The Gold Standard Journal 11

The Gold Standard The Gold Standard Institute
Issue #11 15 November 2011 1

The Gold Standard
The journal of The Gold Standard Institute

Editor Philip Barton
Regular contributors Rudy Fritsch
Thomas Allen
Louis Boulanger
Occasional contributors Publius
Jon Rogers
Philip T

The Gold Standard Institute

The purpose of the Institute is to promote an
unadulterated Gold Standard

www.goldstandardinstitute.net

Patron Professor Antal E. Fekete
President Philip Barton
President Europe Thomas Bachheimer
Editor-in-Chief Rudy Fritsch
Senior Research Fellow Sandeep Jaitly

Membership Levels

Annual Member 75 per year
Lifetime Member 2,500
Gold Member 25,000
Gold Knight 250,000

Contents
Editorial ........................................................................... 1
News ................................................................................. 2
False Belief #10: Professor Feketes Work Is Futile 3
Report from Utah II ...................................................... 5
Infinite Money Part 2 The Quality of Gold ........... 7
The Golden Triangle; Economic Nirvana? ................ 7
Is the Real Bills Doctrine Inherently Inflationary ... 10
Debit Card Gold Dinar Payment System ................. 11

Editorial
I will be heading over to Auckland, New Zealand
toward the end of the month for Louis Boulangers
Gold Seminar. I look forward to catching up with
some of you there. It is a truly beautiful and unique
part of the world consider adding on another few
days to go exploring. It is a great event with great
speakers. Book now.
Let the Markets Decide
At The Gold Standard Institute we do not seek to
enforce the use of gold as money. We believe that
only a voluntary market should determine the money
that is in use and not as a concept that is binding on
all. In each and every exchange between two or more
people there should be the same choice of the
exchange mechanism as there exists in the choosing
of the good. How can a market ever be considered
free if the one constant in all transactions is
enforced?
That said, history and logic strongly supports the
idea that the vast majority of people will choose gold
and silver. It is with that in mind that we seek to
educate people as to how a Gold Standard can be
implemented in such a way that it will work.
An absolutely vital component of a workable Gold
Standard is Real Bills that is why the market
originally introduced them. The free market does
not indulge in over-complexity. The Real Bills, once
understood are not only of undeniable benefit, they
are essential to the success of the Gold Standard. In
this issue of The Gold Standard, Rudy Fritsch
further explains Real Bills in The Golden Triangle.
We also have another article in the ongoing series on
Real Bills by Thomas Allen.
It is always better to let the markets make the
decisions. We have surely seen enough of wise
academics sitting in ivory towers who believe that
they know better than market participants.
As the world now begins to again look at utilizing
the virtues of gold in the monetary system, it is
important that the subject of Real Bills share the
stage. If the world does adhere to the historical
norm and again chooses gold and silver, then it will
also, again, choose Real Bills.
News
See The Gold Standard Institutes Media webpage
for an introduction to a 9 part series by Keith
Weiner entitled Irredeemable Currency vs Gold

Mercatus Center at George Mason University: An
excellent study on the relative degrees of freedom in
the 50 US States. Though if monetary freedom were
a part of the survey then Utah would surely be
ranked higher than 20th.

Forbes on a Rasmussen poll: 44% of likely voters
favour returning to the gold standard, 28% opposed.

The Borneo Post: Mynet introduces worlds first
One World 10 Dirham.

BBC: Greek Referendum on EU bailout. In a
radical move which stunned and horrified other
governments and dismayed the markets, the
birthplace of democracy decided to consult the
people. This idea was quickly knocked on the head
as entirely inappropriate. Quite.

Lew Rockwell: Barter Society Emerges in Greece as
Crisis Deepens.

Reuters: "All our efforts aim at safeguarding our country's
interests, the interest of the vast majority of citizens who would
experience a real catastrophe if Greece defaulted" Prime
Minister of Greece George Papandreou (just like
Iceland didnt).

Thomas Bachheimer, President of The Gold
Standard Institute in Europe, was in attendance at
the Mncher Edelmetallmesse. He did some great
interviews which will hopefully be translated soon.

ABC News Australia: Perth Mint unveils world's
biggest gold coin. Not for circulation.

Zero Hedge: For my money, though, I think there are at
least two reasons why it would be foolish simply to deride or
ignore Gata Gillian Tett, US Managing Editor,
Financial Times.

Yahoo News: Man jailed after trying to turn faeces
into gold.

IB Times: Return to Gold Standard Gaining
Traction with Presidential Candidates.

Business Insider: Gold Is In A Bubble That Is Going
To Burst James Altucher (There has been a rise in
the number of silly articles this month for some
reason)

Nick Barisheff: It (gold) will continue to be subjected to the
most aggressive perception management assault of any asset
class, because it is a direct challenge to all the worlds fiat
currencies. October 2011

CNN: Pundit points out that you cannot eat gold.

