E-Accountability OPINION: People with money often want their money to be used in a way that optimizes the possibility of getting more, or at least safeguarding what they already have. Therefore, they believe, every effort must be made to get politicians into elected office who support their vision. These "money is power" people approach national as well as local media and convince producers and editors that this vision for national, state and local policy is "best".

They also inform those who do not play this game that they will never be written about in the newspapers, nor will any story be broadcast on the radio or on TV (the stations are owned by the wealthy members of the political enterprise we call the "political industrial complex" or PIC). For example, reporters at the Daily News, NY POST, Newsday, and the New York Times, have told us at The E-Accountability Foundation that they will never write about any report we post because the publishers and city desk editors are friends of Mayor Michael Bloomberg. Mr. Bloomberg gives them millions of dollars in ad revenue every year.

Jill Chaifetz, Director of Advocates For Children, has told us that she will never list parentadvocates.org on her list of resources for parents because she updates their website "once a year, and as the website was just updated, there is no way we can add parentadvocates.org." (Conversation with the Editor of parentadvocates.org at City Hall, October 2004). Advocates For Children's other website, InsideSchools.org, is not an independent source of information about public schools and offers visitors to the site, similar to the Armstrong Williams payola, the "party line" promoting the NYC DOE rather than posting accurate information about public schools in New York City.

The speedy collapse of ENRON, WorldCom and other huge corporations in the recent past shows us what can happen when this "political industrial complex" is exposed. The fact is that the fraud in each case 'worked well' for those who were in power, and the process did not implode because the powerful and very wealthy people at the top were not successful. The corruption ended when someone spoke up, became a Giraffe and a whistleblower, and exposed what was going on. The mission of The E-Accountability Foundation is to expose the use of public money for private , individual gain, and to show how much of a difference a single person can make in stopping the corruption and false claims being made throughout the world, in America, and in local companies and governments. We are doing it, why not you? Betsy Combier

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Special Interests Can Be Good or Bad
But the Public Interest Is Often Better,
Stand Up For What You Think Is Right.
By Henry J. Stern, nycivic.org, April 15, 2005

LINK

One of the points that good-government types like to make is that they represent the general interest, rather than the special interests which are served by self-seekers, who are often antagonistic to reform, radicalism and redistribution. (Not to be confused with Rev. Samuel D. Burchard's ill-fated remarks in late October 1884, when, in an address to the Religious Bureau of the Republican National Committee -piety being an issue then as well as now - he said that the Democratic Party was the party of rum, Romanism and rebellion. The resulting uproar by Catholics, stoked by Tammany, is credited with securing Grover Cleveland's narrow victory in New York State over James G. Blaine and with that, the White House.)

It is not easy, however, for honest folk to determine just what is a special interest, or who expresses the general interest, or whether and, if so, when special and general interests conflict.

For example, a labor union speaks for its members and their economic interests, even when their demands conflict with taxpayers' ability to pay, or the city's ability to compete with areas with lower costs. Featherbedders who demand a day's pay for a half hour's work, at the old Coliseum or the Javits Center, give labor a bad name. Unions that are controlled by racketeers, or that pay exorbitant salaries to their officers, or take payoffs from the bosses, are similarly disreputable.

But what about the honest, decent unions, the garment workers organizing the sweatshops a century ago, fighting for fire safety after the Triangle disaster of 1911, teaching their members English, sending their children from the slums to summer camps in the country, struggling for the eight-hour day? They were a special interest as well, but they were humanitarians whom we admire today.

What about taxpayers, tenants, landlords, pensioners, veterans, welfare recipients, parents, teachers, school custodians, advocates for public spending to fight particular diseases or to serve special populations? Are they special interests? Their supporters do not represent the entire population. They support the needs of their group, and perhaps make alliances with other forces who also demand that more money be spent on their programs.

Then there are the industrialists, small businesspeople, taxpayers, economists, professors and others who seek less public spending, who want lower taxes, who worry about New York State's place in the national economy, and the hemorrhaging of jobs, downstate and particularly upstate.

