“The global paper standard has lasted 40 years but evidence is accumulating daily that its endgame is now fast approaching. The world economy is caught in a deepening financial crisis caused by excessive levels of debt, severe asset price bubbles and overextended banks—all imbalances that are the direct consequence of four decades of unprecedented fiat money creation, of artificially low interest rates and of “lender-of-last-resort” central banking. Monetary policy today—whether by the U.S. Federal Reserve, the ECB or the Bank of Japan—is not much more than an increasingly desperate attempt to postpone via super-low interest rates and periodic debt monetization the painful but unavoidable liquidation of these imbalances. This will not only ultimately prove futile, but will lead to a complete currency catastrophe if pursued further.”
– Detlev Schlichter, writing in the Wall Street Journal. The fact that he is now gigging at the mighty WSJ is, of itself, a great thing.
Update: today is the 40th anniversary of Richard Nixon’s decision to kill off the link between the dollar and gold, although in reality the old gold standard had been dead for much longer.
It is very hard to see a way out.
Clearly there is no political will in Brussels, London or Washington to actually confront the reality of the situation, so I am increasingly of the view that the more extreme nightmare scenarios of global economic Armageddon are starting to look increasingly plausible.
Money is (in my view) one of the the greatest evils the world has ever known. The modern concept of money is little better than an attempt to cartelise the concept of value.
For millennia men have traded in things of value. This is a naturally occurring phenomena.
What modern money does is far more insidious. They declare that their “commodity” is the only legal store of value and then require you to use it. That is tyrannical.
I do not agree with most libertarians that taxation is inherently theft. However, an enforced monopoly is.
Let us suppose I create a new valuable commodity for people to trade with: “Jaded Bux”. Perhaps I might require a share of those same Bux every time someone conducted a trade. That in and of itself would be fine, as it was my commodity to impose what conditions I will.
What about if I then required people to use that commodity under threat of force, and still demanded my tithe?
That is where modern money falls down and becomes evil in my view. A tax paid on a commodity simply indicates the sovereign rights over a made thing reside with the manufacturer. A tax that you have to pay in that same commodity, whether you wish to use it or not, indicates sovereign rights over you reside with the state.
As my dad always says “If you plant a bitter root, you get a bitter fruit”. State backed currencies whose usage is enforced with threat are an inherently bad idea.
The current fiscal collapse is just the latest in a long line of bad things this evil concept has visited upon us.
The state wants to funnel all commerce through their currency to legitimise their skimming of the population’s wealth. If they had to physically go and take 60% of the average family’s livestock, food, fuel and jewellery they would find the population much less compliant.
But hide it behind a single commodity, and only take little bits here and there (25% off income tax, 20% from VAT and so on) and the great con can succeed.
Jaded, I’m afraid I do not understand your point: are you saying that taxes are essentially fees levied on the use of a particular currency? To me that would be a very strange interpretation.
Alissa,
I’m saying that taxes are used as a way of extracting a share of the population’s property, but are done through the mechanism of a particular currency in order to obscure this fact.
I’m also making the point that to demand a share of the Queen’s Sterling you hold would be legitimate, since no one could deny it belongs to her. What is not legitimate is to demand you pay X amount of Sterling whether you hold any or not – and indeed to forbid the use of currencies the Queen does not control.
OK, but you also said that you do not share the view that taxes are necessarily theft – what do you mean by that, and how is that statement connected to this, if at all? (not agreeing or disagreeing, just asking).
A tax is not necessarily theft if it is consensual.
Paypal fees would be an example of this – you understand that by using the paypal medium there will be a particular proportion of the transaction to be paid in fees.
However, take my father. He is a widower. He refuses all state benefits. Each month the council demands £100 pounds from him for council tax. This is a very large sum to him. He is not given the option to say “but I don’t have any £ with which to pay you” or given the option to pay in chickens or firewood. The system legally requires him to use British Currency in order to pay off the council, since they will not accept payment in any other form and will throw you in jail if you do not comply.
Since they do not let you shop around and use a different fiscal system (perhaps one with less punitive tariffs) my point is that it is not the “taxes” themselves that are evil but that they legally require you to use the system in which they arise.
I’m aware this is not necessarily the characterisation of “money” the statists themselves would use. However, this is the way I see it. Money is a centrally controlled commodity with a great many punitive conditions attached to it, and you are forbidden from shopping around for a better deal.
Jaded: taxes are by definition different from fees levied by private companies such as PP – an essential part of that definition being that taxes, as well as services supposedly provided in return, are not optional.
The state-appropriated monopoly on currency is of course a very serious problem (duh), but a separate one – our inability to pay taxes in any commodity other than said currency is merely one of the means by which that monopoly is maintained.
