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• Direct and Indirect Conversion of Income and Wealth
• Can a Present Good Go to a Discount against Its Future
Counterpart?
• The Concepts of
Income and Wealth
• Converting Income into Wealth and Wealth into Income
• Exchanging Income and Wealth
• Rent Charges
• The Paradox of Interest
• Triple-Entry Revenue Accounting •
Direct
and Indirect Conversion of Income and Wealth
The nature of interest is one of the great problems
of humankind, as old as money itself. It has engaged the greatest minds, from
Aristotle through St. Thomas of Aquinas and other Church fathers to Carl Menger. The lack of a satisfactory solution to the
problem has rocked empires, contributing to their destruction. Your lecturer
hopes that his efforts can make a modest contribution to the ultimate
disposal of this great and vexed problem. Part of the difficulty is in the
way the problem has traditionally been presented, namely: What happens when a
man with a need to borrow meets another with money to lend? It was always in
this context that usury has been condemned by both criminal and canon law. It
hasn't occurred to philosophers and moralists -- or, for that matter, to most
economists -- that the nature of interest could be better grasped if the
question was reformulated thus: What happens when a man with wealth to spare
but who is in need of an income meets another with income to spare but who is
in need of wealth?
What is of great significance for our purposes is
that the resulting exchange represents the passage from direct to indirect
conversion of income and wealth. By direct conversion of income into wealth
is meant hoarding, and by direct conversion of wealth into income is meant dishoarding of a fungible commodity. Since direct
conversions are cumbersome and inefficient, the passage to indirect
conversion or exchange represents an improvement. Interest can be thought of
as the measure of this improvement. In particular, zero interest means direct
conversion. Given zero incentive, those who have surplus wealth will
obviously forgo indirect conversion or exchange and will, instead, fall back
on direct conversion. That is to say, they will provide for deferred
consumption by first hoarding and, then, dishoarding.
The passage from direct to indirect conversion of
wealth and income is analogous to the passage from direct to indirect
exchange of goods, that is, the evolution from barter to the monetary
economy. This was the idea which Carl Menger used
so brilliantly in explaining the origin of money in terms of salability. In this course we shall introduce an
analogous idea in order to explain the origin of interest in terms of hoardability. In the next Lecture we shall see
that saleability and hoardability are just
sub-varieties of marketability (the German word, used by Menger, is Absatzfahigkeit).
That these two concepts represent special aspects of marketability can be
seen clearly if we contemplate that salability is
"marketability in the large" and hoardability
is "marketability in the small". Thus, then, the proper setting for
the study of interest is the indirect conversion of income into wealth and
wealth into income, just as the proper setting for the study of prices is the
indirect exchange of goods. It now appears that blanket condemnation of usury
is akin to condemning a man for charging (or paying) the going price of
bread.
The exchange of a present good for a corresponding
future good is not the irreducible form of credit. It can be reduced to two
exchanges: first, the exchange of the present good for an income and, second,
after a mutually agreed period of time, the return of the same income to its
original beneficiary in exchange for the same quantity and quality of good. In
this way we see a second reason why the exchange of wealth and income, rather
than that of a present and a future good, is the true centerpiece
of the theory of interest. A third reason presents itself in the context of
history. The act of exchanging a present good for a future good was hardly
part of the repertory of our ancestors in the more primitive economic setting
under which they labored. By contrast, we know for
a fact that the exchange of present for future labor
was widely practiced: "I help you build your house, and you help me
build mine; we shall build yours first because I am not quite ready to start
as yet." It is far from obvious, however, that
interest was necessarily part of such exchanges. The practice of exchanging
present for future goods, on the other hand, was a later development which
already assumed the existence of a lively market for the exchange of income
and wealth.
Can a
Present Good Ever Go to a Discount against Its Future Counterpart?
