“Free Market” Gold Standard? Gary North’s Folly

I don’t know why Gary North bothers me so much.  It could be the arrogance, the unreasoning self-satisfaction of a kind that permits him to overlook self-contradiction and faulty logic in his own opinions while he eagerly exposes them in others’.  Or thinks he does.

Mr. North likes the “free market gold standard”.  He disapproves of the “government gold standard”.

What is a “government gold standard”?  A government has a unit of money, such as the “dollar”.  Under a government gold standard, the government defines its unit of money in gold terms.  So, for example, an ounce of gold would equal twenty dollars by law, which it in fact did for a long time in the United States.

This is a bad idea, says North, because governments lie, cheat and steal.

We should eschew a government gold standard in favor of – well what, exactly?  A “free market” gold standard.

What are the particulars of the free market gold standard?  Well, according to Mr. North they are as follows:

1. Private property
2. The right of contract
3. The enforcement of contracts by the government
4. No government licensing of banks
5. Open entry in coin production
6. No government mint
7. No government currency or coins
8. Therefore, no legal tender laws

Let’s go right to number 3.  How can a government that cannot be trusted to adhere to a gold standard because it “lies, cheats and steals” be trusted to enforce contracts?

And note the word “enforce”.  That means to use force, compulsion.  Why would Mr. North grant a privilege of using force to the same entity that “lies, cheats and steals” so much it can’t be trusted to restrain itself?  Would he give an unlimited supply of liquor to an alcoholic as well?

Mr. North trusts the government to enforce contracts because he thinks the government would enforce contracts in his favor, the way he wants it to.  Maybe it would.  He has a lot in common with the government, such as no fear or even cognizance of self-contradiction.

But arrogance isn’t all there is to it.  There is also ignorance.  And faulty logic.

Number 6 is “No government mint.”  Number 7 is “No government currency or coins.”  and rounding this little syllogism out is number 8:  “Therefore, no legal tender laws.”

This is a non-sequitur.  Legal tender laws compel the acceptance of currency or coins in satisfaction of debts.  But government currency or coins could exist and not be legal tender.  In fact they did, and do.  And a government could mint coins (i.e., stamp given quantities of metal(s) into coin form) without those coins being legal tender.

Is this the “logic of the free market”, Mr. North?  Self-contradiction and non-sequiturs?  No wonder you have had “great trouble in getting this idea across.”  It’s unintelligible.

For present purposes let’s leave aside anarchy – that is, no government at all.  Since we have government, then, even if it “lies, cheats and steals”, what can it do in these matters?  It wants to – it must – collect taxes.  How are those taxes to be quantified?  Traditionally, a government deals in some unit of account – dollar, drachma, ducat, pound.  The dreaded “government gold standard” simply defines these.  You want to leave them undefined, Mr. North?  That’s the situation we have now.

Once they’re defined, can the government change the definition?  Certainly.  They can, and have, although they shouldn’t.  For a long time the US dollar was defined as 1/20 of an ounce of gold, which is why there were those beautiful 1 oz. $20 gold coins.  Then the dollar was devalued to 1/35.

That was embarrassing.  We never did have a $35 gold piece.

Then it was devalued again to 1/42.

But this was all done out in the open by law.  People didn’t care.  They should have, but they didn’t.  They didn’t take the opportunity to reign in their government; but at least they had the opportunity.

All life ever offers you is an opportunity, Mr. North.  Not guarantees.  You should know that, being a free marketer and all.

It’s been more than ten years since your “Y2K” hysteria was shown to be foolishness, Mr. North.  Where is the correction, the explanation, the belated assent to truth after a proven error that is the obligation of any scholar worthy of the name?  Instead, your shrill website is taken down to hide the evidence of the error and you go into denial.

You’re often wrong, Mr. North.  But never in doubt.

 

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2 Comments

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2 responses to ““Free Market” Gold Standard? Gary North’s Folly

  1. Another insurmountable flaw I find in Gary North’s reasoning is his misinterpretation of legal tender laws. These statutes do not prevent individuals from conducting exchange in whatever medium they wish.

    Legal tender laws only compel the acceptance of a currency once a debt has been incurred (the service has been performed or the good has been delivered), NOT BEFORE.

    Stated differently, legal tender laws prevent a seller from arbitrarily demanding payment by the debtor in whatever medium of exchange they wish in order to satisfy the debt. This compulsion to accept the currency in question at that point protect debtors specifically from such a predatory practice, said practice having been common behavior by merchants throughout history.

    So if you, let’s say, wanted to pay for a good or service with bananas instead of U.S. dollars, you could verbally agree on that with the seller and pay him before he provides you what you’re purchasing. Or, you can enter into a written contract that specifies the transaction. Instances of sales tax do not disrupt this in the case of a verbally agreed-upon prepayment; the seller can simply convert whatever amount of the bananas he needs to into U.S. dollars afterward so that he may pay the tax. Under common law and our constitutional system, the exchange will be (and routinely is) upheld as legally valid in either case.

    If what I’m saying were not true, contracts would be impossible. If the obligation can be universally discharged with legal tender currency regardless of the contractual terms, you’d never be able to sue for specific performance.

    And nearly all the news stories we hear involving the arrest and prosecution of those attempting to pay debts or employee compensation in a non-legal tender medium, when actually studied, are the result of the medium used being deliberately or carelessly designed to strikingly resemble legal tender money (effectively counterfeiting) or attempts to pay workers in a currency they had never agreed to accept beforehand.

    So the question for Gary North, then, is this:

    Given that legal tender laws do not forbid alternative mediums of exchange from being emitted and circulated, why don’t people ditch that “worthless” fiat paper and trust a more reliable money produced in the free market?

    ANSWER: People prefer the legal tender because they need that unit of account to pay taxes. Legal tender currency will prevail every single time over other currencies so long as government exists, because as long as government exists it needs to collect taxes … and as long as they need to collect taxes, they must denominate those taxes in some identifiable, quantifiable unit.

    So the only solution by which Mr. North can ever theoretically have his way would be total abolition of government (anarchy), which incidentally, he seems to favor.

    I have no fear of so-called competing currencies. If the “free market” cannot even outperform a legal tender that is debt-based and beneficial to private cartels via systemic usury, they sure as hell will NEVER be able to compete with a publicly emitted debt-free money issued for the benefit of the commonwealth at low or no cost.

    • Well, this is an intelligent comment, though I’m not sure your “ANSWER” is entirely correct. Also, “…a publicly emitted debt-free money issued for the benefit of the commonwealth at low or not cost” is a packed phrase. You would do well to unpack it, and think the whole thing through in terms of how that would work, how it would be different from what we have or what we have had in the past. There are several posts on this blog about “money” that you might find helpful and I recommend them to you. I would also recommend to you Richard Timberlake’s “Monetary Policy in the United States” eventually, but not yet.

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