from The Psychology of Liberty
by Wes Bertrand © 2000, copylefted 2007

Monetary Changes

In the capitalistic economy, rapid innovation would be the normal state of affairs. A constant escalation in productivity would continually send the standard of living upward. Human achievement simply has no boundaries—except those one puts on it.

Contrary to what many economists teach today, in a free market there would be no inflation, no depressions, no backward trends in growth. The primary reason for this is that government would no longer be in charge of printing and controlling the money supply, thereby influencing the economy in terribly dangerous ways. The value of the most popular medium of exchange, the dollar, would no longer be at the mercy of the Federal Reserve System. Additionally, the complex and devious monetary and fiscal policies practiced by this government (and others throughout the world) would no longer be issues of concern.

Governmental fiscal and monetary policies are neither necessary nor desirable. They do not keep the economy “stabilized” or “heading in the right direction.” Any supposedly justifiable reasons for these policies basically represent patchworks and corrections for ill effects of past money supply interventions.

Logic tells us that if one takes an illogical action—regardless of the “reasons”—one has to deny the truth in order to get by with it and take further illogical actions. Yet the piling of illogic on top of illogic and rationalization on top of rationalization sooner or later is exposed as the fraudulent game it is. Such a scenario summarizes the government’s policies of interfering with the money supply, which it has monopolized. The basic mistaken premise of the State’s actions is that people can cheat the facts of reality; they can lie to themselves (and others) with impunity.

Under capitalism, distribution and control of the supreme commodity, money, would no longer reside with government. It would reside instead in the market system. Of course, government obtains most of its power from controlling money, be it through banking or taxation. As Reisman stated:

[A government’s administration]...derives an enormous advantage from [its monopoly of paper money] in that—at virtually no cost—it obtains billions of dollars with which to finance programs designed to reelect itself. There is money to meet every ‘emergency’—to combat or prevent a recession (that is always brewing because of previous expansions of money); to bail out companies, banks, cities, even states; to subsidize here, underwrite there; to finance this or rebuild that; to lend; to ‘fund’; to ‘rescue,’ ‘restore,’ ‘revitalize’; there is nothing for which ‘Washington’—i.e., the printing press—cannot be called upon for funds.84(p.193)

In order to keep up with payments of interest accumulating from the enormous debt (over six trillion dollars) it has incurred (e.g., via bonds and treasury bills), government repeatedly resorts to inflating and devaluing the dollar. Simply put, government prints more dollars and deficit spends. These practices can be accomplished primarily because government abandoned the gold standard, which thereafter allowed money to become mere unaccountable paper. With no tangible commodity backing paper bills and metal coins, bureaucrats were free to somewhat surreptitiously perform their economic larceny.

A dollar is—or rather should be—a piece of paper that represents something of value that can be used for exchange. The typical commodities used as mediums of exchange throughout history have been gold and silver. These metals were not chosen arbitrarily. They were mainly chosen because they are scarce, durable, and equally divisible.77 Unfortunately, they are also heavy and therefore cumbersome in large quantities. For many transactions they can be difficult to use.

To solve this problem, people naturally decided that printed paper and coins could serve as convenient representations for the medium of exchange (e.g., gold). The stipulation was that paper and coins must reflect and honor (in the form of certified bank notes, deposits, receipts, or money substitutes) the value of the true commodity (gold) in the bank. After the United States dispensed with its semblance of a gold standard around the 1920’s, the only value that pieces of paper called “dollars” had was simply the faith of the general public in using them for exchange. Such is the case today.88

Contrary to statist dogma, an authentic gold standard and, accordingly, a free system of monetary production and exchange has never existed. Many arguments against the gold standard usually stem from historical observations of the flawed gold standard regulated and monitored by government. This frame of reference is certainly an outdated as well as improper one. Historical observations of so-called free market problems need to scrutinize a crucial factor affecting the market’s operations: the coercive workings of the State.

A noteworthy example of monetary intervention was the government-initiated practice of fractional reserve banking. It encouraged banks to keep only a part of customers’ total gold deposits on hand (investing and lending out the rest). This let banks extend their profit-making ventures beyond their means—at the expense of their depositors’ security. Banks could not honor their customers’ accounts if they withdrew their deposits all at once (creating a run on the bank).

Of course, government has tried to preclude runs and many other financial problems by, for instance, providing monetary compensation insurance. The FDIC (Federal Deposit Insurance Corporation), is now used along with multitudes of other devices to supposedly assist banks with their services. But, in actuality, these devices constantly encourage imprudent banking practices (such as the Savings and Loan debacle of the 1980’s) by relieving banks of fiscal accountability.

Problems with the State-run gold standard were minute in comparison to today’s economy of paper currency. The entire banking industry is a quintessential case study in governmental intervention and control. State meddling primarily contributes to serious economic distortions and banking system dilemmas.