The very idea of a dichotomy between present and
future goods is false. The future is a closed book to man. He knows not what
the future holds for him. He cannot know what his future needs and valuations
will be. Even his taste is subject to change, and he is as ignorant about his
own preferences in the future as he is of those of another person. His entire
value-system may be revamped as a result of new products appearing in the
market. The tenet that there is an intrinsic discount on the value of any
future good in relation to that of a corresponding present good, which is
independent of the choice of the good itself, is open to serious challenges. It
is easy to give an example of a future apple having a value higher than that
of a present apple. Take the case when the only apple orchard in the vicinity
has been destroyed by a landslide, just after the apple-harvest. In our
complex economy the idea of an automatic discount on future goods is even
more absurd. Suppose that the construction of an observatory takes one year
to complete. We may assume that the most expensive part of the project is the
telescope itself that is being built elsewhere and would have to be delivered
to the site. However, it can only be installed after the building is finished
one year hence. If the telescope was delivered to the site today, it could be
damaged during the year of forced idleness, so storage and insurance costs
would be incurred, reducing its present value below its future value. The
objection that the telescope could be rented out for one year is open to the
same criticism. We may assume that no building suitable for the installation
of this particular telescope exists anywhere, and constructing one would also
take one year.
This is no ice-in-summer/ice-in-winter
counter-example to refute the thesis about an automatic discount on future
goods. As the economy is getting ever more complex, the manufacture of
big-ticket items is getting ever more roundabout and more time-consuming. The
delivery of the complementary factors of production must be dove-tailed with
an air-tight schedule to assemble them. Serious losses may occur if the delivery
of a factor is out of sync. The future value of such a factor is, therefore,
represented not by a declining but by a bell-shaped curve. Along this there
is an optimal value surpassing all other future values, as well as the
present value. It follows that a present good can and does indeed go to a
discount against its future counterpart.
The idea that this could never happen is the
foundation supporting the theorem that the rate of interest can never be
zero, let alone negative. What our argument shows is not that the rate of
interest can sometimes be negative, but that the approach to the theory of
interest through the dichotomy of present versus future goods is
false. There is no apodictic reason to value a present good more highly than
the corresponding future good. We can show that the rate of interest is
always positive by discarding the paradigm of present versus future
goods, and replace it with the paradigm of income versus wealth. Zero
interest now appears possible, but only at the cost of stamping out indirect
conversion or exchange.
The Concept of Wealth and Income
We have seen that the dichotomy of present versus
future wealth is false. We shall now see that the true dichotomy, giving rise
to interest, is that of income versus wealth. By wealth we mean any
desirable piece of property held for an extended period of time. As objects
of human desire are varied, the concept of wealth is broad. But as it is
always the case in human affairs, disadvantages offset advantages, and the
ownership of wealth is no exception. The main disadvantages associated with
wealth are illiquidity and declining marginal utility. Illiquidity refers to
contingent losses, measured in money and time, that
go with exchanging one form of wealth for another. As a result, the value of
wealth may well erode with the passing of time. Thus, then, even the
wealthiest individual has the thorny problem of husbandry to tackle. He had
better make sure that the value of his wealth would not diminish, lest it
disappear altogether. If he could not make his wealth grow, he might end up
as a pauper.
The problem of wealth immediately leads to the
problem of income. Wealth is unsuited for direct consumption. Before
consuming it, wealth needs to be converted into income. Indeed, we must
sharply separate the two concepts. Income is conceived as a steady flow of
goods and services. By its very nature, income is perishable. If not used
presently, its value may evaporate. Therefore the economizing individual
divides his gross income into two components: income-to-be-consumed and
income-to-be-saved. He converts the latter into wealth which he plans to
convert again into income later, as the need arises. There are problems with
these conversions. The value of income and wealth must be secure. The risk of
letting the quality and quantity of goods and services that make up the
income erode must be reduced to its irreducible minimum.
Converting Income into Wealth and
Wealth into Income
For the sake of simplicity the phrase:
"converting income into wealth" will be used to mean
"converting income-to-be-saved into wealth" and, correspondingly,
"converting wealth into income" will mean "converting wealth
into income-to-be-consumed". A typical wage-earner uses only part of his
wage-income for consumption; the other part he earmarks for saving in order
to increase his wealth. If his consumption needs are fully covered, then he
will convert his entire income into wealth. Otherwise, he will augment his
consumption using part of his wage income, and save only the remainder. If
his wage income is not sufficient to provide for his consumption needs, then
he will supplement it by converting an appropriate portion of his wealth into
income in order to maintain his level of consumption.