Both sides employ skilled writers who disseminate the ideas of their masters, following these rubrics: Rule 8-FM, "Whose bread I eat, his song I sing." That is the keystone of the loyalty triptych. Rule 8-F is "Do not bite the hand that feeds you"; it alludes to loyalty and food. Rule 8-M is "He who pays the piper calls the tune"; it involves loyalty and music. Rule 8-FM, cited above, combines the themes of food and music in a single expression of fealty. Why are these rules numbered 8? Simple: each is expressed in eight words. Enough for today.

Are the unions who are trying to save their members' jobs at the Hotel Plaza a special interest? Yes, in a sense. Are the developers who want to fire the workers and turn the world famous hotel into condos a special interest? Certainly. Practically every civic issue - the closing of a firehouse, the siting of a marine transfer station, a radio tower, a zoning change, the building of a particular school or park, as opposed to others - may be viewed as a contest between special interests, or between special and general interests.

The landmarking process is rife with these conflicts. Whose wishes should be respected? The property owner, who may have bought the building before it was landmarked? The neighbors, who don't care if the local church is bankrupt, but want to continue receiving light and air over the roof of the low-rise structure? The zealots who worship existing buildings, even if they denounced them as ghastly when they were built? The unions seeking construction jobs even if means the demolition of the Taj Mahal? Does the workers' desire to feed their families constitute a special interest?

On the other hand, if you are looking for a real special interest, consider the politicians who keep the New York State election laws so rigid and baffling that they stand as artificial, expensive barriers to public participation in free elections. The incumbents' narrow, self-serving desires clearly work against the public interest in open, competitive elections in what is supposed to be a democracy (a Greek word which means that the people rule).

Instead, these highly detailed and technical laws, along with rotten districts, maintain the oligarchy of perennials who populate Albany until they die or go to jail. Why doesn't the activist Court of Appeals do something about this outrage, since it has already taken license to mandate the expenditures of tens of billions of dollars no one has raised, without providing any reasonable plan for the nonexistent funds to be spent effectively?

We conclude that most organized interests are special, in the sense that they are supported by a particular group which would receive benefits if their advocacy succeeds. Special interests are not intrinsically bad or good. One weighs their merits on the basis of how their demands support or conflict with one's view of the more general public interest.

But just what does the general public interest require? High taxes or low taxes? An enhanced level of public services or a lower, more affordable level? Specifically, a cop on every corner, or on every other corner? Park lawns mowed once a week or once a month? Fire response times of six minutes or eight minutes? Garbage pick up every other day or every week? How much does it cost to provide the higher service levels, who will benefit from it and who will be asked to pay for it?

One thing most people believe (although not some public officials) is that there is some waste in government, and that more energy and intelligence should be devoted to eliminating it. There is no discernible special interest that supports waste for its own sake, at least publicly. But there are interests that protect jobs even if they are redundant. Attempts to reduce expenditures are denounced as "balancing the budget on the backs of the workers."

Under this trope, people are called workers whether or not they actually work. Granted that most do, but the immunity from discipline that many grasshoppers enjoy has a dispiriting effect on the ants. The point of Aesop's fable is that if one does not work, one does not enjoy the benefits of work (in this case, food for the winter). The ant labors, not only for reward, but because he is biologically programmed to do so. In public service, however, the grasshopper is fed as well as the ant - better if he has seniority. Sooner or later, grasshoppers are likely to dominate the workplace, in an industrial version of Gresham's Law: "bad money drives out good."

In politics, one must make judgments. Crooks side with the people who are paying them off with money. When the payoff is votes, the moral judgment is more complex. After all, isn't democracy supposed to reflect the will of the people? And if a decision is popular, is it necessarily wrong? My own standard, often applied when I was at Parks and on the City Council, was this: "In the end, they will throw you out. They already have. They will again. I am unlikely to postpone that day by equivocation, rationalization, or surrender of principle. When it comes, and it will, I want to know that I did the right thing whenever I possibly could."

Alex Rose (1898-1976), the late, beloved leader of the Liberal Party, told me once, "Always nominate the best candidate you can find. If you lose, most people will say you did what was right. If you win, they will say that you are a genius."

Today, the right thing is not as clear as it was generations ago, when the enemies of justice and fairness were racketeers and, to some extent, Communists. But those forces have their successors today. The good guys may not be as clearly defined as once they were. To paraphrase Secretary of Defense Rumsfeld, who said so inartfully in Iraq, "You fight with the army you have," today one relies on people of good will who are less motivated by personal ambition than by the public interest. There are only so many of them.