Even though America’s present economy (or at least particular sectors of the economy) is often described as “booming” by analysts, such market activity can happen in spite of the governmental problems underlying it. Technological advances and innovations, and increasingly global trade of goods and information, certainly play a significant role in economic growth.

Nonetheless, money has to be produced through productive work, which means it cannot be created out of thin air or on a whim; it must represent something of value.82 Deficit spending and the printing of more dollars may make it appear that there is more money, but in fact all that is made is more paper and more debt. This means more inflation.

Inflation is an intrinsic part of any coercive State. Only further interference, such as adjusting interest rates, can control the rate of inflation. The deleterious effects of such practices on the general economy cannot be overstated. In many parts of the world, we see the dramatic effects of inflation unfold. It essentially ruins whole economies.

As inflation continues, people develop apprehension about when or if paper money will stop losing value. Prices rise and, eventually, many people decide to buy goods now instead of later, when they will be considerably more expensive; obviously, real wages and standard of living do not rise with an inflating currency. As people lose trust in the buying power of their inherently valueless medium of exchange, many also discontinue investing. The stock and bond markets (which yield profits through the productive use of venture capital and the time value of money), may lose their appeal. Saving or investing, irrespective of the beneficial economic effects, prevents one from spending.

When the standard of living declines, more and more people accumulate larger and larger amounts of debt, assuming they have the option. Similar to government, many purchase what are considered in a developed economy essential goods and services with money they do not have (i.e., borrowed money). (This is a common occurrence even in America today—witness the huge quantities of credit card debt throughout society.)

Inflation basically creates an economy in which people are encouraged to spend, rather than to save and invest. Government’s process of theft on a nationwide scale concludes with hyper-inflation, in which the value of the currency is such that it will buy practically nothing. One has probably heard the horror stories about people using a wheelbarrow full of money to buy a loaf of bread. Recent examples of similar situations exist in numerous impoverished countries. Such an outcome marks the end of the game. Reality finally catches up with the players and the millions they have dragged with them; mass starvation and chaos oftentimes ensue.

Yet this outcome can be ignored by entertaining the notion that human beings can get something for nothing. Contrary to political campaign promises, wealth cannot be expropriated from individuals in a productive economy, run through a bureaucratic system with a labyrinth of commissions, committees, and departments, and emerge equal to (or even greater than) the sum of money taken. Much wealth is assuredly lost in the process. Because only the distribution of money can be altered, the majority is sacrificed to the minority—to the assorted interest groups, both public and private. This is the welfare State of special favors at the expense of others.

And if there is not enough money to satisfy all of so-called society’s needs, more money can be “made” by printing it, or by using expropriated wealth of the future (i.e., getting more loans to pay off loans and interest on loans). By haranguing about “injustices” in society and the requirements of the public welfare, bureaucrats believe they can persuade themselves and the public that poison is really good for them. All the while, many economic and banking specialists seek to justify our economic situation with various statistical manipulations, formulas, charts, and graphs.

Government has the power to turn the land of plenty into the land of despair and desolation. Yet it tries everything possible to make it look like it is not ultimately to blame for economic “downturns.” If the process of inflation is slowed so that it is hardly noticeable, then perhaps those responsible can forestall the effects of their policies until they have reaped the rewards. Meanwhile, though, citizens are slowly drained of their livelihoods and buying power.

To view the current economic/monetary situation as some kind of market controlled and created state of affairs only perpetuates crises. The cause for low wages and poor buying power (as well as corporate downsizing and job outsourcing) ought not be directed at “big corporations” and their “unfair” management practices, or even at “big government” and its “wasteful monetary practices.” We must scrutinize the political principles that have necessitated current economic conditions. To take economic problems as market givens that need government tweaking may even foster a mentality that demands comfort and stability in an ever more volatile market. The present market requires even more creativity and flexibility in generating work where it is needed and valued.

Politicians can exploit and intensify misguided attitudes by pitting U.S. workers against “foreign” workers. Pointing to trade imbalances and political double standards, they may advocate protectionist governmental measures. Such measures attempt to isolate international markets whose voluntary operations are allegedly destructive.

Of course, the only things free markets tend to destroy are: high prices of goods and services, high costs of production, poor quality of products and services, general conditions of poverty and squalor, and mentalities of stagnation. Left alone, with the backing of objective law and complete property rights, the free market would make all the appropriate corrections. And this would be done solely by the choices of individuals. All long-standing economic imbalances among countries would eventually reach equilibrium.

The involuntary aspects of international markets severely affect those who trade. Governmental impositions of various rights-infringing trade barriers—and the creation of trade exclusivities, as well as pollution leniencies—are truly destructive. To accuse “foreign” businesses and products of causing our economic problems is completely erroneous (although it has been a highly promoted fallacy for decades).

