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rfaramir (28.70)

Why the State Demands Control of Money



October 13, 2011 – Comments (18) | RELATED TICKERS: AB , CT.DL

Sometimes you run across an article that just hits all the right notes, scratches all out-of-reach itchy spots, hits single after single with a double and a homer thrown in:

Why the State Demands Control of Money

by Hans-Hermann Hoppe

This is the article that has inspired me to finally dive into blogging. It answers so many questions. It is so succinct, yet covers so much ground, that I can use it as a springboard into many topics of Austrian (Causal-Realist) economics. As you go through the article, here's some questions it answers:


What is the Essence of the State? (and how it "always means mischief")

What is the attitude of the State toward Money and Banking?

What two natural, free market constraints does the State seek to free itself from?

Why does the State desire a monopoly on the production of money?

How is the State like an Alchemist? 

What is the twofold effect of additional money printed? (The first is an easy one.)

Why do risky projects get credit?

Why do banks get bailed out?

How does print-and-spend differ from print-and-loan? (Hint ABCT)

Why does the State not really mind periodic crises? 


I'll answer the questions below, later, with quotes from the article itself if y'all don't. And answer further questions that you don't think the article covers. This is from the Ludwig von Mises Institute where I learned enough economics to make sense of our crazy, mixed-up world, and got some politics and philosophy along the way.

I hope you enjoy it as much as I do!

18 Comments – Post Your Own

#1) On October 13, 2011 at 5:37 PM, rfaramir (28.70) wrote:

Essence of the State: "an institution that possesses a territorial monopoly of ultimate decision making in every case of conflict, including conflicts involving the state and its agents itself, and, by implication, the right to tax"

The mischief comes from having the power to decide conflicts in its own cases. This power begs to be misused, and it always is.

Its attitude towards money and banking (and eventually everything else) is control.

The two natural, free market constraints are "tax-resistance in the form of falling tax revenue and of the need to borrow from and pay interest to banks." Controlling the printing of money solves both.

But it has to be a monopoly (they can't fairly compete their way out of a wet paper bag), and this will naturally lead to the ultimate money power: a fiat currency. "Normally, no one would accept worthless pieces of paper as payment for anything. Pieces of paper are acceptable as payment only insofar as they are titles to something else, i.e., property titles. In other words then, you must replace pieces of paper that were titles to money with pieces of paper that are titles to nothing."

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#2) On October 13, 2011 at 9:46 PM, dbjella (< 20) wrote:

I hope this is the first of many blogs from you.  I read this earlier today on Mises.  Great article.

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#3) On October 13, 2011 at 10:10 PM, selfdestruct2 (27.62) wrote:

10 + rec

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#4) On October 13, 2011 at 11:07 PM, FleaBagger (27.46) wrote:

Congratulations on blogging! I won't answer the questions, because it just wouldn't be fair to everyone else. 

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#5) On October 14, 2011 at 1:47 AM, whereaminow (< 20) wrote:



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#6) On October 14, 2011 at 1:53 AM, whereaminow (< 20) wrote:

Its attitude towards money and banking (and eventually everything else) is control.

Yepper.  It gets really interesting to see how over the years the state has solved the problem of using banking and money printing to finance war.  When the state first delves into war, it finds out that it is REALLY expensive.  Mainly, the problem is that the state creates through its own purchasing an overwhelming demand for select materials. It outbids itself, in other words, and the prices for things it needs to prosecute the war rise dramatically.  Very quickly, the state goes bankrupt.

So what is the solution? Less war? Of course not.  The state has learned to use finance (always accompanied by fantastic propaganda) to pass the war buck onto others.  When really clever, the state can pass the cost to the citizens of another country, as was the case during the early years of Vietnam, where European inflation was the result of the American money printing combined with the Bretton Woods arrangement.  Essentially, Europeans paid for the first part of the Vietnam War.  Americans paid for the later years after BW collapsed.

So the story as usual, is how does the state find that total patsy who will not only pay for their war follies, but also the patsy that will shill for it no matter how atrocious it becomes.  

On both accounts, I think the state is at its inglorious apex. 


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#7) On October 14, 2011 at 3:10 AM, awallejr (33.35) wrote:

Essence of the State: "an institution that possesses a territorial monopoly of ultimate decision making in every case of conflict, including conflicts involving the state and its agents itself, and, by implication, the right to tax"

Well aside from the fact that the "state" isn't an institution, the definition you present really is, in essence, one man's opinion. I would define the "essence of the state" differently, based more on a social contract theory, and others may have further different definitions. 

The problem I have with the article is it sets up the definition as a "given" (it starts off with the word "imagine") and then discusses off the same.  But if in reality that "given" is incorrect then the subsequent discussion is pointless.

While I do find many of your blogs and replies thoughtful, we apparently march to the beat of different drummers.

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#8) On October 14, 2011 at 7:13 AM, dbjella (< 20) wrote:


Is it possible that your social contract theory and the authors theory are more similar than you think?  

Regardless, you and I, in my opinion, have zero influence on the control of money.  That control is not elected.   


