We
contemplated merely placing Matonis' article on this blog without
comment, a #0, until we read it over and found a few places for
additional comment were required. Matonis' words will be in blue,
mine in black.
Edwin
Clarence Riegel (1879-1953), generally known as E.C. Riegel, was an
independent scholar, author and consumer advocate who campaigned
against restrictions on free markets that harmed consumers and
promoted an alternative monetary theory and an early private
enterprise currency alternative.
Riegel’s
primary published works on monetary theory include Private
Enterprise Money: A Non-Political Money System (1944), The New
Approach to Freedom (1949), and Flight from Inflation: The
Monetary Alternative( 1978). As the publisher responsible for
reviving many of his writings, Spencer MacCallum also prepared a
detailed summary of Riegel’s thoughts on money.
The
entire individualist anti-statist position from Pierre-Joseph
Proudhon, Josiah Warren, Benjamin Tucker, and William B. Greene to
the modern money theorists, Hugo Bilgram and E.C. Riegel, is
inextricably linked to the insistence of competing money systems and
the evolution of marketplace control over money, credit, and interest
rates. Riegel anticipated Austrian economist Friedrich Hayek’s
thinking that the separation of money and State also entailed the
separation of the standard unit of value and the State. The
non-Hayekian ‘libertarians’ persist in a dogged devotion to the
gold standard, which Riegel believed was essentially a formula for a
different brand of State-controlled money, run in collusion between
ambitious State finance ministers and the major holders of gold,
thereby tying currency to a gold price fixed by political agreement
and made immune to the market adjustment process of a free market in
gold trading.
This
is essentially our view as will be demonstrated in the forthcoming
abstract covering the monetary history of the United States which
shall be presented here on this blog when completed. [12 April, 2014: We decided that retelling the story of the dollar and the various attempts at bi-metalism during the 19th century could be better told elsewhere although certain remarks throughout this blog will indicate lessons learned from past experience.]
With
echoes of the late 19th-century standards battle between New York
gold interests and the agrarian Free Silver Movement, Riegel’s
valun system describes a voluntary banking association of private
abstract standards based on goods and services (or labor) that they
are being exchanged for, similar to a mutual credit system.
This
is not strictly speaking true and therefore tends to be misleading.
Specifically, Riegel recommended basing a new independent monetary
value on an already existing one, a dollar at a particular point
in time, and calling that a valun (Value Unit). Riegel
described how goods and services might price themselves according to
supply and demand based on such a standard, but he nevertheless
recommended basing a new value standard on an existing one.
This
was essentially what the founders of the American republic did when
they defined a dollar in 1792 as 371.25 grains of silver,
approximately the same as the Spanish milled dollar or “piece of
eight” which was widely circulated, recognized and used as a stable
medium of trade at the time. What the founders failed to do however
was to state that a dollar would have to be the amount of silver
affordable in any year subsequent to 1792 required to buy 371.25
grains of silver in 1792. This was Riegel's principal contribution,
recognizing that commercial value required an independent yardstick
that was planted in time and would not be affected by mere
changes in commodities prices based on supply and demand. Riegel
referred to this starting position as the Figure 1.
Essentially,
a greater number of choices in monetary standards will increase the
dignity of the common man and the overall prosperity of the people.
In extrapolating this mutual participatory banking system, I doubt
Riegel would have advocated that the valun currency unit assume the
new monopoly privilege barring other free enterprise entrants.
Therefore, other private currency units would evolve naturally and
they would be competing directly against the valun.
We
will certainly see more of this as bitcoin has shown itself capable
of providing a market. More other kinds of money will certainly
follow.
This
is where it gets interesting.
Although
Hayek departed from some of his Austrian peers in turning towards a
totally free market monetary system that may end up not being based
on a 100% gold-backed monetary unit, his insistence on free banking
and market-determined standards was unwavering. In the worldwide
evolution of standards left free to develop unhindered, I maintain
that a metals based monetary unit will tend to dominate in the
race for nonpolitical digital currency adoption.
