[tolbiny]

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Thanks to Andy Fox for tracking this paper down

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The introduction to this paper is terrible, I see no reason to continue reading a farce like this on the first page of the introduction:

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The banker's loan triples the supply of paper dollars. One might expect that the value of the dollar would fall--perhaps to one-third of an ounce of silver. This is incorrect. No matter how many dollars are issued, each dollar remains worth 1 oz of silver...

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Either this is a strawman, or a misunderstanding of how inflation/money works. In his example dollars aren't the currency, silver is, the fact that a receipt for 1 oz of silver is still worth 1 oz of silver is irrelevant since the value of the actual silver will also decline. I guess I will have to read on.

Ahhh, here is the trick, hidden in a footnote.

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in this essay I interpret the real bills doctrine as requiring that loans be made for sufficiently valuable collateral

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A slight of hand on which the paper is entirely based. Essentially what he has said is that as long as money is not issued beyond the value of collateral then it isn't fiat money. Correct, but of course that is the frickin definition of fiat money. In his abstract he says this
"I make the claim that fiat money does not exist" and then uses a definition of money that is not fiat to prove that it doesn't. Which would be like me saying "zebras do not exist" and then basing my paper on the assertion that no horse like animal can have stripes. His whole paper is more and more crap like this, the section of convertibility being the biggest.

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A dollar that is expected to be converted into one ounce of silver after n periods

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He's done it again. Expected by whom? The fact that a bill has the words "exchangeable for 1 ounce of silver" on it does not mean that people in the market will be willing to trade one ounce of silver for it. He extends this charade by saying that if the fed issued bills for its 1 billion dollars in gold at the rate of 1 dollar = 1/35 ounce of gold and then suspended redemption indefinitely that a dollar is still worth 1/35 of an ounce of gold because the fed says it is, even if the fed were then to get rid of its stock of gold. But what the fed says there is irrelevant since it is the interactions between individuals that make up the market and represent the market evaluation of gold. Individuals would stop being willing to trade their 1 ounce of gold for 35 bills and the market value of the dollar drops (in the scenario he concocted).

Lets look at his conclusions for some more examples of the flaws in this paper.

Conclusion 1: An increase in the quantity of money is normally not inflationary, as long as the money is adequately backed.

Well duh, because he has already defined money as being backed by something valuable, hence the money supply cannot increase without value being produced hence money remains at the same value. Its a circular definition.

already covered #2

3. If fiat money existed, that would create profit opportunities for the issuers of rival moneys. Rival moneys would be issued as long as their value exceeded their backing, so the value of fiat money would be driven to zero.


Well duh, that's why governments (who issue fiat money) outlaw competing minters. Thats why they are going after E-gold, because the US dollar would eventually drop to 0 if competition were allowed.