The Sunday interview at the Daily Bell was with Antal Fekete. I was not going to comment, however many people have stopped by looking for my thoughts on the interview, so here goes.
Before getting into the monetary portion of my comments, I will first address the stereotypical view Dr. Fekete has regarding the Middle Ages.
DB: You also told us, "Today no university offers courses teaching the gold basis, the gold cobasis and their interplay, or the apocalyptic threat of permanent gold backwardation." Can you expand on what you meant?
AF: Here I am talking about the ominous and frightening parallel with the flight of gold into hiding in 476 A.D., the year when the Western Roman Empire collapsed − after centuries of monetary mismanagement, diluting the gold and silver coins of the realm by adding base metals to the alloy. The result was a disastrous return to barter and the breakdown of law and order…. Not one university in the world is sounding the alarm that the collapse of civilization may be in the offing comparable to that experienced during the "Dark Ages."
There is no doubt that the lack of a trusted “money” will result in the breakdown of the division of labor, resulting in a significantly lower level in standard of living for the portion of the population that benefited from the fruits of the division of labor.
However, this is no reason to idolize Rome and demonize the Middle Ages. Consider Rome and its “law and order,” as suggested by Dr. Fekete:
Rome’s so-called “law and order” approved of slavery – Roman civilization was built on a foundation that included as a key pillar conquest and the enslavement of those conquered.
During the Middle Ages, slavery was greatly diminished. Labor was replaced by technology – primarily the water wheel, but also other technologies. The water wheel was available to Rome, yet not exploited – Rome found it appropriate to exploit slaves instead of technology.
Rome offered a law and order that allowed woman no more rights than those allowed for minor children. Yet, under Medieval law, women were treated virtually as equals to men. They could open businesses, sign contracts, vote and hold political office, and had rights not again seen for women until just the last one-hundred years.
Rome threw Christians to the lions. In the Middle Ages, the church displayed tolerance toward those who were viewed as cultists. With hunts and burnings only began to grow to a relatively significant position toward the end of the Middle Ages, and especially after the Reformation.
To describe the fall of Rome as “the collapse of civilization” is to look only through the lens of rich white males who held positions of political privilege. For many in the population, the collapse of Rome was seen as a relief.
Finally, unlike Dr. Fekete’s use of the term “Dark Ages,” modern scholars no longer apply that term to the period. It was a rich period with examples of great political decentralization, a very different (and in my opinion better) legal system, relatively powerless kings, technological breakthroughs, and a liberalization of society.
DB: Are you in the midst of a truce with the Misesians, or does the Cold War continue? You called the "altercation" a "tragic waste of talent" in the past. Status quo?
AF: I do mean it literally. There should be a dialogue instead of altercation. A dialogue, unlike that of mediaeval theologians, on the question how many angels can simultaneously dance on the tip of a needle. Ours would be a dialogue about something on which the future of all of us, and that of our children and grandchildren vitally depends.
Throughout this interview, when the subject has come up, Dr. Fekete has been respectful when commenting on his disagreements with Mises and Rothbard. This strikes me as quite a change from what I have read from him before. Dialogue is a good answer, as opposed to dismissive comments.
But, as to his slight regarding “medieval theologians”….
First, it is not even clear where this question of angels dancing on needles was first raised. Some speculate it was written by post medieval propagandists with the objective of discrediting medieval scholarship (like those same propagandists who tried to hide the advancement during the time by labeling it the “Dark Ages”).
However, whether true or not: there is always value in exploring philosophy and concepts. The issue or conflict (the “Cold War”) that Dr. Fekete addresses should be discussed more respectfully. This does not diminish the value of exploring knowledge for the sake of the exploration.
Moving on, and away from the Middle Ages…
DB: …The price of gold is still declining. Bring us up to date on the price action since we last spoke, please.
AF: I take strong exception to your using the language of 'rising and falling gold price.' It puts things standing on their head. It paints a will-o'-the-wisp picture of reality. The rising of the gold price in reality is the irreversible long-term decline in the value of the dollar; the falling of the gold price in reality is a temporary strengthening of the dollar for whatever, mostly irrelevant, reasons.
The question was about recent price moves, and Dr. Fekete replies regarding long-term trends.
Dr. Fekete is right about the long-term relationship of gold and the dollar. That the price of an ounce of gold has gone from $20 to $1300 over the last 100 years is undeniable and reflective of the weakening of the dollar. The same weakening of the dollar can be seen in the price of virtually everything during this time frame.
