

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#5) On October 21, 2010 at 6:56 PM, whereaminow (20.23) wrote:

Just be polite

Too late for that, BillyTG lol!  I have debated Mike before, although I doubt that he would remember it.  Mike is confident enough to spend time on heterodox economic sites and debate with Internet punks. :)  He's a good guy as far as I can tell, if a bit easily frustrated with economic heretics like me.

You've been using solvents in small unventilated spaces, again, have'nt you?!

LOL, cato, that made me think of the movie Tommy Boy

Diavd in Qatar

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#6) On October 21, 2010 at 7:14 PM, whereaminow (20.23) wrote:

Diavd in Qatar

A good counterfeiter should be able to spell his own name =D

David in Qatar

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#7) On October 21, 2010 at 7:55 PM, russiangambit (29.30) wrote:

Taxes are instrumental in keeping fiat currencies viable. If you don't pay your property or income taxes in FED's notes you lose your property and thus FED notes are always in demand in order to pay taxes.

As for fiat money itself they are nothing but a tool to control  and fleece your flock whenever you like it.

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#8) On October 21, 2010 at 8:25 PM, ChrisGraley (29.75) wrote:

Great story David.

You almost had me hooked there!

It seemed so believable!

Then you blew it by trying to get me to believe that they teach Economics at Cal.

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#9) On October 21, 2010 at 8:31 PM, whereaminow (20.23) wrote:

russiangambit

Taxes are instrumental in keeping fiat currencies viable.

Bingo!  Taxes create an artificial demand for these money subsitutes. 

If I said, "Bob, btw, you and all of your employees have to pay your taxes in Qatards from now on," what do you suppose would happen to the demand for Qatards?

Hence, this economic theory is only viable if violence is employed.  Now, I ask my readers, what kind of person would advocate a policy predicated upon violence?

David in Qatar

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#10) On October 21, 2010 at 8:32 PM, whereaminow (20.23) wrote:

ChrisGraley,

Then you blew it by trying to get me to believe that they teach Economics at Cal.

Lol, touche!

David in Qatar

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#11) On October 21, 2010 at 9:02 PM, BillyTG (29.15) wrote:

@ChrisGraley, technically the only university that goes by "Cal" is this one

Mike Sproul teaches at California State University, Northridge which also goes by Cal State Northridge.

USC, incidentally, can be called Southern California, but not Southern Cal. 

I wasn't going to correct it before, but after your comment I thought I better set the record straight so that the right university gets credit here for sucking:)

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#12) On October 21, 2010 at 9:15 PM, whereaminow (20.23) wrote:

BillyTG,

Thanks man.  That was caused by my laziness. I added the link to Northridge but was too lazy to type the whole thing out. 

David in Qatar

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#13) On October 21, 2010 at 9:18 PM, whereaminow (20.23) wrote:

Oh and there's a fella at the Cal has irked me more than once in the past.  But I'll save that for another day.  He's way more offensive than Sproul.

David in Qatar

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#14) On October 22, 2010 at 10:41 AM, FreeMarkets (92.24) wrote:

We're right back to the "Legal Tender" laws, where U.S. citizens were required to accept Fed Notes in 1913.  Mises teaches that creditors would always accept a commodity over paper (gold over Fed Notes), so the Legal Tender laws were created.  Borrowers always pay in paper over commodity (Fed Notes over gold).  It was just a matter of time that Legal Tender laws would remove all the gold from circulation.

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#15) On October 22, 2010 at 10:57 AM, Turfscape (42.51) wrote:

"By Mike's logic, I am not a counterfeiter as long as I don't put the Fed's name on my notes.  Of course, I complied and called them Qatards."

You know...this has been done. As long as you don't call it "money", you CAN in fact print your own and use it as an exchange vehicle for goods and services.

The Art of Money

As long as the recipient and giver agree to the barter, you can do whatever you want. Sure, there may be some hassle with Secret Service agents and courts...but, that's just a hazard of living in a society where overextending laws are welcomed as "patriotic".

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#16) On October 22, 2010 at 11:45 AM, whereaminow (20.23) wrote:

FreeMarkets,

Orwellian, isn't it?

Turfscape 

You know...this has been done. As long as you don't call it "money", you CAN in fact print your own and use it as an exchange vehicle for goods and services.

Of course, but that skirts The Big Question.

As long as the recipient and giver agree to the barter, you can do whatever you want 

Getting warmer.... 

David in Qatar 

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#17) On October 22, 2010 at 1:23 PM, leohaas (31.56) wrote:

Interesting. Maybe you can pull this one off in Qatar, but not in the US. Article 1, Section 8 of the Constitution of the United States starts off as follows:

"Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

To borrow money on the credit of the United States;

To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;

To establish a uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States;

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

To provide for the punishment of counterfeiting the securities and current coin of the United States..."

Clearly, here in the US, Congress has the power to regulate money the way it sees fit. You can argue that they are not doing a good job, that they outsourced it illegally, and so on, but not that you should have the same power. Actually, it says right in the Constitution that Congress can provide for punishment for such behavior...

This is one of those instances where the Libertarian mantra that the rules that apply to individuals must also apply to our Government cannot hold in the US (unless we change the Constitution).

 

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#18) On October 22, 2010 at 2:30 PM, FreeMarkets (92.24) wrote:

As a Constitutional Libertarian, I don't agree that anyone should be able to coin money, but I do agree that money should be coined and not printed.  Unfortunately our Congress ignored that part of the Constitution.

