## Saturday, April 20, 2013

### #C.12 FLIGHT FROM INFLATION – E. C. Riegel

3) RELATIVITY OF VALUES – 1936

If, as stated, money is the mathematics of value, what is value?  Value is the relativity of desire. It is arrived at in the mind by comparing one thing with another. Therefore, everything establishes its value in terms of something else or the same thing at a different time or place.  A standard of value, in the sense of a fixed, commodity value, is impossible, since nothing is unchangeable in its desirability or relativity. This is not to say, however, that value has no unit. Value has a unit, even though it is not determinable. The smallest value, whatever it may be at any time, is the unit of value, or the numeral one.

Value is a common quality that runs through all commodities, but under the operation of the law of supply and demand, the content of value in each is constantly subject to change. The total, however, i.e. the sum of all the values in the universe of values, is changeless. The total of all values is no greater today, nor will it be greater tomorrow, than when mental appreciation or evaluation began. Whatever comes into life merely takes its proportionate part of the whole of value. Values vary quantitatively as fractions of the unchanging whole of value.

What actually takes place in trading is the determination of relatives of values, and this mental process is the act of moneyizing. It is a process of fractionizing or multiplying, depending upon whether the thing evaluated or compared is of greater or lesser desire than is the criterion of value. It is a mathematical process, and hence the statement that money is the mathematics of value.

As the act of moneyizing is psychological, so the act of monetizing is material, and it should be noted that both arise out of and do not antecede exchange. Hence trade produces money; money cannot produce or induce trade. The act of monetizing, i.e. creating the money manifest, is in essence nothing but an act of recording accountancy.

Now, taking arbitrary relatives, let us say that the tailor with a pair of trousers, undertaking to dicker with the wheat farmer, estimates his commodity to be worth five bushels of wheat, and that the farmer concurs in this. The tailor's unit of value is trousers, and to him a bushel of wheat is 1/5 of a unit. The wheat farmer's unit is a bushel of wheat, and he regards the trousers as five units. From this it may be seen that whether the unit is large and divisible or small and multipliable is immaterial; the relativity alone is essential in the act of moneyizing. The next day, the ratio, under the influence of supply and demand, might be 4.5 or 5.5 to 1. This constant flux occurs within the totality of value.

The totality of value is fixed, but values (fractions) are volatile. They are uncapturable and uncontrollable, because they are subject to the mass mind, which has no stability and no governor. They cannot be shut off from the ceaseless agitation of public opinion. The same sum of value may abide in a cubic centimeter of matter as in a cubic yard, and tomorrow the substances of these cubes may hold widely varying value content. No commodity has a wall that can resist the ingress or egress of value. It is psychological; the minds of traders in concurrence govern the value content of all commodities. No physical measure nor psychological meter or control can be contrived. Commodities are the reservoirs of value, because value can abide nowhere else. But no one commodity can ever hold a fixed amount of value, and only the minds of traders can invest a commodity with value or divest it thereof. The total of value invests the total of commodities in constantly changing relativity. The concept of mathematical relativity of values is the concept of money.

Let us assume now that some marketers incline to take the sheep as the most desirable common commodity for a trading base or criterion. (Among the Romans it was the ox, or pecu, from which word pecuniary derives.) If we make the sheep 1, and adopt some arbitrary relatives, we might get under the decimal system the following:

Barrow of sand .10
Chicken .10
Horse 5.00
Bushel of corn .10
Cow 3.00
Sheep 1.00
Bushel of wheat .20
Harness 2.00
Shoes .50
Candle .01
Hog 1.00
Trousers 1.00

Thus the composite would total 14.01. At the particular time of this imagined meeting of traders' minds, the sheep, serving as the comparative criterion, or the numeral 1, represents about 1/14th of this universe of value. But almost during the time it takes to relate it, a change has taken place. Men's minds have changed; hence the relative value of the sheep has changed. Either more of value inhabits it, or some has escaped from it. But a compensatory deficiency or surplus abides elsewhere in the total inventory. Nothing has been lost, nothing has been gained, except to the individual traders as owners of the commodities whose values have risen or fallen. In other words, the sum total of value is unchanging, and hence money, which is the mathematics thereof, is always co-extensive, never deficient and never excessive. As stated, the total of value in the example is 14.01. Had the candle been taken as the unit, the total of value would have been the same, but the total of the mathematics of value -money- would have been 14.01.

