On Money And Banking

In an exchange between Galenical and Stonepillow (your modest correspondent) on Disquis today about Texas seceding from the Union you get:

Galenical

Does the state of Texas own gold? Silver? Copper? No, it doesn’t. How liberal Austin is (the author’s main concern) is trivial compared to the problem of issuing a currency that people will believe has value and creating a banking system that people trust.

Do some research before you superciliously tap your keyboard. Texas is the only state with its own gold reserve – which it recently ordered to be removed from New York. Besides it can trade oil for gold on the international market six days a week and twice on Sunday. Third the U.S. currency is backed by no physicality at all today except the Federal government’s willingness to accept it in payment of taxes. Fourth government historically did not create the bulk of currency in circulation, instead it was issued by private banks, this is the origin of the word “banknote” and – and it’s a big and, when private banks issued currency it was sound. This is the reason the Federal Government essentially banned the practice i.e. so that it could water the currency which is where we get the continual rise in prices we call inflation, but is really the “inflation” of the money supply. There, I’ve just taught you more about banking and money supply than you’d of learned in almost any U.S. University. No thanks are necessary – I’m a public service.