My point is that taxes themselves are evil (some say a necessary one). The requirement to use the system in which they arise just adds insult to the injury (plus some additional injuries, but it’s well past bed time now…)
While there is no doubt that the world economy is currently facing some serious problems, many of which have been faciliated by fiat currency, the notion that the ‘end of the world is neigh’ is ridiculous and should be resisted. Quite frankly it is beneath libertarians, who usually pride themselves on dispassionate empiricism. This guy Detlev makes a number of statements with which I could happily agree, and then leaps to a ‘starkey-esk’ attention grabbing conclusion. Economic wealth and growth is firmly linked to technological progress and whilst governments may do their damndest to steal our wealth through tax or inflation, in most circumstances material wealth continues to improve despite their efforts.
I think we’re broadly agreeing Alisa, just using slightly different language.
The way I see it is that the government is a service provider, and their taxes are their fees. What makes them “special” is that they do not allow you to take your business elsewhere.
When you say taxes you seem to mean this specific case of the government corporation that does not allow competitors – forcing you to buy their product whether you want to or not.
I was using the word taxes interchangeably with “fees”, by which I mean there is nothing immoral about charging for something you made and own. The immorality comes from coercing people into “buying” something they do not want.
The government is just a vast, badly run cartel that does not allow competitors. I’d have no problem with it if I were allowed to take my business elsewhere.
Of course, then it wouldn’t be a government.
Perhaps I allowed my own internal “cartel metaphor” for government to obscure my meaning.
I agree with PeterT.
It maybe that the end of Euro is nigh, but the end of fiat currency isn’t. That’s true whether we like it or not.
Well it is true, until it is not true. Are you saying fiat currency is now a necessary part of the human condition for all time? Will that be true even if we have a global ‘Weimar’ moment because for a critical mass of states it has become structurally impossible to reform their ever greater propensities to just print more and more of the stuff?
I am not certain global melt down is absolutely inevitable but I see no sign *any* of the major players in this potential global nosedive are doing ANY of the things needed to avert it.
Provided that states do not make gold illegal (which they might in extremis), then might there be the possibility that the hard landing can be somewhat softened by individual players in the market voluntarily adopting gold-based contracts prior to the end game? See also this.
I’m puzzled by the reverence for the gold standard in some libertarian circles. Isn’t it just another way of the state fixing the value of money and interfering in free trade?
Every currency pegged and officials in their wisdom deciding what the peg should be and when and how it should move? State wealth directly tied to control of certain natural resources? Neither is something that strikes me as desirable.
There are practical difficulties with clearing, and a satisfactory definition of valid legal tender/payment, but is it not more consistent with free market principles to look to competing circulating fiduciary issue?
Jaded, money is one of the greatest things man has ever known. As a medium of exchange, it allows, unlike barter, a massive division of labour. Fairly basic, really. The problem is not money, but government abuse of said.
I really do wonder about people who call themselves “libertarians” sometimes!
Guy, your puzzlement is puzzling. The correct word is not “reverence”, really. Apart from some “gold-bugs”, most argue that in a free market of banking and absent legal tender laws, the market would tend to favour monetary systems referenced against real assets of some kind. For reasons too familiar for me to need to spell out, gold, and to a lesser extent, silver, have performed these functions relatively well.
The pre-WW1 gold standard worked tolerably well but the disruptions of WW1 rent it asunder. And of course some populist politicians found it convenient to bash the “barbarous relic”, as Keynes called it, because its disciplines thwarted their expansionist plans.
It is not always a good rule, but you can generally judge a person’s economic wisdom quite well by how they react to encountering the case for gold-backed money. Although some gold-bugs are a bit nutty on certain issues, I generally find their instincts on the economics to be sound.
The idea that money is worth whatever a central bank monopoly says it is ought, when you think about it for 30 seconds, to be absurd. The wonder is that fiat money systems last as long as they have.
Guy, gold id not the issue- paper money is! Gold used to be the backing, so we want to go back to that standard. but if you can make a case for platinum, good luck to you! Just so long as the states can’t manipulate money as they want to do with paper ‘fiat’ money.
Well, Jaded, the language police says you can’t do that:-) Seriously, there is a reason why we have separate words for taxes and fees – it’s because they are entirely different in concept (one being compulsory, the other voluntary). I’m usually with Brian on not being anal about language and allowing for flexibility, but this interchangeable use of the two words only needlessly confuses the underlying issue. I do agree that you and I are probably in no disagreement otherwise.
I support free banking using a commodity (such as gold) as base money. I think George Selgin and Steve Horwitz have made a compelling case for this:
http://www.freebanking.org/
My point here though is that apart from the euro the other major fiat currencies are most definitely not falling apart. Inflation is reasonably low by historical standards in the US and UK.
Growth is poor certainly, but low growth doesn’t make the public lose faith in money (it can make the public lose faith in state). People lose faith in money when it fails to hold it’s value.
Current:
Um, $$$???
Jaded, money is one of the greatest things man has ever known. As a medium of exchange, it allows, unlike barter, a massive division of labour. Fairly basic, really. The problem is not money, but government abuse of said.
