State-Based Coinage and Paying Off Debt With ‘Beinonis’

The Case Against Legal Tender Laws

The government imposes price controls largely in order to divert public attention from governmental inflation to the alleged evils of the free market. As we have seen, “Gresham’s Law”—that an artificially overvalued money tends to drive an artificially undervalued money out of circulation—is an example of the general consequences of price control. The government places, in effect, a maximum price on one type of money in terms of the other. Maximum price causes a shortage—disappearance into hoards or exports—of the currency suffering the maximum price (artificially undervalued) and leads it to be replaced in circulation by the overpriced money.

We have seen how this works in the case of new vs. worn coins, one of the earliest examples of Gresham’s Law. Changing the meaning of money from weight to mere tale, and standardizing denominations for their own rather than for the public’s convenience, the governments called new and worn coins by the same name, even though they were of different weight. As a result, people hoarded or exported the full weight new coins, and passed the worn coins in circulation, with governments hurling maledictions at “speculators,” foreigners, or the free market in general, for a condition brought about by the government itself.

A particularly important case of Gresham’s Law was the perennial problem of the “standard.” We saw that the free market established “parallel standards” of gold and silver, each freely fluctuating in relation to the other in accordance with market supplies and demands. But governments decided they would help out the market by stepping in to “simplify” matters. How much clearer things would be, they felt, if gold and silver were fixed at a definite ratio, say, twenty ounces of silver to one ounce of gold! Then, both amounts of money could always circulate at a fixed ratio—and, far more importantly, the government could finally rid itself of the burden of treating money by weight instead of by tale. Let us imagine a unit, the “rur,” defined by Ruritanians as 1/20 of an ounce of gold. We have seen how vital it is for the government to induce the public to regard the “rur” as an abstract unit of its own right, only loosely connected to gold. What better way of doing this than to fix the gold/silver ratio? Then, “rur” becomes not only 1/20 ounce of gold but also one ounce of silver. The precise meaning of the word “rur”—a name for gold weight—is now lost, and people begin to think of the “rur” as something tangible in its own right, somehow set by the government, for good and efficient purposes, as equal to certain weights of both gold and silver.

Now we see the importance of abstaining from patriotic or national names for gold ounces or grains. Once such a label replaces the recognized world units of weight, it becomes much easier for governments to manipulate the money unit and give it an apparent life of its own. The fixed gold-silver ration, known as bimetallism, accomplished this task very neatly. It did not, however, fulfill its other job of simplifying the nation’s currency. For, once again, Gresham’s Law came into prominence. The government usually set the bimetallic ration originally (say, 20/1) at the going rate on the free market. But the market ratio, like all market prices, inevitably changes over time, as supply and demand conditions change. As changes occur, the fixed bimetallic ratio inevitably becomes obsolete. Change makes either gold or silver overvalued. Gold then disappears into cash balance, black market, or exports, when silver flows in from abroad and comes out of cash balances to become the only circulating currency in Ruritania. For centuries, all countries struggled with calamitous effects of suddenly alternating metallic currencies. First silver would flow in and gold disappears; then, as the relative market ratios changed, gold would pour in and silver disappear.1

Finally, after weary centuries of bimetallic disruption, governments picked one metal as the standard, generally gold. Silver was relegated to “token coin” status, for small denominations, but not at full weight. (The minting of token coins was also monopolized by government, and, since not backed 100% by gold, was a means of expanding the money supply.) The eradication of silver as money certainly injured many people who preferred to use silver for various transactions. There was truth in the war-cry of the bimetallists that a “crime against silver” had been committed; but the crime was really the original imposition of bimetallism in lieu of parallel standards. Bimetallism created an impossibly difficult situation, which the government could either meet by going back to full monetary freedom (parallel standards) or by picking one of the two metals as money (gold or silver standard). Full monetary freedom, after all, this time, was considered absurd and quixotic; and so the gold standard was generally adopted.