Bloomberg: Colombian rebels moving into gold
instead of drugs.

A French supporter of The Gold Standard Institute
organized a meeting between Ron Paul and Marine
Le Pen, leader of the French party Front National.
They met on the 2
nd
of November 2011 in
Congressman Pauls office at the Cannon building in
Washington DC.
Both are running for the 2012 presidential election;
one in the US and one in France, and both are
among the very few who are well known for
advocating a return to the gold standard in order to
fix the international monetary system.
Marine Le Pen said: Ron Paul is a visionary when it
comes to the gold standard and we are visionary as well as we
predicted the unfolding European crisis. Ron Paul stated
that the gold standard is a crucial part of the future
international monetary system.
False Belief #10: Professor Feketes
Work Is Futile
The cyclical nature of the physical and biological universe has
prompted acting man to hoard the means of sustenance since
time immemorial. As shown in the Genesis through the
example of Joseph (41:34-36), hoarding is necessary during
the seven fat years in order to provide the wherewithal through
dishoarding in the seven lean years that are inevitably to
follow. Today it is customary to ridicule the innate hoarding
instinct of man as primitive and atavistic, pointing out that
savings and investments denominated in irredeemable
currencies are far superior, and can be used for the same
purpose with good effect. However, man can ignore the Biblical
admonition only at his own peril.
~ Professor Antal E. Fekete, in the Introduction to his Book
One: Credit Arising Out of Savings
When Philip Barton asked me late last year to write a
regular column for the Journal of the Gold Standard
Institute, which he was then planning to launch, I
felt honoured and wanted to rise to the occasion.
The mission that Philip and others have set for the
GSI is quite ambitious, but it is also a very noble
one. So, inspired by Philips dedication to what truly
matters, I took up the challenge and decided to write
about false beliefs. This is part of what I wrote for
the first issue of the Journal:
Sadly, ignorance can actually operate quite
powerfully under the guise of education. Our
ignorance can even get stronger with ever more
institutionalised education. This sad state of
affairs ensures our servitude to a system which
places debt at the very centre. Debt passes for
money now and so, debts are the shackles of our
slavery today. But true knowledge can set us free
from this delusion.
This self-perpetuating and unnatural social,
economic and political system will be very hard
for us to challenge. But challenge it, we must.
Indeed, the Gold Standard Institute has set itself
a formidable task: to educate the world about the
true role of gold and disseminate the virtues of
the Gold Standard so that they become widely
understood and appreciated and never again
forgotten.
My personal contribution to this noble task will
be to write about prevailing and pervasive false
beliefs in the monetary realm. I will tackle some
of what I consider to be todays quiet, yet
harmful, assumptions that continue to be made
even by those who should know better;
assumptions that effectively block the road to
humanitys natural progress and keep us on the
road to serfdom.
I will attempt to trace some of the errors into
which these assumptions have led us when it
comes to financial decisions. But I will also
endeavour to ascertain how many advantages we
could all now enjoy if these conceited false beliefs
about money matters were shattered once and for
all...
Well, we have so far in these pages touched briefly
on nine such false beliefs and now its time for me to
write about false belief number ten. I consider this
one to be a reflection of what is, to my mind, the
most important of all false beliefs that prevail today
in the insane world of finance and economics: false
education.
So, lets quickly remind ourselves what those first
nine false beliefs were:
1. Money Is Wealth
2. Risk-Free Investments
3. There Is a Debt Ceiling
4. Currencies Are Money
5. Deficits Dont Matter
6. Yes We Can... Ignore Reality
7. Gold Ceased To Be Money 40 Years Ago
8. GATA Is Irrelevant
9. Economics Is a Science
With a list like that, is it any wonder then that it is so
difficult to get peoples undivided attention when
attempting to educate them about the true nature of
the ongoing global crisis, the human tragedy
currently unfolding on an epic scale? One man has
been unrelenting in his effort to do so, despite all the
blocks put on his path, despite the lack of funding
for much needed advocacy of a return to sound
money and despite his work having been rejected
many times for publication in so-called reputable
journals.
That man is Professor Antal E. Fekete, a man of
incomparable integrity. In his unflagging dedication
to truly educate, he never compromised or wavered
under pressure. Singlehandedly, he amassed a wealth
of knowledge on the subject of sound money and
has always, generously and spontaneously, made that
knowledge freely available to all. Nobody elses
work today, especially in the sphere of monetary
economics, comes even close as far as I am aware.
Yet, still too few know of his work.
To my mind, this is equivalent to Michelangelo
painting the Sistine Chapel, if hardly anyone had
known about it as the work was being executed.