From the point of view of mortal man wealth and
income are distinct categories independent of one another. When accumulating
wealth, man merely obeys the law of the biosphere according to which the
demands of survival force one to save one's substance, in order to provide
for the seven lean years ahead while the seven fat years last. In particular,
the economizing individual wants to provide for his and his spouse's old age,
knowing full-well that the time is coming when reward for his efforts will
fail to cover his needs, and he will need wealth to convert it into income in
order to maintain his consumption. Another typical activity is accumulating
wealth that the economizing individual will need at the time his offspring
comes of age. Whether he wants to give part of this wealth to his daughter as
a dowry, or whether he wants to convert it into income to defray the cost of
higher education of his children, his family responsibilities will prompt him
to save. Even in the case of a miser it is a mistake to dismiss his saving
habits as irrational. Maybe he has an undisclosed plan to donate his wealth
to a particular charity after he has reached his savings goals. Or, maybe, he
wants to leave his wealth to an eleemoosynary
institution at the time of his death. Even if he has no plans how to dispose
of his wealth, his savings are not wasted. Society is a beneficiary. One's
savings may make another's investing easier. At the very least, savings
contribute to price stability. There is no such a thing as "oversaving" from the point of view of society. All
savings are pooled in the form of wealth, and this communal pool is drawn
upon whenever the saver, or the beneficiary of his estate, is ready to use
the income for which his share of the wealth may be exchanged. This is also
true for direct conversion. If the individual saves in the form of hoarding
gold coins, for example, then the social benefits of his savings show up in
lower prices and interest rates. Keynes' theory, according to which deflation
(falling prices) is caused by collapsing aggregate demand due to oversaving, is thoroughly unscientific. Depression is
caused by falling interest rates generating a bull market in bonds. It is the
gravitational field of that bull market that diverts money away from the
stock, commodity, and real estate markets, creating the optical illusion that
'money is scarce'.
Exchanging Income and Wealth
Conversion of income into wealth is a broad concept
that includes, as a special case, indirect conversion, that is, the exchange
of income for wealth, and the same is true of the conversion of wealth into
income. We have discarded the idea of exchanging present and future goods as
the basic problem of interest, and replaced it with the irreducible form of
credit: exchanging income and wealth. These exchanges arise out of
identifiable, immediate, and concrete human needs -- having to do with the
problem of ageing. By contrast, the exchange of present for future goods is a
barren concept. It is not grounded in any immediately identifiable human
need. Insofar as it arises at all, it is always in the context of the
irreducible forms of credit. Our innovation in considering indirect
conversion immediately shows the great improvement in efficiency over direct
conversion. A smaller quantity becomes the exchange-equivalent of a larger
one, thanks to the intervention of time. Thus a certain quantity of gold
exchanges for an infinite stream of payments in gold, that is to say, for an
amount of gold that can be arbitrarily large, depending on time. Yet the
exchange is fair, because of the commitment to reverse it at a specified
future date. Before anyone may jump to the concludion
that such exchanges are not possible because an infinite quantity is never
equal to a finite one, I hasten to point out that they are in fact a common
occurrence. For example, a fertile piece of land can be bought at a finite
price in spite of the fact that rents derived from it will, if held
indefinitely, add up to infinity.
The vital difference between wealth and income, from
the point of view of mortals, is put into high relief in the comedy of King
Midas and the tragedy of King Lear. The former was unable to convert his
wealth into income and, as a consequence, was in danger of starving to death
in spite of his great wealth. The latter exchanged his wealth for income
unwisely and without proper guarantees and, as a consequence, he was left
without food and shelter when he would need it most. These examples
illustrate that conversion of wealth into income could, under certain
conditions, become a matter of life and death. Society has, therefore, a
great responsibility to facilitate and guarantee the exchange, and to remove
all obstacles that may frustrate the intentions of the contracting parties.