I really do wonder about people who call themselves “libertarians” sometimes!
Jonathan if you read my comment you will find my reasoning. The modern concept of {fiat} money is used as a mechanism of control, as a means of forcibly extracting property from the population and as a means of compelling otherwise free men to be “productive” for the government by requiring them to pay taxes in money.
None of this was possible (or at least as easy) in a pre-money society. Keeping a track of barter transactions would not fit on a HMRC tax return.
Division of labour was still possible using gold or other valuable goods as the agreed mechanism of exchange.
Of course, again we’re using “money” is a strange way. Money these days means something of absolutely no inherent worth that everyone must nonetheless have, whose value is set by a cartel who have shown themselves hostile to free trade and it is thus extremely susceptible to changing in value for the worse.
But I agree a commonly agreed store of value has its uses, but I don’t think the legally enforced and controlled Pounds Sterling does a good job of that.
I think the world would get very interesting if the money you used was itself subject to free market conditions. For one thing, it would become very difficult indeed for the government to track your earnings and thus require you to pay taxes.
The whole corrupt system rests on these pitiful currencies. Without them the house of cards collapses.
No, it does not – but inflation does, as anyone looking at current commodities prices will see.
Inflation is only a symptom which can often be ameliorated through a generous use of makeup – the real issue is money supply, and I’m sure you can look up the latest numbers yourself.
Jaded, that was the case until only a couple of centuries ago. Apparently, some (French?) rulers decided that the world was not interesting enough…
One last point:
In feudal times the King’s factors would come into your home, pick the fattest, healthiest looking cow and take it away. They would justify this because the King’s power was supreme and you owed him tribute. Anyone who disagreed would be evicted, their home burned down and possibly worse.
The people perhaps put up with this, but they did not love the king for it. They called him a tyrant in their hearts.
Nowadays, the King’s factors send you a tax bill that requires you to go out and sell your fattest, healthiest looking cow to pay them off. Those who refuse will be evicted, their property seized and quite possibly worse.
And yet, the majority of citizens support the state and taxation. At most they might wish they didn’t take quite so much. But the spirit of rebellion has been squashed.
Somehow using “money” makes it OK in the
Here. Still, I do seem to recall that the French were the first, but I could be wrong.
Jaded, maybe we are slightly talking past each other. I support the notion of “hard money”, but I have no specific preference for any type of system so long as it is one operating in a free market with no state laws forcing people to accept as legal tender something they distrust.
Politicians are understandably terrified of what would happen if, say, you or I had the liberty to only accept payments of money we trusted. They’d be comprehensively fucked.
To put it in non-technical terms.
the real issue is money supply, and I’m sure you can look up the latest numbers yourself.
No it isn’t.
What concerns consumers is the prices of goods and services, the “price level”. The money supply is a matter for economists, it doesn’t have any direct bearing on the problem. Neither does the ratio of base money to money-substitutes, or the ratio of reserves to money supply.
Let us say that people support a government fiat money system (rather than commodity money, as freely chosen by people in their private contract).
We can all still agree that yet further “monetary stimulus” (producing yet more government fiat money) would break the economy – assumeing it is not broken already (which it may well be) setting off a final boom-bust in an economy whose back is almost broken (if not already broken) now.
Rick Perry has been taking a lot of heat for saying that if the Federal Reserve Chairman followed a policy of producing yet more monetary expansion (in a desperate effort to get Obama relected – and without caring what would happen after November 2012) he would acting in a way that was close to “treason”.
However, Governor Perry was correct – if the Federal Reseve goes into one final orgy of credit money expansion (destroying what is left of the capital structure) it is hard to see how this would not be treason.
And, I repeat, all the above could be written by someone who support a government fiat money system (even though I do not).
Paul,
We can all still agree that yet further “monetary stimulus” (producing yet more government fiat money) would break the economy – assumeing it is not broken already (which it may well be) setting off a final boom-bust in an economy whose back is almost broken (if not already broken) now.
Why?
I don’t really think we’re in much danger in this regard. I don’t see any signs of a boom beginning.
In general I think the Rothbardian view of ABCT is wrong. I don’t think that rises in the money supply can cause ABCT by themselves. Rather, they need to cause a rise in the price level. In the modern world they need to cause an unexpected rise in the price level to boot.
Have a read of what Mises says in “The Theory of Money and Credit” about injection effects. It’s quite different to what 100% reserve supporters say today.
@Jonathan:
My point is that I distinguish between fiat and fiduciary issue. Why should the alternative to a gold standard be central bank fiat?
Neither is a central bank in practice a dictator once you abolish exchange controls; nor is there any reason to suppose a central bank is necessary. Nor does a gold standard exclude a central bank: on the contrary, central banks have happily co-existed with a gold standard and been involved in its management in the 20th century.