It is conceivable that the marketers, after gaining the concept of money as outlined here, might effect their exchanges without the scratch of a pen or a record of any kind. Their exchange would nevertheless be a perfect monetary exchange. Had they agreed to utilize some pieces of paper marked in a peculiar way for identification, and each trader had held, in advance of the trade, numbers of these pieces in ratio to the agreed value of their respective commodities, they would have materialized or monetized their money.

It is in taking the step from moneyizing to monetizing that every past effort of man has failed. He has invariably striven to perfect a standard of value, because he could not comprehend that exchange operates under the law of relativity, which knows no absolute. His monetary efforts have always miscarried, because he has tried to use as the monetary medium some intrinsically valuable commodity or a paper certification of a fixed measure of value. Since there is no fixed measure or standard of value identifiable with any commodity, the effort has been and must continue to be abortive.

Since value exists in all things, and since value when mathematically compared is money, it is possible to convey money with gold or cheese or anything else, to the extent of their intrinsic value. The purpose, however, of a monetary medium is to isolate value accountancy from value itself, so that a sum of value may find its equivalent anywhere and not be related to specific things; all of which are constantly changing in their value content. That orientation is the quality wherewith money accomplishes its high purpose of emancipating trade from barter. Man's ignorance has to this day kept this spiritual weapon of liberation sheathed in a scabbard of materiality. The pure monetary medium, when it comes, will be an instrument intrinsically valueless, evidencing the transference of a value that is unidentified with any commodity, yet has a relative requisitionary power upon all.

4) THE FUTURE OF GOLD - 1944

As a monetary metal, gold for centuries has been the object of illusion and superstition. Yet in reality it is but a commodity like any other metal - nor is it one of the rarest. From the beginnings of time, it has been carried, like salt, by many streams to the oceans, from which it could be extracted if the price of gold justified it. Yet the very word is synonymous with riches.

Why?

In ancient times gold was used as a medium of exchange, for which its beauty, durability, malleability and relative scarcity ideally suited it. Hence its association with early monetary systems, all of which were on a "hard money" basis. As commerce grew more expansive and complex, and there arose the necessity of paper money and other credit instruments, it was believed that such instruments, to be acceptable in trade, had to be exchangeable for gold upon demand. Thus arose the correlative belief that a national currency, to have significance or "value" or "stability," had also to be identified with a measure of gold or silver. This practice was termed putting money on a gold or silver “standard.”

This posed a problem, however, for there is no stability in the value of gold any more than there is in any other metal. In order to give the value of gold the appearance of constancy, therefore, the price of gold, i.e. the amount of the metal exchangeable for the monetary unit, had to be stated above its true market value so that it could not vary. For many centuries, accordingly, one or more governments have always been willing to bear the expense of maintaining the price of gold above its true value as determined in free exchange, and thus gold has been given the appearance of having a constant value. This has given rise to the superstition that gold is not only stable in value, but that it is, in fact, a criterion of value.

The practice of setting a price for gold that is above its free market value set in motion economic laws, which have actually reduced the value of gold. When an artificially high price is put upon a commodity, it causes that commodity to be over produced, and when a commodity is in excessive supply, its units lose value commensurately. The association of gold with the monetary unit, an association intended to benefit the latter, has resulted in a benefit to gold miners, nothing more. The delusion of "gold convertibility" has, in effect, subsidized the gold mining industry for centuries and caused gross overproduction. The actual value of gold has declined accordingly, but the decline has not been manifest because some nation has always been willing to keep the price up on a peg. In short, we know the price of gold, but we can only guess at its value.