The distinction between income and wealth, inviting
exchange, has been recognized throughout history. I would like to mention two
examples: the rent-charge and the triple contract.
Rent charges
From the twelfth to the sixteenth century the sale
and the purchase of rent charges was the most common form of exchanging
wealth and income. In the Middle Ages real estates were so encumbered with
legal conditions that they could hardly ever be sold outright. All the owner
could do was to sell the annual rental income from his estate, which the new
beneficiary could in turn sell to a third party. The right to collect rent
from a piece of property that you did not own was called a 'rent charge'. (For
a modern example consider the 'strip bond', where
the coupons have been separated from the bond itself and sold to a new
beneficiary. There developed a lively market where income and wealth were
exchanged. The market value of rent charges was expressed, not as a
percentage as was interest, but as a multiple. In other words, it was quoted
as the number of years the rent charge would take to amortize its purchase
price. Thus when a rent charge was quoted at 'twenty years', the meaning was
not that the right to collect the rent extended to a twenty-year period; but
that the new beneficiary had the right to collect the rent, in perpetuity,
against the payment of a sum equal to twenty times the prevailing annual
rent. Of course, this was tantamount to saying that the purchaser of the rent
charge has converted his wealth into income at a rate of interest of 5
percent per annum, but that mode of quoting rent charges for sale was
shunned. The difference in the manner of quoting capital offered to
prospective borrowers, and rent charges bid for by those in need of an
income, confused the issue in the minds of the people who assumed that no
interest hence no usury was involved in the rent charge. Usury, they thought,
was present only when capital was put out at interest. It would disappear
when income was to be capitalized -- even though the two transactions were
just the opposite sides of the same coin. To maintain this pretence was
important during the prohibition era, when canon as well as criminal law
forbade the charging and paying of interest on a loan of capital (while the
transfer of the right to collect the rental against the payment of a lump sum
was exempted).
Confusion about the capitalization of income still
prevails, and is exploited by governments as they make frivolous promises to
pay retired voters income for life, while passing the unfunded liability that
had been created by the promise to future taxpayers (some of whom hasn't
been, and may never be, born).
The
Paradox of Interest
Let us now see how the re-setting of the paradigm of
exchanging present and future goods as the exchange of income and wealth will
dispose of the modern formulation of the 'paradox of interest' as given by Kirzner (op.cit.
p 167-168).
"Much -- perhaps all -- will depend on the way
in which the interest problem is formulated. For present purposes we adopt a
modern formulation of the problem, but wish to emphasize that this
formulation is very similar in spirit and character to classic formulations
going back to Schumpeter and Bohm-Bawerk. The
modern formulation we cite is that of Hausman. Hausman points out that 'an individual's capital . . .
enables that individual to earn interest. If the capital is invested in a
machine, the sum of the rentals the machine earns over its lifetime is
greater than the machine's cost. Why?' Common observation, that is, tells us
that possession of a given stock of capital funds can, by judicious
investment (say, in a machine) yield a continuous flow of income (annual
rentals net of depreciation) without impairing the ability of the capital
funds to serve indefinitely as a source of income. The problem is, how can this occur. Why is not the price of the machine
(paid by the capitalist at the time he invests in the machine) bid up
(by the competition of others eagerly seeking to capture the net surplus over
cost) -- to the point where no such surplus remains? We are seeking,
then, an explanation for an observed phenomenon which is, in the absence of a
theory of interest, unable to be accounted for. Absent a theory of interest,
no interest income ought to be forthcoming, except as a transient phenomenon;
competition ought to squeeze it out of existence."