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#19) On October 22, 2010 at 3:00 PM, leohaas (31.56) wrote:

@FreeMarkets: take that issue to the Supreme Court, and see where you get. Coining and printing is the same, when it comes to money. And if printing is ruled unconstitutional, what is to keep the Government from using zinc, aluminum, bronze, or corrugated card board for 'coining'?

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#20) On October 22, 2010 at 3:03 PM, whereaminow (20.23) wrote:

leohaas,

I'm afraid that if you make a Constitutional argument in Professor Sproul's classroom, he will mock you.  I think you're right, but clearly the army of economists in employ of the Fed feel differently.

This was an exercise in reductio ad absurdum.  I think it point out how completely absurd modern macro monetary theory can be.

FreeMarkets,

I would prefer to see free market currency.  In the example above, my money wouldn't get very far without using force.  However, if I were to back it with something stable, and gain my reputation through honesty and quality, that would help my currency spread.  

Obviously today this scenario is unlikely, and a Constitutional position is far preferable to the current scam.

David in Qatar 

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#21) On October 22, 2010 at 3:10 PM, whereaminow (20.23) wrote:

This is sad.....

http://www.usconstitution.net/constfaq_q154.html

Gold and silver are not panaceas. Gold and silver coins have issues of their own, and the evils of paper money were outweighed by the evils of manipulation of purity and weights, not to mention convenience. By the Civil War, "greenbacks" were issued by the government and used in all manner of commerce. Not everyone liked this, and legal conflict ensued.  

The evils of paper money are outweighed by the evils of manipulation and purity and weights?  Is this person serious??????????????  The point of paper was to make it easier to manipulate purity and weights!!!!!!

And the convenient part about issuing Greenbacks is that it allowed the government to finance A LOT OF DEATH.

On the flip side, going back to the gold standard in 1879 ushered in America's most prosperous decade.   

It's so sad how unbelievably stupid American government-worshipers are.

David in Qatar 

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#22) On October 22, 2010 at 3:12 PM, whereaminow (20.23) wrote:

From Federalist #10:

The influence of factious leaders may kindle a flame within their particular States, but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project, will be less apt to pervade the whole body of the Union than a particular member of it; in the same proportion as such a malady is more likely to taint a particular county or district, than an entire State. 

Clearly James Madison did not think paper money was just a matter of convenience.

David in Qatar 

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#23) On October 22, 2010 at 3:15 PM, whereaminow (20.23) wrote:

From Federalist #44:

more James Madison 

The loss which America has sustained since the peace, from the pestilent effects of paper money on the necessary confidence between man and man, on the necessary confidence in the public councils, on the industry and morals of the people, and on the character of republican government, constitutes an enormous debt against the States chargeable with this unadvised measure, which must long remain unsatisfied

I'm finding this with a simple Google search: "Federalist Papers paper money" 

David in Qatar 

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#24) On October 22, 2010 at 3:38 PM, FleaBagger (28.92) wrote:

I thought "Diavd" was Qatard for David.

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#25) On October 22, 2010 at 3:51 PM, BillyTG (29.15) wrote:

David, I'm in agreement.  It's an uphill battle convincing people that the system is broken. They Do. Not. Get. It.

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#26) On October 22, 2010 at 4:46 PM, rfaramir (29.32) wrote:

If your Qatards were a commitment on your part to give back the computer to whomever tendered to you those same said notes, they'd be like a gold deposit receipt (only a computer instead of nicely divisible gold).

So long as you didn't print fake receipts for computers you didn't have, and so long as you kept the bargain and gave the computer back to the holders of said notes, you're fine.  Goldsmiths did this for quite some time, holding people's gold for them, since they already had nice vaults and good bookkeeping.

But, the temptation to print more 'receipts' than they had gold got them, just as has happened to every other paper 'money'.  When caught, I suppose the goldsmiths went out of business, but when a government is caught, it passes laws forcing you to accept the 'fiduciary media' (fraudulent paper beyond the backed receipts, from which they are indistinguishable) as 'legal tender.'

The Constitution specifies gold and silver coin as money.  Congress can "regulate the value thereof" only in the sense that it can regulate the value of foreign coin (mentioned in the same clause).  That is, to establish what purity and weight a standard coin will be (and what name it will have, e.g., milled dollar).

Enough force and fraud! Up with Liberty and the Gold Standard! 

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#27) On October 22, 2010 at 7:49 PM, whereaminow (20.23) wrote:

rfaramir,

I'm with you, just like I'm with FreeMarkets and his desire for a Gold Standard.

The Constitution specifies gold and silver coin as money. 

Because those were the voluntary choices of market participants, and had been for centuries.

Now, what I'm going to say is a bit grandiose, but it's true, and you'll see more of this in my upcoming blog on Chartalism.

You can defeat all of macro economic theory with one word:

voluntary

David in Qatar 

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#28) On October 28, 2010 at 5:29 PM, ReverendMoon (< 20) wrote:

Just joined. 

If you want to learn about money you should read this from

The Banking Law Journal, May 1913.
By A. Mitchell Innes

http://moslereconomics.com/mandatory-readings/what-is-money/

Maybe you have already.  Maybe you disagree with Mosler and the MMT folks but, this article was written by someone else and he's right about money.  Look forward to learning what you think. 

Cheers!

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