Antal Fekete at The Daily Bell

DB: This is a great interview with Professor Fekete because in it he abandons some of the vocabulary that tends to confuse people who don't have a sufficiently high intellect to understand him, which means almost everybody.

BM: Agree, speaking as one of those who doesn’t have sufficiently high intellect.  Fekete also did a good job of remaining on good behavior.

AF: World trade is facing an avalanche-like transformation flattening out monetary economy into barter economy.

BM: If true, the majority of the population in developed economies is done for. 

AF: Gold is a monetary metal due to the fact that its marginal utility declines at a rate lower than that of any commodity.

BM: But, admittedly, it does decline.

AF: For this reason gold does not obey the Law of Supply and Demand.

BM: Fortunately, this was stated simply enough for me to understand.  It is statements like these that cause me to look askance at Dr. Fekete. 

Gold has been in the market for thousands of years – has no economist before ever noted that the law of supply and demand is not applicable to this commodity?

All commodities, including money – the most marketable commodity – are subject to supply and demand; if not, how could money be money?  Fekete even suggests that gold has a declining marginal utility.  It does not have a constant marginal utility. It is subject to supply and demand.

AF:  My own position is that manipulation in the gold and silver markets, if that's what's been occurring, is far less important than it is made out to be by market observers.

BM: Agree.  It is difficult to even understand what market manipulation means when every financial market is subject to the non-market backstop of central banking and state-regulation.  All markets are manipulated – there is nothing terribly special about the gold market manipulation.

AF: I don't have much respect for Hayek's position that choosing the monetary standard should be "left to the free market". The market has already spoken.

BM: Then there is little to fear.  The only way to ensure a sound financial system is to allow the market to speak – any other avenue is central planning, and this cannot stand because it suggests no foundation of understanding by market participants.

AF: The value of gold, like the length of the yard, is not subject to individual preferences or to market forces.

BM: On this, I will simply disagree.  Suffice it to say, if this was true, everyone would clamor to own gold, regardless of price (and yes, I am differentiating “price” from “value”).

AF: Instead of saying that there is too much or too little gold, it would be more accurate to say that the rate of interest is too high or too low.

BM: I appreciate the simplicity by which this way of looking at it is stated.  I suspect there may be some differentiation (are long-term or short-term interest rates applicable?), but as far as the statement goes, it is outstanding in its simplicity.

AF: We may recognize ZIRP (Zero Interest Rate Policy) of Bernanke as an imitation of the scheme of Gesell.

BM: This is quite correct, and Bernanke has implemented greenbacker policy – the state is issuing the money to fund the state’s spending, at virtually zero cost.  For this reason, Brown turned from being a critic of Bernanke to a fan. 

Further, Fekete’s criticism of Gesell’s Freigeld theory is sound.

AF [regarding “Real Bills”]: This is not inflationary because the ephemeral cash arises together with the rise of the new merhandise in production, and it expires simultaneously with the removal of the merchandise from the market and with its disappearance in consumption.

BM: It is most certainly inflationary to the money supply, therefore it is distortive; it may or may not be inflationary to prices.

AF [regarding the state as necessary toward the market for “Real Bills”]: Absolutely not.

BM: Thank you!  I agree, the state is not necessary, and it is reasonable to expect that such a market would come forth naturally, through the actions of market participants.

AF [regarding state-mandated accounting standards]: If the government can make them, it can also scrap them, it can ignore them overtly or covertly.

BM: Thank you, again!

AF [regarding why the Rothbardian Austrians are dismissive of the “Real Bills Doctrine”] The Real Bills Doctrine is a thorn in the flesh of the Quantity Theory of Money to which the Rothbardians are uncritically committed.

BM: This comment confused me more than anything in the interview.  The Rothbardians are uncritically committed to the subjective theory of value.  How then can they also be uncritically committed to the Quantity Theory of Money?  Somewhere, there is confusion.

In any case, I believe the Rothbardian criticism is due to the fractional reserve nature of real bills.  That real bills are fractional reserve is without a doubt – Fekete even says so, in his reply to the Rothbardian criticism of fractional reserve banking, when he writes:

“Fractional reserve banking is fraud, in whatever shape and form it may come – they say. However, there is such a thing called self-liquidating credit that Rothbardians refuse to recognize. It is represented by real bills covering goods in most urgent demand and moving to the ultimate consumer with all deliberate speed.”

AF: The demise of the system of irredeemable currency is a foregone conclusion. Not only is it illogical; it is also immoral. A free society cannot be built on a coercive basis. Moreover, the regime of irredeemable currency is incompatible with the ideal of limited government.

BM: The truest words spoken in this interview.  A fabulous statement.