Here is the deciphering of the paradox of interest
in the light of our new paradigm. To say that the capitalist 'invests' his
wealth is far too simplistic. The specifics of 'investing' are bound to
confuse the issue. Moreover, the possession of wealth does not automatically
guarantee access to income. There is an exchange of wealth and income interposed
between the capitalist and the entrepreneur that ought not to be ignored. Here
is what actually happens. The capitalist gives up wealth to
an entrepreneur in exchange for the latter's commitment to pay him an
income at a fixed rate of interest. The entrepreneur uses the wealth to
purchase capital goods (such as a machine or a fruit tree, for example), and
hires a manager whose job it is to tend the capital goods, including the task
of setting depreciation quotas for them in anticipation of the need to
replace them at the end of their useful life without any further charge to
the capitalist or to the entrepreneur. Now the entrepreneur sets up three
accounts for the disposal of the yield (after depreciation) as follows: (1)
the fixed interest income payable to the capitalist; (2) wages payable to the
manager; (3) the remainder, or the profit, payable to himself.
In this way it is revealed that 'investing'
implicitly involves an exchange of wealth for income. It is no longer a
mystery that the sum total of interest payments exceeds the wealth subject to
the exchange. If entrepreneurs were not prepared to offer the capitalist an
income at positive interest for his wealth, then the latter would simply
withdraw his offer to make the exchange. He could always fall back on the
direct conversion of income into wealth through dishoarding.
From his point of view, direct conversion would be preferable and less risky
than the exchange, in the absence of incentives.
In this light the modern formulation of the interest
problem and the language of 'investing' appears
rather naive, if not outright boorish. It ignores the problem of managerial
compensation, as well as that of entrepreneurial profits. These two, plus the
interest income, must come out of the gross yield of capital (after
depreciation). Only the entrepreneurial profit could be reduced to zero in
the process of bidding for capital goods. Furthermore, in addition to the
bidding of entrepreneurs for partnerships (having the effect of diminishing
the interest income) one must also consider the bidding of managers for
managerial positions (having the effect of enhancing the interest
income). We see that the act of 'investing' is a complex transaction, ridden
with all sorts of specifics. For this reason it is eminently justifiable that
we cut through the maze of irrelevant details with our abstraction of
exchanging wealth for income. 'Investing' is far too an imprecise term to be
useful in the development of a theory of interest.
Even if the owner of wealth is prepared to take the
role of entrepreneur, or manager, or both, upon himself, we still have to
assume that there is an underlying exchange of wealth for an income. Suppose,
for the sake of argument, that a capitalist acts as
his own entrepreneur and also as his own manager. In this case, to make his
an efficient operation, he needs to break it down into three departments as
follows: (1) the bondholding department; (2) the managerial department; and
(3) the entrepreneurial department. Accordingly, he would oversee the three
accounts mentioned above: the interest account, the managerial compensation
account, and the entrepreneurial profit account. Never mind that the earnings
from each of the three accounts will ultimately flow into his pocket. In
order to have sound financial controls, the three accounts must not be
blended into one, and the capitalist must assume that an exchange of wealth
for an income has taken place between the bondholding and the entrepreneurial
departments. Only in this way can he make sure that the fixed income is not
out of line with the rate of interest prevailing in the market and that,
similarly, his managerial compensation is consonant with what he could get in
the competitive market. Any shortfall in gross income must therefore hit the
entrepreneurial profit account first -- a penalty for the poor choice of
capital goods. If the profit is wiped out, then further shortfall would hit
the managerial compensation account -- a penalty for setting the depreciation
quotas too low. In this way interest income is cushioned twice. Repairs must
be made before further deterioration threatens the interest income.
A different order of priorities would make repair,
indeed, economic survival, difficult if not impossible. For example, if
entrepreneurial profit and managerial compensation were allowed to continue
unabated while the interest income was reduced to zero, then the operation
would no longer have an economic justification. The owner-manager would be
better off if he took another managerial job, bought the bonds of other firms
in the bond market, and forgot about his own entrepreneurship. Without such
an internal accounting procedure assuming an underlying exchange of wealth
for income, the capitalist would lose financial control of his enterprise. He
would be in the dark. In case of a setback he would be unable to make
repairs. He would be at a loss in trying to compare the efficiency of his
entrepreneurship and managerial talents with those of others.