Today, that ceiling is arguably one of the most talked
about ceilings in the world (rivalled, perhaps, only by
the so-called debt ceiling of the US federal
government...). But, back when it was being created,
even Michelangelo had his enemies to contend with.
Nevertheless, he tenaciously kept at it and ended up
creating a masterpiece.
It is truly astonishing that the body of work of a
single man should have such a lasting impact on
humanity. Yet, I doubt very much that is what
motivated the artist in Michelangelo. The same goes
for the educator in Professor Fekete: he is driven
only by his intellect and his humanity. The pursuit
of knowledge in itself is not enough for him; it must
be shared and continuously questioned, if we are to
progress and prosper as free human beings.
Professor Fekete is fearless in the face of criticism.
He dares to question what others accept as being
final and he expects no less from all of us who read
him and study his work. Time and again he will
come out with a new theory that forces us to
question the prevailing dogma in the monetary
realm. What courage he has, to proceed as he still
does with no fear of the consequences. His interest
lies only in advancing our understanding of human
economic action. There is not a Nobel Prize in
sight, but the road he travels is a noble one indeed.
Let me conclude this piece with an example of what
I mean. Last August, I attended in Munich the
Professors third course of his New Austrian School
of Economics. He began the course by giving an
impromptu talk about the present situation in the
world, why it is so confusing to so many and why
that was not a coincidence. Part of the reasons why
that is the case, has to do with our education or lack
thereof, as only certain theories are acceptable for
teaching in schools today.
He even argued that Carl Mengers ideas were
incomplete and that a theory of interest was what is
missing from Mengers extensive and important
body of work. He believes that Mengers theory on
the origins of money (which, incidentally, is still the
best theory on that subject) was incomplete and that
it needed to be complemented with a Mengerian
theory on the origins of interest. So he has taken the
challenge to develop that theory himself and, I must
say, it is quite compelling.
As an actuary, who was trained to believe that the
authority on this matter was Stephen G. Kellison,
who authored a book titled The Theory of Interest
in 1970, the Professor had yet again pushed me
outside my zone of comfort, only to find myself
again in that place one now recognises as being one
of the essence of knowledge. You see, his theory
was not just about mathematical formulas, even
though he is a mathematician. No, he began
developing his theory by taking a close and objective
look at the nature of our actual human interactions
throughout history with this concept of interest.
These careful observations and his deep thinking on
the subject matter have led him to conclude, among
other things, that the principle cause of interest
appearing in our human affairs is the fact that... we
age! Therefore, we must somehow convert income
into wealth and then wealth into income. Just as
direct exchanges in more primitive economic times
were turned into more efficient indirect exchanges
with the origins of money, so did humans evolve to
discover interest.
But the story of interest has dark chapters as well
and yes, religious beliefs come into play. Usury laws,
for instance, played an important role in the
evolution of interest. Today, as we live an era of
seemingly endless zero rates, the Professor says: that
means that we are making the exchange of income and wealth
without any premium accruing to the fellow doing the lending;
so the other party is not interested and instead goes back to the
atavistic or direct exchange available: hoarding!
So, if you fear being uncomfortable about how the
world is currently governed, dont be; for that feeling
is simply a misinterpreted call to action by your true
self. You know that something is profoundly wrong
in the world today and Professor Feketes work
makes it clear that the cause is, quite simply,
unsound money. But society today does not even
know what money is... So, rise to the challenge, dare
to question authorities about their monetary system
and hoard gold!
It is no measure of health to be well adjusted to a profoundly
sick society. ~ Jiddu Krishnamurti (1895 1986)
Louis Boulanger
Louis holds a B.Sc. from Laval University in Canada; is a Fellow
of the Canadian Institute of Actuaries and the New Zealand
Society of Actuaries; and is a Chartered Financial Analyst.
Prior to coming to New Zealand in 1986, Louis worked for nine
years with a global consulting firm based in Montreal, Canada.
In New Zealand, Louis worked for another global consulting
firm for 18 years, including as Chief Executive of New Zealand
operations for five years. In 2006, he launched his private
practice.
Louis is also Founder & Director of LB Now Ltd, which
provides independent investment advice to private and
institutional clients, facilitates the purchase of bullion for private
and institutional clients as an authorized dealer for BMG
BullionBars and also helps firms comply with GIPS.
For more information of LB Now's services or to subscribed to
Louis' e-letter Prosper! see the contact details below.

