I am happy to see that some of the FOFOA regulars out there have found this series, read the critiques and commented, even if they are still hesitant to venture outside of their intellectually insulated Freegold Fortress and discuss these critiques in a forum that is not so dominated by Groupthink. But, to each his own! One comment from the FOFOA forum that I'd like to focus on here was made by regular "JR", who is known for answering questions and/or making arguments by quoting the "founding fathers" of F-theory.
JR is very good at what he does, and his recent quotation of "Aristotle" was an interesting response to my critique that F-theory predicts a Monetary Utopia for the world – freely floating gold reserves trading parallel with unbacked, debt-based fiat currencies. The gold serves ONLY as a store of value for savers, while the fiat currencies serve as the medium of exchange. The reason I called it a Utopia is because it seeks to alleviate all of problems associated with both unbacked fiat currencies and gold-standard currencies by synthesizing the two into a new system called Freegold.
Aristotle, writing in what USA Gold has labeled "A Special Gold and Monetary Discussion" from the year 2000, made some interesting observations about the nature of perfect systems, or Utopias, and "shades of gray".
At first cut, people fall into one of two categories: 1) those who recognize the value of an honest monetary system built upon Gold, and 2) those who have not yet given any serious thought to the matter. Proceeding with the small but special population that belong to the first category, my own experience has revealed them to be inclined toward idealism. Good people, to be sure — I wish we were all that way! But while their general awareness of what makes for a more perfect world should be providing them with fuel for an enjoyable life, instead, this level of idealism often blinds many of them to any shades of gray — and there is little comfort living in a strictly black-or-white world. I write this with hope in the off-chance that it may help provide a source of comfort to this small group of idealists, offering them some subtle shades of gray that won't completely undermine their idealistic integrity.
While reaching out to my idealistic friends, I also hope to present a "roadmap of thought" for that larger, all-important population which falls into the second category mentioned above — those that have not tapped into a more thoughtful, enjoyable life which I have seen to be the general hallmark of my few Gold-minded friends (the ones who have themselves avoided the extremist idealistic trappings.) Why do I call this second category the "all-important" population? Because the Many do indeed dictate the terms under which the Few must also live. I must, therefore, grudgingly devote sufficient attention in this commentary to ensure some of the idealistic readers can see this important "shade of gray" regarding majority rule. It is my hope that they will then be prepared to pragmatically accept the terms/constraints under which this *perfect monetary system* must be designed.
In this commentary I shall attempt to clearly lay out what I feel this "perfect" monetary system to be — the *perfect* system for a consistently imperfect world, that is. I am not so bold as to think that the world of human ambition and disposition is something that can be altered to suit the perfection of our preferred (Gold coin) currency's characteristics — especially the limitations (fiscal austerity) it imposes on its users, the population at large. I therefore resolve myself (and hope you do, also) to the humble thought that our currency system as a whole might be artfully developed into a state of harmony with the world in which we do live. The present system, and all failures before it, have been as square pegs in round holes. With the system to be described, I hope to avoid any system that lends itself to the repetition of past abuses and failures.
What Aristotle is doing here is to set up a differentiation of F-theory from other TRULY idealistic theories, such as those which predict a return to a strict gold-standard that will somehow maintain economic equilibrium over time. Both advocates and critics of F-theory, such as myself, can agree that the gold-standard arguments are hyper-idealistic, and one only has to look to recent periods of history marked by a gold-standard to see why. The question is, though, whether F-theory can really be classified as being any more realistic, i.e. any more likely to occur and sustain itself.
I believe that Aristotle answers this question in the negative when he provides us a brief description of what the Freegold system will look like. That's just what I personally believe, though – you can take a look at the description below, particularly the phrases in bold, and decide for yourself what part of the Idealist-Utopian Spectrum F-theory falls on. Oh, and don't hesitate to tell us what you think!
So, what is the proper role of Gold in the monetary system architecture?
At this point, the staunchest Gold supporters are likely gnashing their teeth and forming a posse to hunt me down for a proper lynching, I'm sure. After all, I have made no bones about the need to cut Gold out of any ties whatsoever with the various national currencies. Due to inflation and deflation that naturally arise through variations in the rates of borrowing, payback, and growth of the economy, currency fluctuations lead to bank runs which are frankly too disruptive and are not to be tolerated. Fortunately, they are rendered completely meaningless under a fiat currency regime. National fiat currencies allow governments to manage their own national economies to the extent that that are able, and to take whatever efforts needed to avoid falling into those most destructive currency deflations that wreak havoc on economies.
Gold must be removed from these currencies so that governments are not tempted to manipulate its perceived value in order to give a boost to their own currency. The goal would be that sudden value shocks will be avoided because at all points in time the currencies will be fairly valued against Gold–there won't be an inevitable and recurring "day of reckoning" in which the pent-up false perceptions are unwound amid calamity and crisis of confidence. Gold must also be removed from any element of the monetary system that would seek to make loans using Gold because, as we've seen, these confound Gold's ability to reach its true physical-based fair market value. Gold derivatives must also be done away with for the same reason. Gold must remain a pure monetary asset, bought and sold and owned outright–nothing else would be allowable. National fiat currencies will ably serve the market's various needs to borrow funds…after all, that's how fiat currency is born in the first place.
Although I've seemingly cut Gold out of the monetary system, that is not the case at all. Gold qualifies as the only true money; being able to function as a unit of account, as a medium of exchange, and as a store of value. A fiat currency only meets the first two elements, but they fail as a store of value. Therefore, Gold will be be the money of savings, while national currencies will be the currency of commerce. They will all float relative to each other, and constantly seek out their proper value. Kept with special status as an independent and unlendable currency, Gold will be the ever-rising North Star of the monetary system. Central banks would be inclined to hold only Gold in reserves of any significant size–because Gold is not the liability of any other nation, and its real-world value would continue to grow over time. As said before, quantities held in other national currencies would be done only to the extent that they facilitate trade between active partners. Individuals across the Earth would also choose to hold Gold as their savings; their life's productivity forever protected from inflation and deflation, and from reliance upon another person's (or nation's) liability.
The beauty of reserving Gold as an unmanipulated monetary asset is that individual local currencies can still be "managed" by the government in whatever manner is seen befitting that specific country, without having an adverse effect on the meaningful wealth held in reserves (in the form of Gold savings) among other nations and local citizens alike. No single national currency need ever be held by another nation as a reserve currency (which "unfairly" allows the nation that issues the reserve currency to export its inflation.) However, a nation might choose to hold another's currency in a quantity simply because it makes for expedient trade.