John Zube, 7 Oxley St., Berrima, NSW 2577 4 May 88 Kevin Dowd, Lecturer in Economics, Crookesmoor Building, Conduit Rd., Sheffield S10 1FL, U.K. Dear Kevin, thanks for your letter of April 23rd. and 3 enclosures which arrived ysterday. I intend to reproduce your 3 papers on one of my next monetary freedom microfiche. Together with some other titles you quote in them, and to the extent that they could all be reproduced without copyrights hassles, they would probably come close to filling a special fiche. The two papers on option notes are the best that I have seen on the subject. The verbal reasoning appears to be to be quite sound. The mathematical ones are beyond me, since I did not go beyond the mathematics required for the German leaving certificate back in 1951. Deposit insurance : If only the government went out of the way then there would e.g. be competing deposit or credit insurance schemes and they might also insist upon sounder practices than have too often prevailed: Instead of the fiction, that both sides more or less realize as fiction and that is nevertheless ignored by the instant repayment promise and expectation, bank bonds, especially gold clause bonds, preferably of bearer bond type, and fixed deposit certificates could large be used as equivalents to medium and long term loans made by the bank, eliminating the term risk and leaving only the ordinary risks of bad debtors and government-caused deflations. While market interest rates are rather fluctuating, fluctuating interest rates could also be offered to depositors - like it is being done e.g. with the Redifund by the Berrima District Credit Union. Short or longer notice periods could be agreed upon and maximum withdrawal amounts per day. The part-deregulation of banking here has lead to a number of such options. There is probably no limit to the different contract arrangements that could be made and that would still be fair to both sides and would eliminate the sudden cash demand risk by no longer promising it as completely and as unnecessarily as has been done, largely, possibly, as a carry-over from the gold convertibility notions. Beckerath wanted the legal claim of creditors to payment in an exclusive currency abolished altogether and replaced by a claim to clearing only, in as technically perfect a form as can be arranged. Naturally, private contracts to deliver particular exclusive currencies in fixed quantities and at fixed dates could continue but even there, wise parties would agree upon withdrawal premiums, like they were once common in futures tradings, since basically a dealing in futures would be involved here, with currency or funds instead of goods. According to him, bankruptcy proceedings should only be started once all possibilities for clearing are exhausted. That would also presume the possibility of opting out of the bankruptcy proceedings of the state and would also deny the rightfulness and usefulness to both parties of the claim of wage and salary earners to the : "coin of the realm", which presumes that the exclusive and forced currency circulation and credit facilities would always up to this huge and frequent demand. We find ourselves in the same situation regarding our references. Each has not yet fully listed which titles he has and which ones he still wants. But we could proceed in manageable steps and stages. Moreover, I do intend to visit the U.S., the U.K. and Germay by the end of this year or the beginning of the next and would try to look through your files on this subject then. By then I might also have updated my bibliography and search list. ( In PP 647 I usually mentioned what I had then and was looking for. ) Like you, I find copying time consuming and have too many of such and other jobs on hand. One of the many reasons, why I got and remain involved with microfiche publishing is that instead of diverse people photocopying the same rare texts at different times and places over and over again, at a combined huge costs, a single excellent photocopy that is microfiched and duplicated, could satisfy the present and future demand for copies of multiple page writings much cheaper and easier. Will you be taking all your files along or might they become inaccessible storage for a few years? ( That happened even to Hayek and for many years he didn't have a bi-lingual secretary, either. ) My travelling funds are very limited and I will have to attempt to scrounce temporary accommodation with friends or correspondents rather than pay hotel charges, which I would rather invest in more microfiche. Universities sometimes offer cheap student accommodation- if one manages to arrive between terms. Regarding the remaining Meulen correspondence, among his many correspondents, an international appeal ought to be launched to make it available in good photocopies, for filming or publishing or xeroxing. Meulen himself destroyed most of his part under the false assumption that its essence would have been fully reflected in THE INDIVIDUALIST. I was just waiting for a few more missing copies of the 1961-1975 set of THE INDIVIDUALIST, to put them out on fiche, together with some more of my correspondence with him and that of Sagehorn. However, I have still not been able to get them, in spite of many tries. Sagehorn thinks he has sent me his copies but I received only his correspondence with M and he is now getting impatient for me to get it on film, too. Beckerath had corresponded with Meulen for decades but only the post 1943 segment of it was not burned and I will try again to copy it on my next trip to Berlin. ( I made 3 tries before, 1980,1984 and 1986 but something always intervened.) I'm looking forward to the "several other articles" that you will be sending under separate cover, once you get around to photocopying them. Sending them by ship mail will suffice and save postage. Goldsmiths : You will have to march in with proof on the expiry of copyrights, while this librarian, all too conscious or afraid about legal copyrights, is in charge. I am gradually building up a file of death dates for relevant authors for such purposes. All too often they are not mentioned in the ordinary guides. The notion that a compensation is due when convertibility in gold is not full and immediate, is still based on the