Would Henry I Have Castrated Goldman Sachs?

By on November 13, 2010 in News 16

Henry I

Bad money drives out the good” – Gresham’s Law

Even primitive medieval economies understood the importance of guaranteeing the integrity of currency;  Henry I of England imposed the penalty of castration on counterfeiters.

Gresham’s Law is the formal name economists give the common sense notion that counterfeiting is a bad thing and should not be encouraged.   The upshot is that the phony money undermines your confidence in all the money in circulation, even if the bogus bucks are a relatively small portion of the total ‘dollars’ in circulation.

You need to KNOW for a fact just how much real, tangible value you can expect to receive in exchange for those ‘dollars’, and that’s entirely independent of any action on your part.  At least in the short term that’s entirely dependent on how your fellow market participants perceive the value of that currency.  Even if you accept some shiny beads as payment in a real estate deal, you shouldn’t really be shocked when you’re evicted for offering the same as a rental payment to your new landlord the following month.

Not exactly a super-complimicated egghead theory fresh out of some high powered thinktank.  This is, and has been since time immemorial, just basic, fundamental stuff. Christ, Gresham could see it and he grew up before the invention of toilet paper.

So why can’t Paul Ryan (R-WI) and the other Republican’ts see it?  Why do they seem so oblivious to the Wall Street counterfeiting operation that’s hamstringing the economy?

Continued at Dystopia Diaries

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  • Andrew

    Money only has value by agreement. Gersham’s Law is a cognitive error.

    • emperorreagan

      In order for trade to exist, value by agreement is necessary. Even if you live in a barter economy, you and I would still have to agree on the relative exchange of apples to carrots, if you wanted some of the apples I grew in my backyard and I was willing to accept carrots.

      Gresham’s law was really formulated to describe the disconnect between a legal tender coin and its value in precious metal content. Between the government debasing the coins by reducing precious metal content, counter fitters making low quality coins, and people shaving coins you ended up both reducing the relative value of the currency and having people who weren’t coin-to-mouth extract the “good” (high precious metal content) coins from circulation since that was worth more than the face value of the coin.

      Ultimately, what Wall Street does in these markets is make tin coins, then sell them to people as silver. They, of course, lie about the content and extract their fees in silver. In the case of Goldman Sachs, they were not only doing that but hung on to a bunch of the tin coins and got some fool to insure them like silver.

      The problem, I think, is that it’s easy to recognize what’s going on in Wall Street as fraud…but the short term profits available by participating in that fraud are too promising.

      • Andrew

        Precious metals mostly have value only by agreement.

        • emperorreagan

          True. They’re relatively scarce, easy to form into coins, and shiny. Their value is as a medium of exchange, not because they have a lot of value in supporting human life. On a bit of a tangent, but that’s one thing that has always amused me about survivalists that stockpile gold or silver – if you’re struggling to get by on subsistence farming in a post-apocalyptic scenario, are you going to take someone’s shiny gold coin for some of your grains? I certainly wouldn’t.

          If we lived in a world where silver was everywhere but acorns were scarce, acorns would make a pretty good currency.

          • Andrew

            It’s also struck me as odd how many people are more concerned about how much money their houses are worth than the fact that they have shelter. However I’m saying that as someone whose home is paid for and no longer has a mortgage.

      • Liam_McGonagle

        I like your description of this thing.

        You and Andrew both have excellent points, and I think the logical follow up, beyond the immediate protest to our representatives and senators, is to get a Memewatch action committee together and outline an anti-Wall Street counterfeiting agenda. We need to rigorously monitor this stuff and enforce the integrity necessary to acheive real, broad-based agreement about monetary value.

        Working furiously to publish a rough framework this week.

        • Andrew

          I tilt my head when I hear conservatives talking about fiscal responsibility and not being able to afford social spending. Excuse a religious metaphor, but it’s like watching someone prostrating themselves before an idol they just finished building. We humans invented money, we made up the rules by which it operates, and we manufacture it. The other side of the coin is that I wonder if taxes are even psychologically necessary.

  • Andrew

    Money only has value by agreement. Gersham’s Law is a cognitive error.

  • emperorreagan

    In order for trade to exist, value by agreement is necessary. Even if you live in a barter economy, you and I would still have to agree on the relative exchange of apples to carrots, if you wanted some of the apples I grew in my backyard and I was willing to accept carrots.

    Gresham’s law was really formulated to describe the disconnect between a legal tender coin and its value in precious metal content. Between the government debasing the coins by reducing precious metal content, counter fitters making low quality coins, and people shaving coins you ended up both reducing the relative value of the currency and having people who weren’t coin-to-mouth extract the “good” (high precious metal content) coins from circulation since that was worth more than the face value of the coin.

    Ultimately, what Wall Street does in these markets is make tin coins, then sell them to people as silver. They, of course, lie about the content and extract their fees in silver. In the case of Goldman Sachs, they were not only doing that but hung on to a bunch of the tin coins and got some fool to insure them like silver.

    The problem, I think, is that it’s easy to recognize what’s going on in Wall Street as fraud…but the short term profits available by participating in that fraud are too promising.

  • Andrew

    Precious metals mostly have value only by agreement.

  • Liam_McGonagle

    I like your description of this thing.

    You and Andrew both have excellent points, and I think the logical follow up, beyond the immediate protest to our representatives and senators, is to get a Memewatch action committee together and outline an anti-Wall Street counterfeiting agenda. We need to rigorously monitor this stuff and enforce the integrity necessary to acheive real, broad-based agreement about monetary value.

    Working furiously to publish a rough framework this week.

  • emperorreagan

    True. They’re relatively scarce, easy to form into coins, and shiny. Their value is as a medium of exchange, not because they have a lot of value in supporting human life. On a bit of a tangent, but that’s one thing that has always amused me about survivalists that stockpile gold or silver – if you’re struggling to get by on subsistence farming in a post-apocalyptic scenario, are you going to take someone’s shiny gold coin for some of your grains? I certainly wouldn’t.

    If we lived in a world where silver was everywhere but acorns were scarce, acorns would make a pretty good currency.

  • emperorreagan

    True. They’re relatively scarce, easy to form into coins, and shiny. Their value is as a medium of exchange, not because they have a lot of value in supporting human life. On a bit of a tangent, but that’s one thing that has always amused me about survivalists that stockpile gold or silver – if you’re struggling to get by on subsistence farming in a post-apocalyptic scenario, are you going to take someone’s shiny gold coin for some of your grains? I certainly wouldn’t.

    If we lived in a world where silver was everywhere but acorns were scarce, acorns would make a pretty good currency.

  • emperorreagan

    True. They’re relatively scarce, easy to form into coins, and shiny. Their value is as a medium of exchange, not because they have a lot of value in supporting human life. On a bit of a tangent, but that’s one thing that has always amused me about survivalists that stockpile gold or silver – if you’re struggling to get by on subsistence farming in a post-apocalyptic scenario, are you going to take someone’s shiny gold coin for some of your grains? I certainly wouldn’t.

    If we lived in a world where silver was everywhere but acorns were scarce, acorns would make a pretty good currency.

  • Andrew

    I tilt my head when I hear conservatives talking about fiscal responsibility and not being able to afford social spending. Excuse a religious metaphor, but it’s like watching someone prostrating themselves before an idol they just finished building. We humans invented money, we made up the rules by which it operates, and we manufacture it. The other side of the coin is that I wonder if taxes are even psychologically necessary.

  • Andrew

    It’s also struck me as odd how many people are more concerned about how much money their houses are worth than the fact that they have shelter. However I’m saying that as someone whose home is paid for and no longer has a mortgage.