England maintained the price of gold for 600 years, from the 13th century until 1931, in which year she had to give it up, unable to afford the charade any longer. The United States then became the price pegger, but with a twist. Previously, nations on a gold standard had bought and sold gold to all comers at the fixed price. President Roosevelt was induced by his advisors, however, to exclude those within the United States from trading, and to confine buying and selling privileges to foreigners. American citizens were required to turn in their gold coins and certificates. In thus changing the rules, Roosevelt unwittingly exploded the gold standard fallacy.

Had the gold standard theory been correct, namely, that backing a monetary unit with gold convertibility gives it greater stability or acceptance than units not so backed, we would now have two dollar price levels, one for the foreigner and another for the American. This would have had to arise, since the foreigner's dollar is convertible whereas the American's is not. The fact that there is one dollar price for both demonstrates that the dollar is a power in and of itself, quite apart from any gold convertibility.

A corresponding observation is that as the dollar goes, so goes gold, and not vice versa, as the gold theorists would have had us believe. When the purchasing power of the dollar is high, that of gold is high, and when the power of the dollar declines, that of gold also declines. The purchasing power of gold, like that of the dollar, declined by nearly a third between January of 1940 and September of 1943. An ounce of gold, at \$35, would have been required on the latter date to purchase the same amount of other commodities that could have been purchased for \$24.50 three and a half years earlier. This in itself proves that there is no stability in the value of gold and that it has no power to uphold the unit that supports it.

In view of the fact that the purchasing power of gold is declining in America, why is it that foreigners are not withdrawing it? The reason is simple: the United States Treasury is the only market in the world for gold, and its price, despite the cheaper dollar, is still higher than its free market value. Outside of the United States there is not now, nor is there likely to be, any nation foolish enough or strong enough to burden itself by gratuitously paying a subsidy to the gold mining industry of the world. Nor will the United States pursue this folly for very much longer.

Circumstances are now compelling the realization that gold has no magic charm, no peculiar quality, no fixed value, and no special stability, but it is a commodity subject to the same laws of supply and demand that determine the value of any other commodity. Its last artificial support is the dollar, and when the dollar grows too weak from inflation to hold the price of gold above its actual value, gold will be on its own. The dollar will be so reduced in purchasing power that \$35 per ounce will actually be a low price for gold, and its price will rise above that figure. From that point and beyond, unless the Government arbitrarily holds it for some reason, gold will move out of the Treasury and into the arts and industries. No more will flow into the Treasury, because there will be no profit to the seller at the old price. Indeed, if the Government continues its present policy of selling to foreigners at \$35 an ounce in the face of continuing inflation, gold will flow out to other countries, who will buy it back for a minute fraction of what they sold it to the United States Treasury for in pre-war days. The gold problem will be solved by either action or inaction; for, economic laws have away of compensating for bad statutory laws. In any event, the standard or base idea will be gone beyond recall in economic thought.

Of course, there will be some serious repercussions from the collapse of dollar support for gold. Foreign gold reserves held throughout the world are dollar reserves, nothing more and nothing less. As the dollar shrinks, these reserves shrink as well. Therefore, the inflation of the dollar is undermining gold reserves and the credit they support all over the world. The nation with the premier unit that makes the price and market for gold cannot go through inflation without affecting all nations. That is why our inflation is international inflation, the first such instance in the world's long experience with inflation.

The Federal Reserve Board and the Bank of International Settlements have estimated monetary gold reserves outside of the Unites States at \$7 billion, and the Bank of International Settlements estimates \$2.5 billion in unrecorded holdings of exchange funds and government accounts outside of the United States. The National City Bank estimates \$2 billion of newly mined gold. Thus a total of \$11.5 billion is estimated as the world holdings outside of the United States. If the dollar has lost 30 per cent, therefore (there is no definite index in view of the black markets), these hoards have already shrunk to about \$8 billion in actual purchasing power. For the Unites States to make its own hoard maintain its Federal Reserve Bank reserve illusion, the price will have to be raised to many times its present artificial price.

