A nameless friend of mine posted this privately a while back. I found it intriguing enough to ask if I could post it here.
Basically, it seems that people get all bent out of shape when their assumptions about money are violated. Seeing as you two have mentioned Liberty Dollars, I thought I’d mention the micro-economic perspective. It hinges on a theory about the relationship between currency and wealth, which I will now spend two skippable paragraphs on.
There are dollars, and there are dollar bills. One bill in a million is fake, which means that a dollar bill is actually worth 99.9999 cents. (Actually, the fake bills are generally larger denominations, but that’s the idea.) But if all funny money were instantly recognizable by all and torn up tomorrow, a few people would take a loss but the bills would again be worth exactly one dollar. That is, the remaining bills would have slightly more buying power in accordance with the change in scarcity. The effect is more pronounced the greater is the local circulation of counterfeit bills.
The underlying problem with counterfeit is that it devalues the currency. People don’t want their currency devalued, so they arrange to reject and seize counterfeit bills at key points in the cash cycle such as banks. As a result, anyone who accepts funny money will ultimately take an economic loss unless they successfully recirculate it. (This can happen by accident.) This arrangement causes anyone who creates and passes a fake bill to be stealing buying power from the last person to accept the bill before it reaches a currency validation checkpoint. There is also a great sense of unfairness that some private party can create money without corresponding wealth. For both reasons, the penalty for counterfeit is harsh.
Liberty Dollars (and things like them) are a subtle issue. Clearly, they are not counterfeit, because they make no attempt to masquerade as standard currency. However, there is still that same appearance (in some minds) that someone is creating money without wealth, and furthermore, as zealots promote the widespread acceptability of these alternative currencies, the notes take on an economic effect similar to that of counterfeit. They increase the cash supply artificially, The banks dishonor them for obvious reasons, and merchants don’t generally have wherewithal to make the conversion to standard funds.
In truth, the only difference between baseball cards and counterfeit currency is that nobody tries to buy beer with them. They have almost no intrinsic value and plenty of speculative value, but most importantly, they have no face value.
If you really want to muck with the system, see if you can pay for things using postage stamps. Once you buy your stamp, the postal service has the use of your original cash. But if you can extract gains from trade using those stamps as a medium of exchange, then you retain your use of the face value of the stamps for as long as you have them. In short, you’ve duplicated money until someone slaps that bad boy on an envelope, which is the inherent economic value backing the stamp. Get more than a few people doing this, and you might spawn an investigation. or at least some serious head-scratching in high places.
His observations do coincide with some of my experiences trading in ALD. There’s always someone on the sidelines who’s just certain there’s a scam going on here somewhere.
It’s also interesting to note that the US government would have to crack down on stamp usage as current money if they were consistent in their interpretation of law. This would put the government in the interesting situation of having to crack down on exchanges of a federal document (stamps) because it cuts into the value of another federal document (dollars).
…Which is just as logical and consistent as outlawing tobacco usage while funding it’s production at the agricultural level. Your federal government at work.
Editor’s note. The scam is not that the silver is fake, what counterfeiting coins would amount to. The scam is in putting a dollar value on the currency (and it is currency for all intents and purposes) and then getting everyone to pay for reminting the coins as the value of the copper/silver/gold in them goes up or down. The scam is in the electronic silver system that could (and probably does) involve having less silver backing the Liberty Dollars than there are promissory notes and Electronic Liberty Dollars in circulation.
The fact that the issuer profits from transactions done in their currency because their currency then gains real value, is the scam. It is similar to the scam that goldsmiths engaged in when they invented fractional reserve banking back at the dawn of recorded history, and handed out more notes than they had in real gold in their vaults. Bernard Von Nothaus knows this. He knows that the silver he holds in the names of his customers gains in value for each ounce he pulls away from uses that require silver. That is the desired impact of the system itself. To push the cost of silver higher and to profit from that price increase. It has taken a decade later looking back on these events to bring clarity to my mind on this subject.
So many detractors, people I argued with in forums, pointed these facts out to no avail for all the years that I argued with them. Only now are their points sinking home.