P.O. Box 25 676, St Heliers, Auckland 1740, New Zealand
Ph: +64 9 528 3586 Mob: +64 275 665 095
Email: louis@lbnow.co.nz www.lbnow.co.nz
Report from Utah II
Last month I gave an overview of the events and
implications of the recent Sound Money conference
in Utah. Some related issues deserve further
examination, as they bear directly on the fight against
the banking system.
One speaker made reference to the Committees of
Correspondence that had existed prior to the
American Revolution. In an age long before the
telegraph, let alone the internet, the thirteen colonies
were each being oppressed in various ways by
England. Before they could determine whether and
how to organize and resist, the colonies had to
compare notes.
This task was delegated to a few men from each
colony, who wrote letters to their contacts in the
other 12 colonies. Thus, everyone was kept informed
of the latest assorted steps the King had been taking
to reduce colonists freedoms anywhere in America.
Mail travelled at the speed of a horse, but some
comprehensive co-ordination was possible.
The biggest barrier in our day is no longer the speed
of communication, but the deluge of irrelevant
information through which a signal must be heard.
And the oppression we face comes not from a King
in England, but an Aristocracy in Washington D.C.
(taking its orders from an Oligarchy in New York).
Yet the US Constitution foresaw both problems. It
tells us what to do, and it does so very clearly.
Under the Constitution, the individual states were
expected to counter-balance the power of the central
government. The states varied interests could
naturally act as a check on any growth of the limited
powers granted to the national level. But slowly,
over 200 years, by means of divide and conquer
tactics, public inertia, subterfuge, and under cover of
various national emergencies, the states influence
has effectively been reduced. Not formally though,
according to the highest law of the land and herein
lies the potential for a proper rebalancing of political
power.
Today, the President and the vast majority of
Congress has little interest in returning to a strict
reading of the Constitution. But the states can still
force the direction of events. Morality and
legitimacy remain powerful forces at the disposal of
those seeking to protect individual rights. If enough
states follow Utahs lead in re-affirming gold and
silver as money, it might also bring the debate
properly into the public consciousness.
One critical part of the new Utah law is the
cancellation of state capital gains taxes that would
otherwise be triggered on the disposition of metal at
the time it was used as money. This is a first step in
the removal of a huge disincentive for gold owners
moving bullion out of hiding and back into
circulation. Anyone trading their metal for real
estate during uncertain economic times would be
worried enough. Buildings make easy targets for
renewed government confiscation.
If governments are to regain citizens trust, removal
of capital gains taxes on conversion of bullion into
circulating currency is a good start. Even better
would be to simultaneously open the mint to
unlimited free coinage of the metals, as Professor
Fekete has described and recommended.
The removal of these state taxes puts Utah on a
potential collision course with the federal
government. Dr. Edwin Vieira, Jr., in his
comprehensive and excellent analysis of the topic,
points out Utahs strong case if it chooses to legally
challenge the remaining federal taxes on metals sales.
If all forms of US currency are required by law to be
equal, then how can a one ounce gold coin marked
$50 by the US Mint possibly be worth more than a
$50 Federal Reserve Note? And happily, this need
not be a case that takes ten years to get to the
Supreme Court. States have the right to proceed
directly to the Supreme Court as their initial trial
venue.
Now I can imagine some readers thinking this all
academic. That the power of the numerous federal
police forces, backed by the US military, will ensure
taxes never stop flowing, and gold never circulates,
regardless of a court decision. But Dr. Vieira has
covered this aspect of the Constitution thoroughly as
well. We may feel like the colonists of 1770,
oppressed by an impossibly dominant ruling elite.
But the same solution the revolutionaries
successfully used, and then put into law, still stands
ready to help us today if needed.
I am referring to the state-sponsored militia. Many
people never consider the meaning of the first half
of the Second Amendment. A well regulated Militia,
being necessary to the security of a free State, the right of the
people to keep and bear Arms, shall not be infringed. Who
was in the militia? Everyone! In those days, every
able-bodied adult male was required (with his states
assistance, if necessary) to keep a modern military
rifle and ammunition in his home, and to muster
periodically to prove the readiness of the weapon.
Shirkers were fined.
This, thought the founding fathers, was the ultimate
check against the return of a tyrant. Let the people
be so universally armed that the would-be dictator
would find it an impossible task to send an army,
whether home-grown or using foreign mercenaries,
to subdue the population. It had certainly worked
with King George III.
The tradition gradually faded since the 1700s, but
states can still legally bring it back. The militia forces
were intended to be under local state control. At the
conference I met a gentleman from Texas, whose
government is also considering adopting Utahs gold
and silver laws. He told me about the rapidly
expanding, well armed neighborhood watch
programs in his area. A militia by another name.
If only 10% of the population of even a small state
were so armed and organized today, can anyone
imagine squads of ATF storm troopers, or even
entire Marine battalions, attempting to impose
martial law there? Leaving aside the practical
problems of hunting down and disarming a guerilla
band several times its size, the damage to the morale