Some indication of the extent to which gold has been excluded from industrial uses by the pegged price policy can be seen from the figures for production and industrial consumption in the United States during the period 1937 to 1941. In the latter year, consumption was only about 15 per cent of production, and this was far above average for the period. These figures only reflect United States production and consumption. When we consider that the United States produces only about one-eighth of the world's gold, but undoubtedly uses more for industrial purposes than the rest of the world combined, we can see how greatly current production exceeds current industrial demand.

The picture is all the more startling if we consider the tremendous accumulation that exists. The best available figures show that throughout the world, in government treasuries, stabilization funds, central bank reserves, and private hoards, there are nearly a billion ounces, all of which must, sooner or later, be dumped on the industrial market. On the basis of approximately one million ounces for industrial consumption in the United States in 1941, and assuming double this amount for world consumption, it would take five hundred years to consume the existing supply. Of course, this is no criterion for the probable rate of consumption when price support ends. There are many known uses for gold for which the price has always been prohibitive, and changing technology will continue to find new uses.

5) MANARCHY – 1950

In giving fundamental consideration to government, it might be instructive to have an authoritative opinion regarding the modern state, written while its author was on the outside looking in, and who when on the inside, magnified the intrusions upon private rights that he had condemned:

The state, with its monstrous terrific machine, gives us a feeling of suffocation. The state was endurable for the individual as long as it was content to be a soldier and policeman; today the state is everything - banker, usurer, gambling den proprietor, ship owner, procurer, insurance agent, postman, railroader, entrepreneur, teacher, professor, tobacco merchant and countless other things, in addition to its former functions of policeman, judge, jailer, and tax collector. The state, this Moloch of frightful countenance, receives everything, does everything, knows everything, ruins everything. Every state function is a misfortune. State art is a misfortune, state ownership of shipping, state victualizing - the litany could extend indefinitely. ...If men had but a faint idea of the abyss toward which they are moving the number of suicides would increase, for we are approaching complete destruction of personality. The state is that frightful machine which swallows living men and spews them out again as dead ciphers. Human life has now no secrets, no intimacy, neither material affairs nor spiritual; all corners are smelled into, all movements measured; everyone is locked into his cell and numbered, just as in prison.” -Benito Mussolini

Il Duce's candid appraisal has been shared through the centuries by many who have thought and written on the state. In a more reflective and perhaps more honest vein, Immanuel Kant wrote,

Man is an animal which when living among others of its kind, needs a master. For he surely abuses his freedom in the presence of his equals, and though as a reasonable being he desires a law, his beastly selfish nature leads him to exempt himself whenever he can. Hence he needs a master who will break his individual will and compel him to obey a generally accepted rule whereby everyone can be free.

Likewise, Jean Jacques Rousseau:

The citizen of the state is…….no longer the judge concerning the danger to which he may expose himself at the demand of the law, and when the state says to him, "Thy death is necessary for the state," he must die, since it is only upon this condition that he has thus far lived in security, and his life is no longer merely a gift of nature, but is a conditional grant from the state.”

On the other hand, Henry David Thoreau denied the state any rightful authority:

I heartily accept the motto-"That government is best which governs least," and I should like to see it acted up to more rapidly and systematically. Carried out, it finally amounts to this, which also I believe: That government is best which governs not at all.”

And Proudhon:

Liberty the mother, not the daughter, of order. ...The personality is for me the criterion of the social order. The freer, the more independent, the more enterprising the personality is in society, the better for society.”

But Proudhon broke free from the horns of the tyranny/anarchy dilemma. He glimpsed an alternative.

So you want to abolish government,” someone asked Proudhon. “You want no constitution? Who will maintain law and order in society? What would you put in place of the state? In place of the police? In place of the great political powers?”

"Nothing," he answered. "Society is eternal motion; it does not have to be wound up, and it is not necessary to beat time for it. It carries its own pendulum and its ever wound-up spring within it. An organized society needs laws as little as legislators. Laws are to society what cobwebs are to a bee hive; they only serve to catch the bees."