Triple-Entry Revenue Accounting
The above analysis is so important in the context of
the theory of interest that I want to formulate it as an independent
principle (on a par with the Principle of Double-Entry Book Keeping).
The Principle of Triple-Entry Revenue Accounting asserts that the
capitalist who buys and successfully manages his own capital goods will carry
three accounts in order to distribute the revenue (after depreciation) of his
enterprise, namely, in order of seniority moving from the senior to the
junior: the interest account; the managerial compensation account; the
entrepreneurial profit account. Whereas insufficient revenues affect the
junior before affecting the senior account, all surpluses accrue to the
junior (profit) account.
Triple-entry revenue accounting is made necessary by
the need to keep the enterprise economically healthy and to ensure that it is
capable of self-correction and self-improvement. It reveals that profits
cannot be understood in isolation: they have to be considered together with
losses. Moreover, both accrue to the entrepreneur, without directly affecting
the manager or the capitalist. This principle also highlights the logic
behind the Triple Contract that I shall discuss in a later Lecture.
The Principle of Triple-Entry Revenue Accounting is
also applicable to corporate governance. In this case the bond department corresponds the Office of the CFO, the managerial
department to the Office of the CEO, and the entrepreneurial department to
the Board of Directors of the corporation. The order of seniority can be
observed in the manner the revenues are distributed among the three accounts:
(1) the most senior, the interest account compensates the outside investors,
the bondholders; (2) the managerial compensation account pays the salaries
and bonuses of the senior managers; (3) the entrepreneurial profit account
pays the compensation of the directors of the company, and the dividends of
the shareholders.
In modern times we see an unfortunate shift of power
away from the entrepreneurial to the managerial department. By issuing class
A, class B, etc., shares (some with multiple voting rights), convertible
bonds, stock options, etc., the managers have diluted the authority of the
shareholders, and inappropriately usurped the power of the entrepreneurial
department and its right to dispose of the surplus. The subordinate
relationship whereby managers are hired and fired by the entrepreneurial
department has been compromised. Managerial power is enhanced, and
entrepreneurship marginalized. This was a regrettable development indeed, and
the large number of bankruptcies of corporations that we are witnessing can,
in part, be attributed to the power-grab of managers at the expense of the
shareholders and the directors of the company.
References
Ludwig von Mises, Human
Action, Third Edition, Chicago: Henry Regnery,
1966.
Antal E. Fekete, Whither Gold, and Other Collected Essays, Hammond, Louisiana:
Ededge (www.ededge.com), 2002.
Antal E. Fekete, The Central Banker As the Quartermaster
General of Deflation : www.goldisfreedom.com, January, 2003.
Israel M. Kirzner, The
Pure Time Preference Theory of Interest: An Attempt at Clarification, The
Meaning of Ludwig von Mises Norwell (Mass.): Kluwer, 1993, p 166 ff.
With this I have concluded Lecture 2. In passing I wish to
quote from the Introdution to the new edition of my
Whither Gold? & Other Collected Essays, written by the creators of
ededge, Marshall Thurber and Edwin H.
Neill II. I believe that this quotation contains the the
broad justification for my initiating the Gold Standard
University on the
Internet.
"Until now ededge
has focused on cutting-edge books for business people. This edition breaks
with that policy because of the dramatic developments in our economy. Waiting
for a book to be published on our current subject matter would be too slow
and thus too late. Here is what is happening."
"Recently, 373 companies of the S&P 500 (America's 500
most trusted companies) slashed their earning forecasts for the third quarter
in 2002. That includes huge companies like Sun Microsystems, Radio Shack, and
Best Buy. These same companies are also slashing their capital investments on
new factories and equipment. What is going on?"
"We, the creators of ededge,
are by nature optimistic people. We both look for opportunities, not for
pockets of safety. We are by nature bulls, not bears. However, we are both
seeking understanding of what is happening, instead of blindly maintaining
our bullish, optimistic behavior."
"In seeking to understand our present economic
situation and looking to predict present unfolding events, we have discovered
the writings of a man who has a unique perspective and clarity of thought. He
is able to shed light on areas previously misunderstood. His name is Antal E. Fekete."