of a federal force so tasked might be so crippling as
to require, once again, the importing of foreign
mercenaries.
Would the federal government ever dare use nuclear
or biological weapons against its own citizens?
While that is not entirely a rhetorical question, I am
still confident the answer is no. I doubt there would
be any bloodshed, because the ultimate victory of the
free citizens would be so predictable to everyone
involved. Tyrants have their limits when enough of
their intended slaves can defend themselves.
Publius
Infinite Money Part 2 The Quality
of Gold
Gold has the highest utility of any commodity, or
more accurately, a near constant marginal utility, for
every extra ounce of gold in your possession is as
useful to you as your first, no matter how many
ounces you have.
But what gives gold this utility and so value
1
,
compared to other commodities? The reason is that
gold is money and the demand for money is, for
practical purposes, infinite. The bid for gold in an
endless array of goods produced by human effort,
which is everything a human could ever need or
want, is endless. You cannot possibly have in your
possession too much gold. The utility of gold is to
extinguish all debt.
But why gold as money? Why is, say, wheat, a useful
commodity to be sure
2
, not money?
For starters, it is not impossible that wheat have a
degree of 'moneyness'. I may for example agree to a
days work on your wheat farm for a number of bags
of wheat. In this case, I've been paid in wheat for my
labour. That still doesn't mean wheat is money
though, for money is what extinguishes all debt, not
just your debt to me for my labour.
What makes gold the 'moniest' of all, able to
extinguish all debt, is a physical property unlike any
other - it is an inert metal
3
. It can be refined & once
cast, its quality is unaltering. It can be said that
gold is forever, that gold is constant. To extinguish
all debt, means to extinguish debt not just now, or
tomorrow but forever.
Of all the goods produced by human effort, only
gold with its unique unfaltering quality can
extinguish all debt, only gold can have an endless
bid. All other goods suffer from declining quality
over time, they have a declining marginal utility,
since the bid for goods that spoil or otherwise
deteriorate cannot be endless. Some decline fast,
some slow but none other than gold can be money
4
.
Notes:
1. Value is subjective, you value something because of its utility,
its usefulness, to you. There is no such thing as intrinsic value.
2. One of the staples of human existence.
3. Outside of a chemistry lab.
4. Including the obligations of government, not that you would
know it as an observer, or even participant in the 'money'
markets. At best they can be 'money good', at worst, worthless.
Jon Rogers
The Golden Triangle; Economic
Nirvana?
My last article, Golden Foot in the Door, suggested
that if Gold coins and Gold bonds are in circulation,
we are but one step away from Economic Nirvana;
the Unadulterated Gold Standard as the foundation
of the world economy. Of course, the first two steps
are not guaranteed; but if the new Gold Swiss Franc
is adopted, and Gold Bonds are issued based on
Sovereign Gold income, the third step to Nirvana is
in reach.
So why is an Unadulterated Gold Standard
Nirvana? Simply because all the abuses of the
irredeemable paper money system are erased under
the Unadulterated Gold Standard. This includes the
original error or was it original sin whereby
property rights to Money were curtailed by an early
English law precedent. Set in the seventeenth
century, around the same time the bank of England
was chartered (big coincidence!) the ownership of
money deposited in a bank demand deposit account
was legally ceded to the bank.
The triangle analogy kicks in as the triangle is the
most stable structural element; a three legged stool is
stable and does not rock or exhibit partial instability
on uneven ground. If you add a fourth leg, it will
become less stable. Of course, if you chop off one
leg and try to make a two legged stool, stability will
be lost in one plane to say nothing of chopping
off two legs.
The monetary system in use today has only ONE
leg! Talk about unstable, and talk about eternally
ongoing, futile efforts to keep the balance of this
poor damaged stool; constant manipulation of
money supply (printing), interest rate twists, bail
outs, credit default insurance, etc. etc ad
infinitum. By contrast, a three legged stool is
inherently stable; as is the unadulterated Gold
Standard, the three legged stool of economics.
The one leg our monetary system rests on is the
canard called debt money. In fact, even central
bankers do not seem to know what money is; is it
MZM, or M1, or M2, maybe M3? Mr. Bernanke
does not even admit that Gold is money he calls it
an asset. The truth of course is far simpler than he
or his ilk make it out to be; Debt (or its flip side
credit) is the exchange of a present good for a future
good and Money is that which extinguishes all
debt (or credit) period.
Truly it is a simple as this; money, that is Gold or
Silver, is an item of positive value, a present good,
which extinguishes all debt. Debt money is
impossible How could Debt possibly extinguish
itself? A thing is either a debt note; a promise, a
future good, two birds in the bush or the thing is a
present good; Real money, a bird in the hand,
something of positive value. There are no other
possibilities; the concept of debt money is just that,
a concept a nonsense concept that does not,
cannot exist in reality... only in the fervid brains of
Keynesian economists.
By clearly separating money and debt, we re-establish
a two legged stool; a big step in the right direction,
but still not quite there; we may have our Gold coin
In circulation, real money, a present good item of
positive value, and a Gold Bond, representing debt,
that is future goods or promises of delivery of a
present good in the future but the third leg is still
missing.
The way to re-establish the third leg is a bit more