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#9) On October 14, 2011 at 8:25 AM, devoish (70.13) wrote:


I agree with you. It is citizens that "demand" a state in order to have the freedom to go about their business. In the United States, citizens have attempted to protect themselves from thieves and sociopaths by building a large Government with checks and balances to defend against the abuses of any individuals who would use that Government to take for themselves extraordinary personal wealth. Wealth above and beyond the type of financial security offered government employees such as a teachers through things like retirement plans and health benefits.

Today I believe such individuals are those who would tax their own capital gains income at lower rates than the income of their employees work.

Today I believe such individuals are those who promote a "fair tax" that would tax all purchases fairly and equally, except their own purchases of stocks and bonds and capital investments.

Today I believe that such individuals are those who hide personal gain as tax deductible business expenses.

Today I believe that such individuals built their incomes on an older generations shared expenses of roads, and ports, and social security and now wish to preserve their income by not contributing to its upkeep.

Best wishes,


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#10) On October 14, 2011 at 11:24 AM, rfaramir (28.70) wrote:


You're right to point out that the Essence of the State is the key point. But I maintain that until you fully understand that this definition is correct, you will have a hard time understanding the effects of government actions.

"the fact that the "state" isn't an institution"

I don't know what else to call it, though. It's not an individual. Maybe you think of an institution as something that is voluntary, a grouping that people willingly join or can choose not to join. You'd be mostly right. Most institutions are, the State is not. You cannot avoid it without living permanently on the high seas (or someday in space), and unless you are an extremely long-lived founder, you did not even have a choice to join it voluntarily. So "social contract theory" cannot apply. I know I surely did not sign any such contract.

On further inspection, is there any governing regime which, when its agents are in conflict with other non-government denizens, brings in neutral outside arbitrators to help solve the conflict? Anyone? Bueller? No, every State I know of claims judicial sovereignty within its geographical area, even when judging its own case. (It's possible that there are weak States I am not aware of who willingly or coercively submit to the International Criminal Court.)

Is there any State which does not tax? Anywhere? There may be, but I do not know of one. And is the taxation voluntary? If anyone could get away with not paying, everyone would stop paying, so no State would allow such a rebellion. They enforce it at the point of a gun, or for the most part, by such a threat.

I do agree that this is the beat of a different drummer. Five years ago I'd've been shocked to hear our beloved leadership spoken of this way. As I learned more economics, I saw the value of Liberty and the damage done by Force to the free market and finally came to agree with this admittedly radical characterization of government. Allegedly, George Wasington would agree:

"Government is not reason; it is not eloquence; it is force. Like fire, it is a dangerous servant and a fearful master."

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#11) On October 14, 2011 at 11:51 AM, SkepticalOx (98.60) wrote:

Is there any State which does not tax? Anywhere? There may be, but I do not know of one.

Kinda? The Arab Gulf states come pretty close. Most are essentially rentier states (they get most of their revenue from oil revenue sold to externally, so no need to tax their citizens, and therefore, no need to be accountable to them). No representation without taxation essentially.

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#12) On October 14, 2011 at 11:57 AM, rfaramir (28.70) wrote:

How is the State like an Alchemist?

It has, or in this scenario, 'you' "have produced something valuable (money with purchasing power) out of something practically worthless.... It costs you practically nothing and you can turn around and buy yourself something really valuable...; and you can achieve these wonders not just for yourself but also for your friends and acquaintances" Even lead-to-gold cannot compare with paper-to-dollars!

What is the twofold effect of additional money printed? (The first is an easy one.)

Price inflation is, of course, the easy effect. The second is much worse: "it redistributes the existing wealth in favor of you and your friends and acquaintances, i.e., those who get your money first. You and your friends are relatively enriched (own a larger part of the total social wealth) at the expense of impoverishing others (who as a result own less)."

As even the idiots Occupying Wall Street can see, the bankers get the money first and are enriched at our expense. Of course, they are petitioning the State for remedy, since they don't understand that the State is behind the problem!

Why do risky projects get credit?

This is where the collusion between the State and bankers comes to the fore. Private bankers would be very careful loaning out their money, as it would be at risk of loss and they would feel the pain themselves. But as a government-backed bank: "Without costs and no genuine, personal risk of losses, then, you can grant credit essentially indiscriminately, to everyone and for any purpose, without concern for the creditworthiness of the debtor or the soundness of his business plan."

Why do banks get bailed out?

Because they are part and parcel of the State. Government backing in case of failure is just a logical consequence. The State needs banks to complicate its expansion of the money supply.

How does print-and-spend differ from print-and-loan?

"Print-and-spend", as the MMTers would like, is too simple, and is easily spotted as a fraud. "Print-and-loan", especially fractional-reserve lending, is more complex and thus a more easily hidden fraud.

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#13) On October 14, 2011 at 8:18 PM, awallejr (33.35) wrote:

So "social contract theory" cannot apply. I know I surely did not sign any such contract.

There is nothing to sign.  It has already been drawn up and been in existence since 1789 when it was ratified.  When people take oaths in this country, such as politicians, or judges, lawyers, military, police, or during a nationalization process, etc, it is to preserve and protect or defend and protect or some variant, the Constitution of the United States.  And the Constitution is in effect a social contract between its citizens.