notion of convertibility as a right and as a duty. While it may be a contractual one, leading to a contract fine in case of breach, I would deny to claim to "compensation" as a moral claim. The real cover for the notes consists, according to the better versions of the banking theory in the short term obligations of the debtors of the bank, upon the security of which the notes where issued. These debt papers or debit accounts of the borrowers of the bank, in the possession of the bank, should form the exact equivalent to the note issue and lead to a constant liquidation of the note issue by the notes being returned to pay these debts. The notes may be considered only as conveniently standardized and denominated segments of these bills of exchange etc, which can circulate easier and are by acceptance through the bank also "insured". Thel early Swedish name, "transport tickets", was suitable. The bank is, naturally, under a moral obligation not to fully or partly repudiate its own notes, i.e. to accept them at any time at par in all payments due to it. This kind of economically essential "cover" could be contractually widened by the bank contracting with all its debtors that they, in turn, accept the notes of the bank at par, at any time, in payments due to them. This could be limited only to the extent that their debt instalments are due or nearly due or it could, contractually, go beyond this limitation. Thus an immediate acceptance circle could be esablished, within which notes would be accepted at par with gold weight values, at any time, which would exceed, with its demand or readiness to accept foundation, the total of the notes of the issuing bank that are in circulation. This circle would act like a vacuum cleaner, especially once the notes for some reason or the other would get a small discount outside that circle. As a rule it would preserve the value of the notes at par with gold coins. And this would mean that full convertibility for the note holder into gold would be obtainable, if he wants it, at any sales point of the free gold market in the bank's district. Compared with this, the one point convertibility into gold, offered by an issuing bank, is inferior. It is also unnecessary. And in case of a depreciation of the notes outside this circle, within it, it would still be accepted by all its participants "as good as gold". One could even argue the possibility and the occasional occurrence of a discount, outside of the the circle of those obliged to accept at par, is a necessary or helpful part of a free monetary system, in the same way as bargain or clearance prices are a necessary or helpful part of the marketing of some goods. In other words, "compensation" is not required as long as the bank assures a) that its notes can be converted on the gold market at par, b) that it will continue to accept them at par with their gold value in all paments due to it and c) that its debtors will do likewise ( based upon a contract with the bank ). Never start a man on his hobby horse. Beckerath did disagree with Meulen on this and on the fluctuating versus fixed gold price in Meulen's scheme of things. B. had, I believe, the better points but they did not penetrate into Meulen's mind in spite of prolonged efforts. Even when M. temporarily conceded a point, he always relapsed back into his old way of thinking. B. claimed, for instance, that he converted M. several times against Malthusianism - only to find him expousing such ideas again, a while later. It happens all too often that a persons major opinions are no longer subject to change after he his 25-35, no matter how great that person and his ideas may otherwise be. Naturally, there might also come into existence, at least temporarily, banks on the Meulen scheme which would actually try to establish a paper standard and redeem it only in fluctuating weights of gold. To the extent that they would find takers, no wrong would be done to them. Fluctuations on the gold market will be much reduced without the interventions of monetary despotism and the legal claim of creditors to demand payment in gold. But people should be free to contract away from whatever they consider to be too much dependence upon gold weight units that might still remain thereafter. Not only the Option Note alternative to full and immediate convertibility of notes and the granting of an exclusive currency status to such notes should be fu[lly discussed but all other options, too. It is not only immediate or deferred convertibility at the issuer's offices which can give notes a gold weight value but ANY DEMAND for particular notes will contribute to their value and if that demand is corresponding to or even exceeding their circulation, through readiness to accept them, as good as gold, daily, widely in a district, then the issuer would not need any gold redemption fund at all and need not promise such a redemption at all. All gold convertibility required or wanted in that district could then be satisfied on the free gold market. And gold weight units could still be used as clearing and accounting units in the whole district, even though, in the extreme case, not a single gold coin or bullion bar might temporarily exist in the district. Trade could go on as before and even expand without it, due to increased productivity. The very notion that all trade should be confined to that volume for which immediate or deferred gold payment claims can be provided, amounts to a non sequitur, under which mankind has suffered for all too long. Gold should or could go on playing its large role as the best standard of value known, as our meter standard, to use an analogy, but the quantity of exchange media and of exchanges should no longer be determined by its quantity. The size and value of the meter standard in Paris is not diminished, either, by uncounted copies, out of cheaper materials, made from it, accurately enough measuring enormously larger goods values than the platinum value of the original meter stick. Meulen, like most modern monetary economists, never separated the value standard function sufficiently from the exchange media function. He has all too little to say on the role of legal tender and of exclusive currency, which combines the two and on the free market rate alternative