obscure, and hidden farther in the mists of time;
after all, it was only about 41 years ago that money
was finally removed from the system, and replaced
by pure debt under President Nixons default of
the US international Gold obligations; the notorious
closing of the gold window. The third leg of the
Classical Gold Standard was amputated just before
WWI.
If you study history, the answer is easy enough to
find; Adam Smith wrote about this many years
ago that is why this third leg is called The Real
Bills Doctrine of Adam Smith but the concept
can be understood right here right now. All we have
to do is look more closely at Debt and we will see
that there are in fact two distinct facets of debt;
mixing up these two facets is just as deadly as
confusing money with debt. The classical Gold
Standard failed and Great Britain went off Gold
after WWI mainly because of the failure to
differentiate between the two facets of debt.
Close examination of credit shows that there are two
aspects; there is credit applied towards fixed capital;
for example machinery, farm land, orchards, oil
wells, transportation equipment etc. There is also
credit applied towards rapidly moving consumer
goods in urgent demand; manufactured products,
food stuffs, fuel, in fact anything that will be sold to
the ultimate consumer in 91 days (one quarter of the
year) or less.
Credit for financing long term fixed capital items
comes from savings. The quintessential market for
long term financing is the bond market. We are all
pretty familiar with debt based on borrowing; the
way the bond market works. The bond market is
controlled by interest rates, and supported by
collateral bonded debt, is NOT self-liquidating.
This is a very important concept, and often
misunderstood.
Consumer debt (borrowing) is clearly not self-
liquidating, as the borrower will need to earn money
to repay the debt. Commercial debt for capital
investment is not self-liquidating either. This is not
quite as obvious as in case of consumer borrowing,
but is true nonetheless; money borrowed for the
purchase of a machine for example will not be self-
liquidating; the machine may earn enough money to
repay the debt, but this is not certain; that is why
borrowing demands collateral. If the machine does
not make sufficient profit, the borrower will have to
find another way to pay the debt; just like the
consumer. If the borrower cannot pay, the collateral
will cover any losses to the lender.
By contrast, Real Bills represent a form of self-
liquidating credit quite distinct from borrowing. In
fact, it is not fully correct to call this credit, as the
word can be confusing. Better to call it clearing, or
simply terms. In a commercial transaction, very few
payments are COD; terms are part of virtually all
sales. Only the poorest credit risk firms will have to
pay COD; all with reasonable credit ratings will get
30 or 60 or 90 days net; terms that imply credit.
Bills or invoices drawn against sales of consumer
goods in urgent demand are the fuel of the Real
Bills Doctrine. Bills drawn on items in urgent
demand will spontaneously go into circulation; other
bills will not. Bills are self-liquidating; the upcoming
sale to the consumer of the very item the bill is
drawn against assures payment. No need for profit
or earnings; the very fact that Bills are only drawn
against urgently needed goods is enough to assure
payment and self-liquidation.
Real Bills drawn on real goods on their way to the
ultimate consumer do circulate, thereby assuming a
temporary but vital monetary role; they finance or
fund the production of much needed consumer
goods Real Bills entail no borrowing, no collateral,
no payment stream, and NO interest rate. Instead,
Real Bills are discounted; that is, they are paid in full
on maturity, but trade at a discount that decreases
linearly from the date of drawing to the date of
maturity. Real Bills are the least expensive thus most
efficient way to fund the production of consumer
goods.
Most importantly, since bills are drawn on consumer
goods, the funding for Bills relies on consumers
propensity to spend; by contrast, interest rates on
borrowing are driven by the propensity to save.
There is no link between the two forces. Anyone
with Gold earnings has three choices; hoard the
Gold as it is constantly, gently appreciating in
purchasing power. Spend Gold on needed consumer
goods, thus giving rise to new Real Bills or save
the Gold, that is put it to work, if the interest rate
being offered is sufficient to overcome the instinct
to hoard.
There are the three legs of our Golden Stool; leg one
is Money; fixed quantity, hard, stable, 80 plus years
of mine supply on hand and slowly appreciating as
the economy grows ever more efficient. Leg two is
the Gold Bond; sure returns, long term, a vehicle for
savings suitable even for orphans and widows; bonds
for saving, NOT for speculation. Leg three is the
Real Bill; flexible, responsive to consumer demands,
liquid enough to back Bank Demand Notes if such
notes are in circulation, limited by physical
constrains of the real economy.
This is the ideal, the Unadulterated Gold Standard;
the Golden Triangle. Gold (and Silver) as Money,
Bonds and Bills as the two other legs. So stable is
such a system, that historically it survived for
centuries and even survived the artificial
Government sponsored demonetization of Silver in
1873 a loss of about of total money in
circulation!
But what of the panics and such, the so called
business cycle that seemed to plague the Classical
Gold Standard? The cause of these effects is easy to
discern; there was a fourth, artificially attached limb
that allowed indeed forced these cyclical instabilities
to arise; this leg is called the Fiduciary Component.
Fiduciary means trust, or promise. This component
was the vehicle whereby excess credit was pushed
into the system, by greedy bankers and compliant
governments.
I will discuss this fourth leg and the invasion of
property rights necessary to implement it in more
detail in my next article. Stay tuned.

