The Destruction of Property Rights and The Incredible Shrinking Pie
Each human, from birth, is blessed with an opportunity. Apart from the mentally ill or extremely handicapped (whom we should cherish and care for), all of us are given the equipment necessary to create, work, cooperate, associate, prosper, and enjoy this world. If we are going to solve our current problems we have to consider what elements hamper societal development. If it is true that each of us contains the ability to help create a better world, why does it always seem that our world takes two steps forward and then one step back (or worse)?
Every time you open your wallet, unbeknownst to you, you are engaging not in a free market activity, but in a system of coercion that violates the property rights of fellow citizens and reduces not only their ability to shake free from the chains of economic enslavement, but also further enslaves poorer nations. I realize that statement was quite a mouthful, and as an indictment on your morality - not to mention an admission of hypocrisy - it needs further explanation. Please allow me that opportunity before you attempt to -1 rec this post in disgust!
Most Fools are well versed in the history of money, so I'll be brief in its overview. Money is a method of indirect exchange and its use signaled the graduation from a barter economy to a market economy. It did not, however, arise from government decree. The use of money always arose naturally (hence the term natural money), as societies found the best way to exchange goods. Various commodities have been used from copper to cotton to gold to silver, with silver being the most prominent. Nowhere in history has paper money (not to be confused with credit money or redeemable paper certificates, i.e. currency tied to a commodity) ever arisen from market forces. Paper money, called fiat money, has always been by done through compulsory legislation. So what does that have to do with that outlandish statement in bold two paragraphs up? I'm getting there, just hang on. This next paragraph is a bit of mouthful as well, so take a deep breath before you dive in. It's very important.
Money has two values, a monetary value and a nonmonetary value. The latter arises from its usefulness. In this area, paper money has benefits that are comparable to free market money (silver, gold, etc...). Carrying paper money around in your wallet is quite easier than lugging a purse full of coins around, but has no advantage over redeemable paper certificates. (Again, the difference between paper money and redeemable paper certificates is that the redeemable paper can be traded for an established amount of an underlying good, e.g. gold). On the other hand, the very reason that free markets have always prefered natural money to paper money is the ease with which the future prices of these commodities can be predicted. Gold and silver retain their value over time (and redeemable certificates as well), whereas fiat money does not. That is the monetary value of the currency. The essence of fiat money is that its monetary value is zero (well not quite, but I'll explain that part in a moment.) Should the nonmonetary value of fiat money - its usefulness - disappear, most likely to systematic destruction by an irresponisble government, theoretically fiat money's value could drop all the way to zero. Millionaires and welfare mothers would suddenly be sharing the misery of having an empty checking account. This scenario is impossible with gold, silver, copper, or a strictly enforced redeemable certificate. These monies will always hold some value - the monetary value of the commodity itself, even if the free market chooses a more useful currency.
Here comes the million dollar question: why can't citizens who prefer a currency with a monetary and nonmonetary value, use that currency in transactions?
Let that question run through your head a couple of times.
Now let's look at an example. Let's say that I'm the next Linus Torvalds. I've developed a great computer operating system, far superior to Windows in its efficiency and stability, and surpassing Linux in its user friendliness. However, I live in a time when all governments are distorting their currencies through massive expansion of the monetary base (ummm, like today). I can't predict in ten years what the value of the currency will be. Rather than risking poverty by accepting worthless money for my hard work, I decide to accept only gold or silver as payment for my operating system. What would happen if I were to attempt to enforce such a policy?
If you answered, the government would shut down your operation, seize your assets, and throw you in jail, you are correct. Why would the government take such draconian measures to destroy your property rights. After all, if it's your property, shouldn't you legally be able to dispose of it as you see fit?
The reason is because in a free market, consumers and producers, rich and poor, will always prefer a stable currency with monetary and nonmonetary value to a currency that has only nonmonetary value. Therefore, as soon as the government allows competition in currency, the value of its money - the fiat - rapidly falls and will eventually end up at zero. In order to prevent this from happening, the government must violate property rights, eliminate the free market, and outlaw the use of any currency but its own.
The tragedy of fiat money is not that it may one day be worthless, it is that in order to prevent the inevitable decline to worthlessness, the government must destroy all property rights. Take a moment and consider what property rights you have. Do you own your home? Do you own your income? Do you own your business? Do you own your stocks and bonds? Do you own your creations and your work? What property rights do you have? Can you name them?
It is saddening to consider, but the monetary value of fiat money (I promised you I'd get back to this) is the cost of jail time. You are compelled to use it by law, and failure to do so - the selection of a superior alternative currency - results in prison. Each one of us subconsciously calculates the cost of jail time if we consider the use of an alternate currency. This will become more common as central banks continue to increase the monetary base.
So why can't governments issue a stable fiat currency, one whose monetary base is restricted by law, so that it can not be expanded so frivolously? I'm not sure you want to know the answer to this. Many of you are patriotic Americans who believe that our young men and women spend most of their time overseas fighting terrible enemies to protect our way of life. I'm a former Marine. My father was a Marine. I don't hate our troops or wish them harm. But in order for you to hear this answer you must set aside any pretense of patriotism. It will only cloud your judgment.
Governments decree fiat money to wage war. Traditionally, wars were paid for in the natural money in use. Kings paid for wars in gold or silver, and collected it by taxing the citizens. However, taxation had its limits. Countries on redeemable paper, temporarily suspended its convertability (or worse), in order to expand the monetary base and finance wars. Not only could you tax the citizenry, but now you could also confiscate their wealth through inflation. It's no coincidence that the movement away from sound money also saw a tremendous increase in the power of modern armies.
The worlwide use of fiat money has made permanent war possible. In fact, it was necessary. It is no coincidence that the Federal Reserve and the Income Tax, both of which came into existence in 1913, coincided with an increase in American militarism. The empire that William McKinley attempted to create in the late 1890s was nothing compared to the Wilsonian doctrine of making the world safe for democracy. And the only way to fight a permanent war for "democracy" is with a fiat currency. The complete break with the Gold Standard in 1971 finally made permanent war possible.
These realities, however, have largely been shielded from public consumption. It was only the liberating force of the Internet - finally freed from being a government weapons system (surprise, surpise) - that has allowed a small portion of the United States population to understand the true nature of fiat money.
For most of the American public, the rat race of the last 100 years has been to reclaim the economic sovereignity that has been slowly slipping away. Most people want to amass wealth because they understand that wealth brings greater freedom. Each year that fiat money is forced upon the population, the opportunities to attain that wealth shrink. The pie gets smaller every year as the monetary base is continually expanded to feed the government's appetite for conquest.
This is not a system of competition and free market cooperation. This is a sytem of cannabilization and control. Each time you spend money, you are unwittingly contributing to your own demise. For eventually, the world will wake up to this scam, your fiats will be rendered worthless, and our soldiers will be coming home. The events that follow will be the end of the American dream, the start of the American nightmare, and the final destruction of the Incredible Shrinking Pie.
David in Qatar