for both, exchange media and value standards, both subject to free choices, free contracts, free rating against others on a free market for currencies and value standards. As Dr. Walter Zander, London, well in his eighties, told me 1984 : All monetary freedom theories are lastly based on the clear theoretical and practical distinction between value standards and exchange media, or on ending their compulsory marriage, leaving only free contract relationships between them and free choice and free market rating. He may still be alive but is close to blind and no longer very active. I am still trying to get his article in defence of the traditional Chinese "tael" standard against the modern statist currency reformers. It was written, I believe, in a Shanghai paper in the early thirties. Beckerath expected gold weight units to be soon most widely but not exclusively accepted as the "least evil", at least until a still better standard became widely enough known, if it could be discovered or constructed. Is there a risk of over-issues when the issuer does not have to offer immediate or deferred convertibility? Firstly, the bank would have difficulties in finding more acceptors for its notes if they had depreciated through over-issues. As a rule they would be refused in favour of sounder notes. Potential new debtors would hardly be willing to accept them at par if they cannot pass them on to others at par. But they could immediately turn around to the bank and force it to accept its notes at par. Assume the discount is 5% and I were to borrow from you, as a bank, $ 1000. I would accept your notes only at 5% discount and would thus want to be paid in your depreciated notes $ 1050. Then I could become nasty and turn around, pay you back $ 1000, which you would have to accept at their face value and would thus be $ 50 better off, less their 5% discount on the free market. I said above that the debtors should be obliged to accept at par, too. But with new debtors this would imply a readiness of them to engage in this kind of contract. They would rather hesitate and here is one of the limits to over issues. In other words, even Option Notes should not be legally compulsory and the only option, although, undoubted by you and me, they are preferable to the exclusive full convertibility notes. I consider your articles as important "clouts" against claims by gold bug reformers like Rothbard, whom I do highly appreciate in many other respects. To be forced to take one's own IOU notes in payment at any time and at par with their nominal gold weight value, is all the enforcement of contracts that is required to keep one's notes at par, provided only the isuing centre is a payment and clearing centre like a bank or a shopping centre or large department store etc. etc., and sound issue techniques were applied, i.e. no mortgages, other longer term securities or unsold and stockpiled or warehoused goods or other capital values are accepted as "cover" for notes issues. The immediate cover required for currency is merely "shop-foundation" or "readiness to accept" foundation for gods and services in daily demand. According to experience, these can be electricity or petral supplies or railway services. Any fall in the free market rate against gold weight units would bring such notes streaming back where they finally belong anyhow, to the issuer, in a run. And woe to the issuer of he could not redeem them with his goods and services, at the nominal value of the notes. However, he would rarely get into such a difficulty, since in most cases he would have difficulties in launching, at par, in form of his notes, a total amount coming to more than a fraction of the total goods and service cover that he could provide in goods and services that are in daily demand. In your papers you might have mentioned that Meulen's Free Banking, 1934, was only the second edition, retitled, of his 1917 work Industrial Justice through Banking Reform and that even this was only an elaboration of ideas that he had publicized previously, e.g. 1909 in Banking and the Social Problem, 16pp, in my PP 320 and in PP 561. And as a minor beauty spot, your secretary persistently wrote "dual" instead of "duel". Of your references in your paper Discussion Series No. 88.1 (Option Clauses and Banknote Covnertibility), I'd still like to obtain : King, Robert G., 1983, On the Economics of Private Money, JoME,12,127-158 and White, Lawrence H., 1987, Accounting for Non-interest-bearing Currency: A Critique of the Legal Restrictions Theorie of Money, JoMCaB,448-56. However, I might be able to copy them in Sydney or Canberra and since they are somewhat accessible and I cannot simply proceed to film them, I find them less urgent to acquire. Furthermore, I have long tried in vain to get Sir Walter Scott's defence of Scottish free banking. In your Discussion Paper No. 87.5 ( Option Clauses and the Stability of a Laissez Faire Monetary System, you mention you essays : 1987 : Automatic Stabilizing Mechanisms Under Free Banking, Money and Finance Project Discussion Paper No. 87.4. I would like that one, too, for microfilming. Furthermore : White, L.H., 1986, Accounting for Non-Interest-Bering Currency: A Critique of the 'Legal Restrictions" Theory of Money", mimeo, N.Y. Univ., Selgin, G.A. and L.H. White, 1986, "The Evolution of a Free Banking System", mimeo, N.Y. Univ. ( I would love to film these, too, if I could get permission for this without hassles. In case you are writing to them, you might mention this. I am only interested in non-exclusive and revocable permission for microfiching in my series. Mimeos are so often hard to obtain shortly after being issued in a few copies. As a general guide : If you come across relatively short fb articles and photocopy them anyhow and think that they could and should be included in my series, make a second copy for me and send them occasionally along, in batches, by ordinary mail. I could send you in exchange fiche from my series. Some of my correspondence with Meulen on human rights is contained in PP 589/590. Enclosures : NL1&2, PP 561, Me a Publisher? ( Please do consider producing some monetary freedom microfiche yourself, from your own files. Reading machines are easily accessible in university libraries. ) PIOT, John.