Legal Tender

How was the government able to enforce its price controls on monetary exchange rates? By a device known as legal tender laws. Money is used for payment of past debts, as well as for present “cash” transactions. With the name of the country’s currency now prominent in accounting instead its actual weight, contracts began to pledge payment in certain amounts of “money.” Legal tender laws dictated what that “money” could be. When only the original gold or silver was designated “legal tender,” people considered it harmless, but they should have realized that a dangerous precedent had been set for government control of money. If the government sticks to the original money, its legal tender law is superfluous and unnecessary.2 On the other hand, the government may declare as legal tender a lower-quality currency side-by-side with the original. Thus, the government may decree worn coins as good as new ones in paying off debt, of silver and gold equivalent to each other in the fixed ratio.The legal tender laws then bring Gresham’s Law into being.

When legal tender laws enshrine an overvalued money, they have another effect; they favor debtors at the expense of creditors. For then debtors are permitted to pay back their debts in a much poorer money than they had borrowed, and creditors are swindled out of the money rightfully theirs. This confiscation of creditors property, however, only benefits outstanding debtors; future debtors will be burdened by the scarcity of credit generated by the memory of government spoilation of creditors.

[Excerpted from What Has Government Done To Our Money?]

  • 1.Many debasements, in fact, occurred covertly, with governments claiming that they were merely bringing the official gold-silver ratio into closer alignment with the market.
  • 2.“The ordinary law of contract does all that is necessary without any law giving special functions to particular forms of currency. We have adopted a gold sovereign as our unit…. If I promise to pay 100 sovereigns, it needs no special currency law of legal tender to say that I am bound to pay 100 sovereigns, and that, if required to pay the 100 sovereigns, I cannot discharge my obligation by paying anything else.” Lord Farrer, Studies in Currency 1898 (London: Macmillan and Co, 1898), p. 43. On the legal tender laws, see also Mises, Human Action, (New Haven: Yale University Press, 1949), pp. 32n. 444.

Note: The views expressed on are not necessarily those of the Mises Institute.

From, here.

Communism – A Personal Account

A friend keeps saying the finest popular book in Jewish observant circles to grant a basic understanding of non-socialist economics is “Go My Son”. I agree.

The author masterfully illustrates the contrast between various economic regimes, shows how the division of labor works and breaks down, notes the illogical nature of communism and its tragic effects, and more, all this only in passing, and in stoic prose.

The true story of a yeshiva student’s adventure-filled odyssey through both war-torn Europe and Asiatic Russia. The author describes his many dramatic, and sometimes humorous encounters, as he flees from the Nazis, in a vivid and engrossing personal memoir.

Here it is on Amazon.

Don’t Forget the Gush Katif Expulsion!

Here are some excerpts from an article here:

8,500 people lived and worked in Gush Katif, mainly in agriculture, with hundreds of acres of hothouses that provided a large portion of the country’s crops and flowers. Every single resident were forced out, with their homes and communities destroyed during the withdrawal.

Many former residents are still in dire need of help, both material and emotional, but with the passage of time, their plight has faded from public awareness. Yet a large number of them remain even today, 10 years later, without permanent homes or steady income.


Yehudah Gross, who lived in Gush Katif for 23 years before the expulsion, explained that it was “the center of our lives.” He and his wife raised their five children there. “Everything was there – our schools, our businesses, shops, banks, employment.”

Their belongings packed up and shipped away, often to locked containers where they remained inaccessible for months or even years, displaced families were put onto buses and sent out to hotels, tent cities and other temporary housing all over the country.

They were “uprooted and tossed to the wind,” said Segal. “Most people had no idea where they were going. They were dispersed all over the place.”

Many of the residents were relocated to flimsily-built caravans.”They were thrown up, ignoring building codes,” said Segal. “People lived in these boxes for years and years, and people still live there.” Today, 10 years later, approximately 20 percent of evacuees remain in these caravans as they wait for permanent housing.

“Someone aged 50 or 60 who had farmed a certain crop on a certain piece of land for 30 years cannot start a new farm at their age,” said Segal. “And who will hire them?”