A case in point involves criticizing foreign companies when they engage in “dumping,” that is, when they export large amounts of materials to the U.S. (e.g., steel). Although dumping contributes to declines in sales and profits (and thus jobs) of particular U.S. companies, the basic political reasons must be observed. Most of the distortions and disparities in market sectors of various economies are a direct result of non-objective commerce laws (both domestic and international). Initial statist isolation tactics—first and foremost being governmental monopolization of money supplies throughout the world—are an equally important factor. Statism and non-objective laws, not markets, have given rise to trade difficulties. Again, some bureaucrats use the emotionally charged economic effects as tools to manipulate and strengthen collectivistic ideologies (e.g., “us against them” attitudes).

In the midst of this confusion, concerned employers and employees need to consider their economic troubles from the standpoint of liberty and justice. Though they may want their personal economic situation to be different, demanding the assistance of government will undoubtedly invite further problems.

Our current economic/monetary situation has a main cause: theft on the grandest scale imaginable. Probably no other economic situation has a more immediate impact on people than the condition of the primary medium of exchange——money. Any change in the value of money directly affects every person’s living standards. It affects every single economic choice, from what types of foods one can buy to what kinds of activities one can afford. The quality and quantity of human action will always be controlled by the amount of wealth in a civilization. People can choose to overlook these basic facts, but every economic choice they make will be determined by what government has done to the money supply.

Of course, none of these facts would be of so much concern if people had an alternative money they could use for exchange, one that was backed by gold—or more accurately, one that was gold. But government, by its nature, will never allow this. An alternative money would immediately expose government’s game and put them out of business. The gigantic debt that government has accumulated would have to be written off as miserable and immoral investments. Americans would never have to sacrifice their time and effort to pay for other people’s foolish money management. Only a capitalistic society would ensure a sound money supply that does not require human sacrifice. This is the prerequisite to an ever-growing, productive economy.

Constant increases in productivity in a free market mean that most goods and services would, in the long run, become less expensive; more value is gradually added to each dollar. Additionally, the value of money would now be able to fluctuate unimpeded according to the laws of supply and demand (no more fixed currencies or fixed exchange rates). This means that the medium of exchange would be responsive to true economic forces—not artificial and destructive governmental forces. Devaluing of the currency, so that it buys less and less, would be a ridiculous injustice of the past. Savings and investment would now be the norms in society, because money (in the form of gold, or whatever chosen precious metal) would now have real value, and trust in it would be solid and certain.

The possibilities this holds for the fields of business and the sciences are tremendous. Since so much more wealth would be available, research and development would skyrocket. Companies would now have the resources they need to endlessly improve and innovate their products and services. Furthermore, individuals would no longer have to adjust their time, money, and effort to obey the maze of governmental edicts concerning their personnel and business transactions. (It is little wonder that the thought of going into or staying in business is sometimes revolting for so many intelligent, self-respecting people.)

Employers could discard their current agonizing about how to allocate their ever-diminishing resources—hoping to possibly make a profit while keeping shareholders and employees satisfied. They would no longer have to decide strictly between reinvestment and employee pay raises or benefits, which can create enormous disputes and problems for so many businesses. To contemplate all the employers and employees who have endured and are still enduring these difficult processes is quite disconcerting. Yet the dreadful uncertainties such processes have created in their business as well as personal lives for so many decades definitely have a root problem. And it can be fixed.

Additionally, to think of all the scientific research and development that has been retarded and reduced to undignified begging for governmental subsidies and grants just to move forward at a snail’s pace is especially distressing. The dependency on governmental funds and assistance is part of the insidious racket of the politicians who feed off the desperate “needs” of society. Government has skillfully created an economic umbilical cord—through special privileges and money—that binds people to it and induces them to remain fixated on short-term economic gains and losses. As a result, one commonly hears scientists and researchers declaring that, without governmental funding, they could not continue their operations. They fail to realize that their operations are greatly hindered, not helped, by government subsidies. Far more money would be available in a free market. Clearly, the belief that the end justifies the means is a sign of a morally confused culture—and a politically confused culture. If one cannot acquire capital (or anything else) in a voluntary fashion, one obviously has no right to it. In a free market, such a situation indicates that one should look for more productive work—for only this would be valued and respected in a society of liberty.

As noted, the current conditions of economic hardship have been created by all of the governmental regulations and restrictions of trade, inane monetary policies, and the constant expropriation of wealth from virtually every adult member of society. No calculation will ever be able to inform us of all the projects that had to be scrapped, cutting-edge research that had to be curtailed, and beneficial products that were never produced and brought to market—all because of lack of finances, and proverbial bureaucratic red tape. No one can tell how many people have suffered and died on account of this state of affairs. Nor can anyone assess how many lives could have been saved or enriched.

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