Those who have pondered the past, present, and future of the state, have quite generally distinguished between society and the state, but they have associated government with the latter, hence implying that society would be anarchic but for government supplied by the state.

The view advocated here, however, is that society and self-government are inseparable. One could not exist without the other. They are natural and spontaneous. Social government operates by unwritten laws which spring from the common impulse of self advancement by the process of exchanging with others under the discipline of cooperative competition. The rivalry to win patronage and gratify men's desires, which we call competition, is really the broadest and deepest form of cooperation that social man can develop. But for the intervention of the state, it would always be tranquil. The state serves solely the purpose of evading the law of cooperative competition. Its appeal is always to the cheater, he who desires to escape this natural discipline.

Failure of the critics of the state to realize that society and government are concomitants, puts them in the awkward position of advocating anarchy to the same degree as they oppose the sway of the state. The diminution of state power does not mean less government, however, but its displacement by natural and nonpolitical government. It does not imply an increase in the sphere of anarchy. Rather, to coin a much-needed word, it means manarchy - the natural government of man in society.
Manarchy means the prevalence of social customs wherein equality among individuals makes each a lawgiver as well as a law observer, without professional governors. The natural rule of manarchy has been submerged by the presumptions of the state, and as state power recedes, manarchy, the rock upon which society rests, emerges as the true government.

Since manarchy is the true government of society, and the intrusion of the state lessons its sway, the so-called government of the state is seen as disgovernment, or anti-government. Thus advocacy of the diminution of state power is the advocacy of the sway of government and the denunciation of anti-government.

What is the constitutional or fundamental law of society? It is the law of competitive cooperation. The beginning of the social order was the beginning of exchanges. Here independence ended and interdependence began. Here competitive cooperation entered as man discovered that his urge for self-advancement was best served by catering to the wants and wishes of his fellows through voluntary exchanges. But there arose would-be breakers of the rule of competitive cooperation. As Franz Oppenheimer has observed in his volume, The State,

Whenever the opportunity offers, and man possesses the power, he prefers political to economic means for preservation of his life. And this is perhaps true not alone of man, for, according to Maeterlinck's Life of the Bees, a swarm which once made the experiment of obtaining honey from a foreign hive, by robbery instead of by tedious building, is hence-forth spoiled for the "economic means." From working bees robber bees have developed.”

The state was invented by those who wished to escape the law of competitive cooperation-by those who would be robbers through the exercise of political power. This is the explanation for the genesis of the state which Oppenheimer sets forth so well. Beginning with rape and evolving toward seduction, the purpose of the state has ever been to serve the ends of exploiters. Therefore, liberty will never be attained as long as the state is permitted to intervene in economic affairs. The state has ever been the implement of those who would escape the discipline of voluntary exchanges, and it has contrived a variety of cheating devices, the greatest and most deceptive of which is its power to issue counterfeit money. This very device, however, will prove to be the state's Armageddon.

Always an instrument for robbery of the many by the few, the state within the present century has gradually popularized its distribution of the loot. It is no longer the robber of the many for the benefit of the few; it now offers to provide for all citizens "from the womb to the tomb." It poses as the welfare state. No longer does it need the support of the wealthy; it has found a way to rob the whole constituency while apparently benefiting the many, and by this delusive method it has greatly enhanced its prestige.

By subtly taxing the economy through inflation of the money supply while ostentatiously distributing its largess, the state has convinced the citizen that it is a fountain of wealth. But the popularity so achieved has been attained through the issuance of spurious money. Hence the state must be undermined as the mounting inflation discloses the falsity of its pretended power of paternalism.

Out of the impending collapse of the political monetary system will come not only a weakening of the power of the state, but a strengthening of society. For the nonpolitical monetary system which must replace the defunct political one will lead automatically to the union of peoples economically.

Once society has consolidated its power, while the national states remain divided, the subordination of political power will easily be accomplished. Thus will society gain the ascendancy and assure freedom and prosperity under the natural law of competitive cooperation.