Money Part II - Do Property Rights Matter?
In my previous blog, I argued that property rights and fiat currency are mutually exclusive. Although you may disagree with the my proposed reason for why we have moved to a completely fiat world, I have yet to hear any argument to refute the mutually exclusivity of property rights and fiat currency. Let's have a quick review of the argument, and then we will ask the question Do Property Rights Matter?
Every society that has graduated from a barter economy to a market economy has done so by finding a means of indirect exchange: money. In every society, voluntary use of money has always led eventually to that which was most useful both monetarily and nonmonetarily - usually silver and occasionally gold. If "one world currency" is your desire, humans were well on their way to a standard in silver, gold, or a combination of the two had governments not intervened. Fiat money is a new concept, one that many economists thought would be impossible, due to a lack of monetary value. The monetary value of a fiat is theoretically zero. Should its usefulness disappear it would be worthless, unlike gold or silver. Paper redeemable certificates, on the other hand, offer the best of both worlds as long as the issuer of the certificate strictly adheres to its contractual obligation (something that most governments have not done, see FDR, Nixon, and many before them).
Before we finish our lesson on the history of money, let me suggest a few books for further reading:
A Short History of Paper Money and Banking - William Gouge
Politics - Aristotle
God, Gold, and Government - Howard Kershner
The Church and The Market - Thomas Woods
Honest Money - Gary North
Money Manipulation and the Social Order - Fr. Dennis Fahey
Treatise on the Alteration of Money - Nicholas Oresme
Theory of Money and Credit - Ludwig Von Mises
Ok, now that we've covered the basics of the history of money, let's review the argument that property rights and fiat currency can not co-exist. As we have stated, in every society where money use has arisen naturally, market actors have preferred commodity-based money over paper money (again, not to be confused with paper redeemable certificates). In order for governments to keep fiat money in circulation the use of alternative currencies must be abolished. If a producer/ inventor/ entrepreneur would prefer to receive payment in other currency to protect his/her wealth from inflation, it is outlawed (no alternative currencies exist today except other fiat currencies). If an owner of wealth would like to take possession of gold or silver, he/she does so with the knowledge that its nonmonetary value (usefulness) has been restricted and that confiscation is always a possiblity. In order to prevent fiat currency from plummeting to zero or near-zero value, governments have the following choices:
1. Strictly refrain from increasing the monetary base. This has the effect of limiting government expenditures, and also limiting the government's ability to confiscate wealth through inflation.
2. Abolish property rights by forcing market actors to use the "legal tender." Make it impossible for the owners of wealth to protect themselves from inflation.
Obviously, the United States government chose option two. I won't go into why they didn't chose option 1 again. My position, that fiat currency makes permanent war possible, needs a more vigorous defense than I can make in this post. I do hope, however, to return to that point in future posts.
The question for this post is Do Property Rights Matter? Is it important for a healthy and productive nation to strictly enfore property rights, or can they be left to the auspices of democratically elected leadership. I hold that property rights should be inviolable and I'm not the only one. The Catholic Church believes the same thing (note: I am an agnostic):
"The first and most fundamental principle, therefore, if one would undertake to alleviate the condition of the masses, must be the inviolability of private property." - Pope Leo XIII (Rerum Novarum)
"Private ownership must be considered as a guarantee of the essential freedom of the individual, and at the same time an indispensable element in a true social order." - Pope John XXIII (Mater et Magistra)
"That justice called commutative commands sacred respect for the division of possessions and forbids invasion of others' rights through the exceeding of the limits of one's own property; but the duty of owners to usetheir property only in a right way does NOT come under this type of justice, but under other virtues." - Pius XI (Anno). Emphasis mine. This points out the Catholic belief that justice and morals are separate, and that property rights should be protected regardless of whether that property is used for the common good.
Protestant theologians have also held a high regard for property rights, from Puritans to Calvinists to Lutherans, property rights have been held sacred and necessary for improvement of the living standard of the masses. See, for example, "Capitalism, Protestantism, and Economic Development" by Stanley Engerman.
The effects on the restriction of property rights in America, I believe, is detrimental to our economy and adverse to investment. Fiat currency distorts economic activity by reducing the ability of producers /inventors /entrepreneurs to accurately predict future values of their capital receipts, leading them into increasingly speculative ventures to protect themselves from the increasingly destructive activities of monetary base expansion. The reduction of property is also a deterrent to innovation. By limiting capital accumulation, big business and government are able to keep society stagnant. The young, hungry future economic stars have a difficult hurdle placed in their way. This is a drag on the poor and middle class in particular, where most Capitalist superstars come from. (Not to be confused with modern Corporate superstars who are nothing more than glorified bureaucrats and financial charlatans.)
So allow me to bring this discussion to the Fool community. Do property rights matter? Should you remain unconvinced that property rights and fiat currency are mutually exclusive, so be it. But please refrain from the standard character attack that I am anti-government and a gold bug. Present your case. For those who agree that property rights must be infringed in order to have a fiat currency, I ask you, does it matter? Can we move forward without property rights? What will be the long term effect on the global economy without them?
David in Qatar