But in the short run, which was the context of DB’s question? Dr. Fekete replied: “…the falling of the gold price in reality is a temporary strengthening of the dollar for whatever, mostly irrelevant, reasons.”
During the last two years (“temporary”), the dollar strengthened against basically only one asset (or asset class, if you like): gold (or monetary metals). The dollar did not strengthen to such a degree against almost any other commodity – and in fact “weakened.” The dollar didn’t strengthen against almost any financial market; the dollar didn’t strengthen against housing, food, energy, or almost any other component used to calculate a price index.
The dollar strengthened against gold, and (virtually) only gold. The dollar weakened against almost every other commodity or asset class (or stayed even at best). How can it be stated that this change is because of the dollar and not gold?
This comment is regularly parroted regarding the dollar and gold – it isn’t the dollar weakening, it is gold strengthening (or vice versa). In the long run, I would agree. In the short run – even in periods lasting a decade or more? Not necessarily.
DB: Do you still believe there's no way out of this cycle but "extinction" and then barter?
AF: I believe that the way out of the present disaster, brought upon us by the incompetence and ineptitude of our Keynesian and Friedmanite money doctors, leads to permanent gold backwardation (read: headlong rush of gold into hiding) that will in the fullness of time convert our incomparable multilateral trading system into miserable barter, and our highly productive world economy into a subsistence economy.
If this comes true, 95% of the population in the developed world will die. I don’t believe it comes to this – there is too much vested interest in maintaining the ability of supporting the division of labor, and too many means to accomplish this outcome.
If I am wrong, it really won’t matter much….
DB: You told us, "Historically money is not the creature of the state. It is the creature of the market in promoting gold as the most marketable substance on Earth over the millennia." It is probably safe to say that you don't believe along with assorted Gesellians and Brownians that money is the province of the state and that money cannot exist absent government control. True?
AF: Yes and no. Comparable to the invention of the wheel was the invention of the gold coin in the fifth century B.C. It made gold payments possible by tale. The expression 'paying by tale' means counting out gold coins rather than weighing them − a clumsy procedure by comparison. Paying by tale is made possible by the government's guarantee to strike gold coins to exact standards, and the willingness of the government to absorb losses due the wear and tear of gold coins in circulation…. It can be seen that the involvement of the government in minting and circulating gold coins was an essential one, and we haven't even mentioned the prosecution of counterfeiters.
There is no reason to conclude from this, as Dr. Fekete does, that the involvement of government is necessary – if one means by “government” the monopolist bestowed with the legalized use of force. There are countless products each one of us buys today that do not come with a government stamp. Setting aside the regulatory claws that government has in every industry, do I check to see if the iPad has been inspected by someone at the FCC? My car by the DOT?
By the way, private mints sufficed in the Middle Ages, usually associated with monasteries.
AF: But at this point the government involvement must stop. In particular, the decision as to how many gold coins should be put into circulation was not up to the government to make. It was up to the people. If they thought that there were not enough gold coins in circulation, they could do something about it. They would take new gold from the gold mines, or old gold from jewelry to the mint and get the same gold back in coined form, ounce-for-ounce. The right to regulate the money supply was the prerogative of the people, not of the banks.
This is completely correct, as long as it is kept in mind that by “the people,” it is meant the sum of the actions of individual actors who are acting in a private capacity (as I am sure is Dr. Fekete’s meaning), and not the people supposedly acting through a congress.
DB: Please share with us your criticism of the idea that fractional reserve banking is a crime, as Murray Rothbard once held.
I disagree that FRB is a crime, for reasons I have explained numerous times.
AF: …Be that as it may, "fractional banking" is a vicious misnomer. The commercial banks' reserves are not "fractional." They are full because their portfolio of gold bills is good as gold.
Not if all bills are presented for redemption prior to maturity.
DB: You're a proponent of real bills. Can you remind us of why Misesian Austrians like Rothbard dismissed real bills as inflationary?
AF: They call the monetization of gold bills a fraud for the silliest of reasons. They hold that it is inflationary.
The claim by Dr. Fekete and those who follow his is that there is not enough gold to support the roundabout manner of production in a modern economy. Paper utilized to stand in for “not enough gold” is, by definition, inflationary.
This is not to suggest anything negative regarding my view of real bills. I fully support a free market in money, credit, and banking. As long as competition is allowed (and government intervention is disallowed), inflation will be kept in check by the market. In any case, even a currency subject to inflation can be efficient for the purpose. This seems to be the case for real bills, given what I understand of the history.
Anyway, there you have it. These are my thoughts on the interview, for those who stopped by to check.