This
is where we step right up to it and proclaim that instead of our
Figure 1 being a dollar, or any other “public” currency, our
Figure 1 is in fact the price of a troy ounce of gold at a particular
point in time from which time we can calculate how much gold or
silver it takes to buy so many Value Units, as compared with 1,000 VU
per ounce of gold on November 2, 2011, an easy date to remember. Our
solution will achieve a true bimetalism because though the initial
stack of monetary units was measured in gold, there is also an
initial value for the number of Value Units per troy ounce of silver.
We aren't using spot prices either but actual bullion prices as we
fully intend to become a large player in the precious metals markets.
We will not want to hold anyone else's money, but we will hold gold
and silver in order to make the exchanges back into their money from
ours.
We
can observe this today in the many digital currency companies
jockeying for adoption and circulation. The digital gold currency
issuers, as opposed to the digital fiat currency issuers, appear to
have a distinct advantage in trust when the elements of jurisdiction
and political risk are removed. Otherwise, why would e-gold have
achieved such market dominance before being challenged legally by the
U.S. authorities? The evidence to date is that online,
cross-border digital currency users will gyrate toward
objectively-measured value, such as gold, rather than abstract
subjective value.
Again,
the proposal outlined on this blog is so far the only one that
recognizes the intrinsic qualities (no matter how misguided they are
in fact) of the precious metals for offering an objective means of
exchange (barter) between their money (which we do not want) and
ours.
What
Riegel did not foresee as possible in the 1940s was technology’s
ability to permit competing non-State currency providers to issue
online and beyond political boundaries. This is a paramount change to
the money issuing landscape, not least of which allows for immediate
convertibility, partial or full. Riegel’s
market process for nonpolitical money is correct; however, the
conclusions that he reaches regarding the separation of standard unit
of value and the State are not realistic.
Except
that it is beyond dispute that the present monetary order, where the
state is the primary money issuer, though through arrangements
through a central bank, is an inherently illegitimate system, of a
kind which has failed many times and shall fail again, and while the present system enjoys patronage it contributes to
both poverty and war. While we are forced to admit the frankly
monopolistic nature of the present monetary order and yes that it is
unrealistic to challenge its legitimacy openly, this cannot prevent
us from thinking and planning for a time when a new and better
monetary order can be pursued. Though we accept that alternative
money may exist and that is the function of a free market, ultimately
the strongest monetary unit will survive and displace all others.
Riegel himself foresaw a time when the economics worldwide would be
local but the money unit they all used would be the same.
The
challenge for the community currency crowd is to demonstrate in
practice how a valun or a local time-labor note will prevail over a
metals-based currency unit in the digital world.
Jon
Matonis
The
Monetary Future
Jon
Matonis is an Austrian School economist focused on expanding the
circulation of nonpolitical digital currencies. He argues that what
is about to happen in the world of money is nothing less than the
birth of a new Knowledge Age industry: the development, issuance, and
management of private currencies. Edwin Clarence Riegel (1879-1953),
generally known as E.C. Riegel, was an independent scholar, author
and consumer advocate who campaigned against restrictions on free
markets that harmed consumers and promoted an alternative monetary
theory and an early private enterprise currency alternative.
Our
purpose is to continue to plot the course of the precious metals,
plus their trading ranges against the major world currencies and
against our proposed Value Unit. So far, the world gold market is
purposely being rigged to favour the Japanese yen as a “carry
trade” currency for the precious metals. In practical terms this
means that for sizable purchases it pays to buy in yen than anything
else at the moment. What we can do is choose a new initial Figure 1
value for gold (or silver) for a particular currency should their prices indicate that the brokers are favouring one currency over the others.
However once the initial price goes up, it never comes down. This
provides the Value Unit with “hardness” over time.
Parenthetically after initialization, no Value Unit should ever trade
for less than its price at inception. Ever!
David
Burton
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