Rudy Fritsch

Rudys book Beyond Mises was written to make
Professor Fekete's work and Austrian economics
accessible. It can be ordered directly from
http://www.beyondmises.com/

Is the Real Bills Doctrine Inherently
Inflationary
Opponents of the real bills doctrine claim that it is
inherently inflationary. Mises defines inflation as an
increase in the quantity of money (in the broader sense of the
term, so as to include fiduciary media as well), that is not
offset by a corresponding increase in the need for money (again
in the broader sense of the term), so that a fall in the objective
exchange-value of money must occur [i.e., general prices rise].
1

Hazlitt gives a more succinct and clearer definition:
an increase in the supply of money that outruns the increase
in the supply of goods.
2
Most economists, very few of
whom are supporters of the real bills doctrine, define
inflation similarly to Mises and Hazlitt. Thus,
inflation occurs when the supply of money increases
faster than the supply of goods.
According to these definitions, inflation cannot
occur under the real bills doctrine. Money supply
grows as new consumer goods enter the markets and
contracts as these new goods are removed,
consumed, from the markets. Thus, the money
supply cannot exceed the supply of new goods.
Opponents also claim that the real bills doctrine
leads to an inflationary spiral. When a bank lends
money to a holder of a bill of exchange using the bill
as collateral, it injects additional new money into the
economy. This new money causes a rise in consumer
prices. Thus, the monetary denomination of the next
round of bills will be higher because of higher prices.
As higher prices lead to higher monetary
denominated bills, evermore additional new money
needs to be injected into the economy. The process
continues and causes an unsustainable inflationary
boom.
This argument errors in that it confuses lending with
clearing. Real bills of exchanges are clearing
instruments and do not involve lending or
borrowing.
Moreover, this argument overlooks an important
function of the gold standard accompanying the real
bills doctrine. Gold regulates credit. If prices of
consumer goods begin to rise, gold becomes cheap
compared to consumer goods. People begin buying
fewer goods. They begin converting their credit
money, bank notes and checkbook money, into gold.
As a result, sellers lower their prices, if they want to
move their goods, until supply and demand are again
in equilibrium.
Furthermore, banks conserve their gold. They buy
fewer bills and by that reduce the issuance of bank
notes and checkbook money. Thus, the discount rate
rises to encourage banks to buy more bills. (This
action shows that the propensity of consumers to
spend sets the discount rate. It shows that the
discount rate is not an interest rate. The propensity
to save sets interest rates.)
Another reason that the real bills doctrine cannot
lead to an inflationary spiral is that consumer goods
are priced in gold and outside the bills market. The
price of goods covered by the bill of exchange are
independent of the bills market. With their demand,
consumers set the prices of goods. Bills do not
generate demand for consumer goods and therefore
cannot cause prices to rise.
Another version is that banks create and inject new
money into the economy when it buys a bill.
However, as bills are money in their own right,
banks are merely substituting one form of money for
another. They are not adding any new money. If a
manmade or natural accident did lead to a rise in
prices, gold would prevent an inflationary spiral as
described above.
Not only is inflation not likely to occur under the
real bills doctrine, but an inflationary spiral is even
less likely. Gold regulates credit and prevents an
artificial boom from occurring. (Another importance
of gold is that a bill needs to mature into that which
is no ones obligation, gold.)
Gold keeps everyone honest. Without the gold
standard or another commodity standard, the real
bills doctrine becomes so dysfunctional that it
collapses.
The above discussion assumes the true gold-coin
standard accompanied by a decentralized
competitive banking system without special
privileges.
Notes:
1. Mises, Theory of Money and Credit, new ed., tr. H.E. Batson
(Irvington-on-Hudson, New York: The Foundation for
Economic Education, Inc., 1971), p. 240.
2. Henry Hazlitt, The ABC of Inflation (Lansing, Michigan:
Constitutional Alliance, Inc., 1964), p. 6.
Thomas Allen
Thomas Allen has been a student and adherent supporter of the
gold standard and the real bills doctrine since 1972. In 2009, he
wrote and published Reconstruction of Americas Monetary and
Banking System: A Return to Constitutional Money. Many of his
writings on money and other subjects can be found at
http://tcallenco.blogspot.com/ and an index to these blogs is at
http://tcallenco.weebly.com/

SYMPOSIUM on GOLD
in collaboration with the
NEW AUSTRIAN SCHOOL

University of Auckland Business School,
Auckland, New Zealand
28th November 2nd December

Professor Antal Fekete
Louis Boulanger
Sandeep Jaitly
Rudy Fritsch
Keith Weiner

A ten lecture event focussing entirely on golds
historical future role in the monetary system.