We know that ideas vary as to what is the public interest, but there are core values of honesty, integrity and fairness. We can compare those values with special interests, which can be good or bad, more likely of intermediate value, but principally motivated by the needs and demands of interested parties. The public interest tries to represent those who are not directly involved in a case, but will be affected by its outcome, even if they are unaware of it.

From the Editor: We believe we can replace the use of "coins" for "politicians" in the description of Gresham's Law below, and thereby obtain a clear understanding of 'good' and 'bad' politics and how "bad politicians drive good politicians out of circulation, or political office" (as in, "pay-for-play" and "there is only room in government for the select few")

Good and Bad Money
Gresham's Law
George Selgin, University of Georgia

Introduction

The proposition known as "Gresham's Law" is often stated baldly as "bad money drives good money out of circulation." Ancient and medieval references to this tendency were informed by circumstances in which lightened, debased, or worn coins had assigned to them the same official value as coins containing greater quantities of precious metal. In this context the tendency, which had yet to be elevated to the status of an economic "law," was one in which "bad" coins alone, that is, coins possessing a relatively low metallic content ("intrinsic value"), continued to be offered in routine payments, while "good" coins were withdrawn into hoards, exported, or reduced through clipping or "sweating" (that is, purposeful erosion by chemical or mechanical means) to an intrinsic value no greater than that possessed by their "bad" counterparts...

Later writers, however, tended to stretch the meaning of Gresham's Law by invoking it as an argument against bimetallism and the competitive production of money and as the reason for the historical substitution of paper for metallic moneys; and a recent work even goes so far as to treat the law as being nothing more than an instance of the rule that rational agents prefer less expensive means of accomplishing their ends to dearer ones. As we shall see, although some modern interpretations of Gresham's Law can be regarded as legitimate extensions of the law's original (and perfectly valid) meaning, others are entirely unwarranted. Indeed, inappropriate applications of Gresham's Law have caused some economists to err in the opposite direction, by jumping to the conclusion that, because in these applications the law appears to be contradicted by available empirical evidence, it must be altogether fallacious.

Extensions to Paper Money and Bimetallism

To observe that Gresham's Law originally referred to circumstances where both good and bad coins of the same metal were awarded similar, substantial legal tender status is not to deny that the law may have other applications as well. Thus, legal tender laws may also attempt to compel people to treat coins of different metals, or coins and paper notes, as equivalents, unintentionally driving the more esteemed form of money into hiding. When, for example, the Continental Congress resolved in 1775 to treat any person refusing to accept irredeemable continental bills at their declared (specie) value as "an enemy of this country," it merely succeeded it putting a stop to any open trading of specie. The French Revolutionary government's decision to sentence to death persons caught discounting assignats relative to coins bearing the same face value had a similar effect. To describe such episodes as instances of Gresham's Law at work is to propose a perfectly valid and sensible extension of the law's original meaning. To insist, on the other hand (as Robert Mundell, among others, does), that Gresham's Law also accounts for the historical tendency of redeemable banknotes, lacking legal tender status, to take the place of gold or silver coin is to misapply and misunderstand the law, in so far as the redeemable notes must have been regarded by their holders and by others who accepted them, not as "bad" money, but as money that was just as "good" as the coins into which they were readily converted. Properly understood, Gresham's Law refers to an unintended consequence of legislation the intention of which is to force people to treat a money they view as inferior as if it were not so. The law is not, as Mundell (1998) asserts, simply an instance of the general (free-market) tendency for lower-cost substitutes to replace dearer ones capable of accomplishing the same ends!

...The tendency just described is, however, limited by the fact that coins of different metals are unlikely to be equally useful in different transactions. In particular, gold coins will generally be of larger denominations and as such cannot supply the need for smaller change (cf. Sargent and Velde 2002). Consequently, even though gold may be legally overvalued relative to silver, and silver may cease to be voluntarily rendered to the mint, silver coins are unlikely to disappear from circulation altogether. Instead, they may circulate at a premium; alternatively, they may be clipped or sweated by private agents until their metallic value no longer exceeds their face value, as happened in Britain during the eighteenth century. Here and in some other bimetallic episodes Gresham's Law held in its narrowest sense, in that reduced coins made of undervalued metal systematically took the place of full-bodied coins of that same metal. But the law did not hold strictly in the version of it proposed by some critics of bimetallism, in that gold and silver coins continued to circulate together.