Yulis said that the poverty experienced by many evacuees due to the loss of their livelihoods prevented them from rebuilding their lives. “There were people who took out mortgages and loans because they couldn’t feed their children,” he said. With more pressing needs, they were never able to put money aside to build a permanent home.

There also remain a number of evacuees who were not able to cope with the emotional trauma of the disengagement. Several of the residents spoke about friends and neighbors whose spirits simply never recovered. Sinking into depression, some succumbed to illness and early death.

“These were hard working people who had their own businesses,” Karmey Chesed founder and director Aryeh Weingarten told Breaking Israel News. “Many were farmers who proudly worked and produced in their own fields. They would help others in need and now things have turned around and they now, still, need help. Many of them do not have homes. Most people from Gush Katif built their own homes, which were destroyed when they were kicked out by the government.”

The rest, from Israeli nonprofit ‘Karmey Chesed‘ is here.

Is Judaism Pluralistic?

“es Eisav saneisi?”

Over Pesach I read R’ Jonathan Sacks’ latest book, Not In G-d’s Name: Confronting Religious Violence, and I’ve been meaning to jot down some thoughts about it but just never seem to have the time. I still don’t have time, so this will be b’kitzur one point. What I admire about R’ Sacks writing is his clarity and erudition. What I sometimes find hard to digest is his attempts to portray Judaism   as always consistent with modern Western liberal, democratic, humanist values (if you’ve ever taken a university Western Civ course [do such things still exist?] you know what values I mean).

Let me give you an example from the book. In the second half of the book R’ Sacks takes a few episodes in Braishis, e.g. Avraham’s banishment of Yismael, Ya’akov’s conflict with Eisav, Yosef’s conflict with his brothers, and he argues that these stories have been misunderstood. Rather than a rejection of the unwanted son/brother, the intent of the Bible is to flip the traditional storyline on its head and actually validate the “other” brother/son/outsider. In G-d’s eyes, everyone has value and no one is rejected. He goes so far as to read the opening of Vayishlach, where Ya’akov sends gifts to Eisav, as a sort of attempt to return the bounty of the brachos, an acknowledgement that maybe the stolen brachos should rightfully have been given to Eisav after all. Read in this way, as validating the “other,” religion becomes a force that unites people, rather than a divisive force that can lead to violence.

I thought I was maybe missing something, so I told this derasha to my son and asked him if there is anything that strikes him as odd.  He immediately quoted the pasuk in Malachi, “…v’es Eisav saneisi?” (1:3)  How can you think that Eisav is validated?  I would have thought that what seems to be a mefurash pasuk against your thesis deserves a mention in the text, but R’ Sacks addresses it only in a footnote to the chapter at the back of the book.  His answer is that the navi was speaking about a particular time where there were particular difficulties, but this is not to be taken as a general rule or a normative statement. Putting aside the fact that were an reaction to a particular situation and not a nevu’ah she’hutzrecha l’doros it would never have been written, I think the more basic issue is how do you know what is the rule and what is the exception? How do you know that your derasha on Braishis represents the TRUTH, the categorical rule, and the pasuk in Malachi is the exception? Maybe it’s the other way around? It seems to me at least that Eisav has been historically seen as a bad guy who should be avoided at all costs. Halacha hi she’Eisav sonei Ya’akov. K’she’zeh kam zeh nofeil. The Derashos haRan uses this very pasuk in Malachi as a springboard to argue that the conflict between Eisav and Ya’akov is inherent in their (our) nature, not just a product of circumstance. The two sides can never share common ground.  R’ Sacks is not bound to adopt the view of the Ran, but I would have liked to see how he it. A nice derasha is no more than that – a nice derasha. Whether it reflects the majority view of ba’alei mesorah and Jewish philosophers is unproven.

One other quick point: I think the whole argument of the book is academic.  Until someone in the camp of Yishmael of similar renown to R’ Sacks starts making these same arguments, there is nothing to talk about.  To preach peace and tolerance while your enemies plot your destruction is does not make any sense to me.

There is much more to say about the book… maybe one day I get back to it.

From Divrei Chaim, here.