With the advent of Keynesianism, in the late 1930's
the teaching of economics, first in the English speaking countries and, after
World War II in the whole world, suffered a break of continuity with the
great traditions of economics. This break is most visible in monetary
science, where a coherent and logical presentation of the theoretical
foundations of the gold standard has been ostracised and exiled from the curriculum.
In its place was implanted an incoherent and pseudo-theoretical collection of
discourses that can be best described as a lame apology for the conduct of
the governments of Britain and the United States in declaring bankruptcy
fraudulently in 1931 and 1933 (the use of the word 'fraudulent' is justified
by the fact that both governments had ample means to pay their gold
obligations to domestic and foreign creditors as contracted, witness the
subsequent auctioning off of US Treasury gold and the gold of the Bank of
England). During the intervening seventy years it has not been possible to
teach monetary science. A gag-rule, unprecedented in Western countries
outside of the Soviet orbit, was imposed on all those professors who wanted
to keep the flame of truth alive. Even the publication of scholarly works on
money and credit was made very difficult for those who were not eager to
parrot the official line that the government can create wealth out of nothing
by piling debt upon debt, and that gold was but a 'barbarous relic'.
As a result of this blatant official interference
with academic freedom, and obstruction of the search for and the
dissemination of truth, generations have grown up who were denied the
opportunity to learn the rudiments of monetary science. With the passing of
my generation, the gold standard will be erased from living memory. In
founding the Gold Standard University on the Internet I was led by the desire
to pass on to the younger generations the glory, freedom, and progressive
scientific thought that the gold standard represented, in order to keep alive
interest in a monetary system which ordinary people could trust. They could
spend their gold coins in confidence, and expect to get the same coins back
-- without fear that their purchasing power would be impaired. Or,
alternatively, they could save their gold coins in confidence, knowing that
"the little yellow household gods" are the very whip with which
people keep the banks and the government in check, forcing them to stay
within the bounds of decency and to observe the norms of upright dealings
with their creditors.
January 15, 2002
Antal E. Fekete
Professor Emeritus
Memorial University
of Newfoundland
St.John's, CANADA A1C5S7
e-mail: aefekete@hotmail.com
GOLD UNIVERSITY
SUMMER SEMESTER, 2002
Monetary
Economics 101: The Real Bills Doctrine of Adam Smith
Lecture
1: Ayn Rand's Hymn to Money
Lecture 2: Don't
Fix the Dollar Price of Gold
Lecture 3: Credit
Unions
Lecture 4: The
Two Sources of Credit
Lecture 5: The
Second Greatest Story Ever Told (Chapters 1 - 3)
Lecture 6: The
Invention of Discounting (Chapters 4 - 6)
Lecture 7: The
Mystery of the Discount Rate (Chapters 7 - 8)
Lecture 8: Bills
Drawn on the Goldsmith (Chapter 9)
Lecture 9: Legal
Tender. Bank Notes of Small Denomination
Lecture 10: Revolution
of Quality (Chapter 10)
Lecture 11: Acceptance
House (Chapter 11)
Lecture 12: Borrowing
Short to Lend Long (Chapter 12)
Lecture 13: The
Unadulterated Gold Standard
FALL SEMESTER, 2002
Monetary
Economics 201: Gold and Interest
Lecture
1: The
Nature and Sources of Interest
Lecture 2: The Dichotomy of Income versus Wealth
Lecture 3: The Janus-Face of Marketability
Lecture 4: The Principle of Capitalizing Incomes
Lecture 5: The Pentagonal Structure of the Capital Market
Lecture 6: The Definition of the Rate of Interest
Lecture 7: The Gold Bond
Lecture 8: The Bond Equation
Lecture 9: The Hexagonal Structure of the Capital Market
Lecture 10: Lessons of Bimetallism
Lecture 11: Aristotle and Check-Kiting
Lecture 12: Bond Speculation
Lecture 13: The Blackhole of Zero
Interest
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