A Fallacy?

While many writers have abused Gresham's Law by treating it as being more generally valid than is in fact the case, Arthur Rolnick and Warren Weber (1986) err in the opposite direction in calling the law a "fallacy." Their argument draws on examples involving either bimetallic legislation or the introduction of paper substitutes for gold or silver coin but not, significantly, on episodes involving debasement, to which all early statements of Gresham's Law refer. With respect to bimetallism, Rolnick and Weber claim that conventional appeals to Gresham's Law are based on the untenable assumption that government and private agents actually offer to exchange gold for silver and vice versa at some official non-market rate. Such a policy, they observe, "would imply potentially unbounded profits for currency traders at the expense of a very ephemeral mint or a very naive public" (ibid, p. 186). But this reading of conventional arguments is far-fetched: the operation of Gresham's Law depends, not on persons actually offering to trade moneys having distinct "intrinsic" values at officially declared exchange rates, but on their being subject to sanctions if they attempt to value the moneys otherwise than as prescribed by law. The disappearance of "good" money occurs, if it occurs at all, as the unintended consequence of laws that seek, often quite futilely, to force people to treat differently valued moneys equally. Moreover, the idea that mints might offer to exchange gold for silver at official rates (as implied by the separate mint prices for those metals) is a perfect fiction that no proponent of Gresham's Law has ever entertained.

A distinct component of Rolnick and Weber's critique holds that, where both good and bad moneys are available, the good money, instead of disappearing from circulation, will tend to remain in circulation while trading at a premium; alternatively, the bad money may trade at a discount, with the good money serving as the medium of account at hence trading at par. Small change may be an exception to this rule, as it may be prohibitively costly to employ such change at other than its par value. Nevertheless, even with respect to small change Rolnick and Weber regard Gresham's Law as fallacious, since, according to their view, the small change that disappears from circulation might be either "good" or "bad" money, depending upon which of these happens to be the medium of account.

In support of their argument Rolnick and Weber offer empirical evidence of bad and good moneys circulating together at market-determined exchange rates, including the case of California during the Greenback era, where the gold standard remained in effect, with greenbacks trading at a discount relative to gold. But while such evidence may demonstrate that Gresham's Law isn't universally applicable, it hardly succeeds in proving the law a fallacy. As has been noted above, Gresham's Law, properly understood, applies only to circumstances where people are legally compelled to accept both good and bad moneys at their par or face values, either in spot transactions or in the settlement of debts. Where legal sanctions play no role (as was the case in California, where local authorities refused to enforce Federal legal tender legislation), market-based transactions costs alone may discourage the use of non-par money. However, because market-based transaction costs might systematically favor either good or bad money, depending upon which happens to function as a medium of account, such costs alone cannot account for the overwhelming number of historical instances in which bad money does in fact appear to have taken the place of good.

References and Further Reading
Fetter, Frank W. "Some Neglected Aspects of Gresham's Law." Quarterly Journal of Economics 46, no. 3 (1932): 480-95.

Giffen, Robert. "The Gresham Law." Economic Journal 1, no. 2 (1891): 304-6.

Jevons, William Stanley. Money and the Mechanism of Exchange. New York: D. Appleton and Company, 1882.

Macleod, Henry Dunning. Elements of Political Economy. London: Longmans, Green & Co., 1858.

Mundell, Robert. "Uses and Abuses of Gresham's Law in the History of Money." Zagreb Journal of Economics 2, no. 2 (1998): 3-38. (http://www.columbia.edu/~ram15/grash.html).

Rolnick, Arthur J., and Warren E. Weber. "Gresham's Law or Gresham's Fallacy?" Journal of Political Economy 94, no. 1 (1986): 185-99.

Sargent, Thomas, and Françcois Velde, The Big Problem of Small Change. Princeton, NJ: Princeton University Press, 2002.

Selgin, George. "Salvaging Gresham's Law: The Good, the Bad, and the Illegal." Journal of Money, Credit, and Banking 28, no. 4 (1996): 637-49.

Spencer, Herbert. Social Statics. London: John Chapman, 1851.

Summers, Brian. "Private Coinage in America."

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