Golds historical role in the monetary system of
often mischaracterised and misunderstood, especially
by followers of neo-classical economic disciplines.
This series of lectures will address this
miscomprehension.

Furthermore, what to expect from the gold and
silver markets going into the future will be described.
Gold and silvers role in the monetary system will
not be restricted to marginal diversification
investments. Their return to the fiscal forefront will
erupt as unexpectedly and violently as Mount
Krakatoa.

For further information, please contact Louis
Boulanger: louis@lbnow.co.nz

Debit Card Gold Dinar Payment
System
Following the launch of gold dinar and silver dirham
coins by various Malaysian states (Kelantan, and
Perak and soon the Melaka and Kedah States), the
sales of these gold and silver coins have sky-rocketed
with one particular company selling locally produced
gold dinar coins and also other products such as gold
and silver bullion bars, achieving an impressive total
sales revenue of RM 100 million per month, but as
many have expected, these gold dinar coins did not
circulate widely as currency in Malaysia.
These coins are mainly hoarded to preserve
purchasing power of savings of the people, and not
widely used as a medium of exchange for trading
goods or services due to the following reasons:
a) The Central Bank of Malaysia (Bank Negara
Malaysia) is enforcing the Ringgit Malaysia (fiat
currency) as the only legal tender.
b) When the legal tender fiat currency loses about
20% to 30% in purchasing power a year as
compared to gold, people naturally will pay using
the fiat money and hoard the gold dinars.
c) Many people have some concerns about using
physical gold dinar coins for payment or
receiving payment: these include
coins are physically heavy to carry around,
risk of robbery/theft during shopping as
well as the storage of coins,
wear & tear and illegal dipping of coins,
purity concern and test equipment
expensive,
spread on trading coin is wide (5% to 12%
for dinar), and
buying of small-priced item is not
convenient.
Gold Coin Debit Card and Electronic Dinar
In view of the issues related with physical gold dinars
by customers, a few gold companies are planning to
provide an alternative form of dinar for payment and
hoarding purposes.
A study conducted by Mohd-Nazri et al. (Mohd-
Nazri Muhayiddin, Elsadig Musa Ahmed and
Hishamuddin Ismail. IBIMA Publishing, Journal of
Electronic Banking Systems Vol. 2011 Article ID
463185) showed that most people are generally keen
to use the proposed electronic dinar payment system.
Several companies in Malaysia are planning to offer
dinar debit /credit card or electronic account gold
dinar system whereby the customers can purchase
and deposit dinar coins into their own account and
use it to make payment for goods and services.
In their plans, the electronic/debit card dinar
account will allow customers to use the following
functions:
1. deposit dinar;
2. purchase of dinar;
3. selling of dinar;
4. payment in dinar to other account holders;
5. withdrawal of physical dinar coins.
There are several disadvantages associated with the
proposed electronic /debit card dinar system,
namely:
1. Risk of defaulting by dinar companies;
2. computer hacking; and
3. outlets for depositing/loading of dinar are
limited compared with fiat currency which
are processed in bank branches in every
town and city. The dinar outlets will have to
be as common as the post offices, 7-Eleven
stores, and petrol kiosks if the system is to
be the choice payment option in a free
market.
If the system is approved, it would be easier for the
people to carry out their business transactions
without having to physically carry gold dinar around,
especially those transactions involving large sum of
gold coins. For credit card dinar the amount of dinar
coins outstanding are settled between members at
the end of each month.
When contacted, a Central Bank official said at the
moment, they are not too keen on the dinar card
payment system as Ringgit is still the legal tender,
and they are worried about control of the money
supply as credit money is created when a credit
card/debit card is used for trading.
Alternative Parallel Payment System
In order not to infringe on the money law of the
Central Bank, a couple of gold companies are
planning to introduce the debit/credit card dinar
payment system via the cooperatives in Malaysia. As
these cards will be used between the members of the
cooperatives for trading of goods, only approval is
needed via the department overseeing the
cooperatives.
Their aim is to provide convenience for traders, and
savers in cooperatives to save in gold and silver, and
these gold community people may also be concerned
about the problem of paper system, and they wish to
set up an alternative parallel payment system in the
event the exist paper system is jammed, trades can
still go on via dinar payment system.
Surely Greshams law will operator here too, and
members of cooperatives will prefer to spend fiat
money and hoard the gold dinar, especially when the
price of gold is rising significantly each year. Hence,
until we have freedom to choose the type of money
in business transactions, gold dinar coins or dinar
debit card are not likely to circulate as currency,
whereas fiat currency credits in visa/master cards
and Ringgit will be used to make payment.
Even though the proposed gold dinar payment
system may not be used widely, it will be to the
credit of these companies for their effort to set up an
alternative parallel payment system using gold coins
or debit card account redeemable in gold dinar coins.
Philip T

The Gold Standard Journal 11

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The Gold Standard The Gold Standard Institute

Issue #11 15 November 2011 1

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