Now you as an individual citizen have several options.  You can live out your life in quiet defiance.  You can try to effectuate change to the Constitution (lawfully or unlawfully, suffering the consequences accordingly), or you could leave the Country. But it is that citizenship that commits us to the Constitution.

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#14) On October 15, 2011 at 4:25 PM, rfaramir (28.70) wrote:

True, the Constitution is the foundation of our State, so logically, any of it members (politicians, judges, et al) swear to it. That's better than swearing allegiance to whoever is the current head, no matter if you like him or no. There is some merit in that, compared to a regular thugocracy.

But notice, it's THEM swearing, not me. The Constitution was a pact among the then-existing former colonies, or, loosely, among "We the People" of that time through their representatives.

No contract not signed by myself, voluntarily, can morally bind me. It can only do so by force. Such as if Canada and Mexico decided that the US and all its people were owned by them, divvying it up by a treaty they sign, can only affect me by applied Force. It has no moral standing as I did not consent to it.

True also, that if the forces of Canada and Mexico were successful in battle, I'd have limited options as you describe. It's the same with the State whose cornerstone is the Constitution, unsigned by me, only applies by force or the threat of force. It was successfully applied to the territory I live in, but I do not give it my moral assent. You won't find my signature on it anywhere.

It's admittedly a much better system than I've seen or heard about pretty much anywhere else, but it is not perfect. I try to keep the ideal clearly in focus before me, so I won't settle with and end up supporting the status quo.

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#15) On October 15, 2011 at 6:38 PM, awallejr (33.35) wrote:

I mention the oath part as an illustration that the oath is to the system and principles of the Constitution as opposed to any individual.

You are arguing, however, as if we are discussing a normal contract that requires signatures to be enforceable.  We are not.  I am talking about a social contract which terms were put in writing and ratified by accepting citizenship.  It is your continued acceptance of that citizenship that is equated to "signing" it.  You are free to end that citizenship anytime you wish.

Should the masses decide they want to replace the Contstitution, by lawfully following the procedures set forth in it, with a new royalty, I personally would leave and head to Canada or Australia.

I don't proclaim that the Constitution sets forth perfection, mainly because it is still run by people and any system run by people will always be imperfect. At best all we can do is try to strive for less imperfection.

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#16) On October 15, 2011 at 7:23 PM, whereaminow (< 20) wrote:

rfaramir and allewejr,

I'll leave this open to both of you.  And though this may sound tongue-in-cheek, believe me it's not.  

I just don't get how the Constitution is applied social contract theory.  By what criteria is that evoked.  Certainly, the framers of the Constitution did not have such a theory in mind, since it didn't even exist.  And if we're going to apply it back to the Constitution, couldn't you apply it too just about any governmental pact?  Seems awful vague to me.

I do know what the framers of the Constitution intended.  I know this, because they told us.  I don't see what is so hard here.  They wanted a Republic with Sovereign States made up of Sovereign Individuals.  There were to be 14 States. The 13 Original Colonies plus the Federal Government.  All 14 were considered Sovereign. 

So I don't see how social contract theory fits here, and if it does, I can't imagine a situation where it wouldn't. Kind of like math equations that prove too much.  They're not very helpful.

And finally, since the framers, though they differed in many respects (which, in itself, makes social contract hard to believe, since they didn't even agree on the original "contract"),  allowed for nullification of Federal Law at the State level, how does that fit into the idea of social contract?

Of course, after reading Lysander Spooner's The Constitution of No Authority, I am rfaramir's side here.  But if I want to understand if social contract theory has any real, tangible limits besides the political establishment's willingness to use force to acheive ends.


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#17) On October 16, 2011 at 2:17 PM, awallejr (33.35) wrote:

Actually it goes back to 1215 when King John of England (of Robin Hood infamy) was compelled to sign the Magna Carta which was designed to give English freemen certain rights.  It was a document which basically quashed the concept of absolute rule by a monarch through divine right (monarchs obtaining their right to rule all by God's will basically).

During the time of the writing of the Declaration of Independence, Thomas Jefferson was heavily influenced by John Locke (a social contract adherent), which was expresed clearly as follows:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness

That is pretty crystal clear that the governing derive their power to rule the governed from the governed.  And when the governing breach their obligation. the social contract is broken and the governed shall be removed.

The Constitution itself was and is a remarkable document.  It created a form of government based on the concept of "checks and balances" and balancing state rights, trying to avoid giving any one person unchecked power.  The Bill of Rights was added later to limit the power of the US federal government by endowing people with freedoms of religion, speech, a free press, free assembly and association, rights to liberty and property, and the right to bear arms. 

Should those in power breach their oblgation it is the duty of the governed to remove them.  We do this through elections and passing Constitutional amendments.

It is a pity, however, that so few Americans even know the history of the creation of this country.  And it is a pity that not enough use their right to vote.

But make no mistake that remarkable document, including the Magna Carta, started the wave of replacing dictators and absolute monarchs with representative democratic governments around the world.

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#18) On October 16, 2011 at 2:23 PM, awallejr (33.35) wrote:

meant in end of 4th paragraph "the governing shall be removed."

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