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Monetary history testifies to how much more severe business cycles and recessions are when the money supply is manipulated than when it isn't.
The central bank's meddling in the capital market is the root of all recessions and all the crises which most politicians, journalists, academics, and leftist activists like to blame on capitalism.
1920 depression saw one of the fastest contractions of output in American history
time, Warren Harding, had a strong commitment to free markets and refused to heed the call of interventionist economists.
The money supply expanded by 68.1% over the period of 1921–29 while the gold stock only expanded by 15%.16 It is this increase of the dollar stock, beyond the stock of gold, which is the root cause of the Great Depression.
“The cause of waves of unemployment is not ‘capitalism’ but governments denying enterprise the right to produce good money.”19
Modern economics has formulated “The Impossible Trinity” to express the plight of modern central bankers, which states: No government can successfully achieve all three goals of having a fixed foreign exchange rate, free capital flows, and an independent monetary policy.
This elaborate apparatus of central planning and its attendant rituals tends to eventually get in the way of economic activity.
$1,860 trillion per year. The World Bank estimates the GDP of all the world's countries combined at around $75 trillion for the year 2016. This means that the foreign exchange market is around 25 times as large as all the economic production that takes place in the entire planet.
The combination of floating exchange rates and Keynesian ideology has given our world the entirely modern phenomenon of currency wars: because Keynesian analysis says that increasing exports leads to an increase in GDP, and GDP is the holy grail of economic well‐being, it thus follows, in the mind of Keynesians, that anything that boosts exports is good. Because a devalued currency makes exports cheaper, any country facing an economic slowdown can boost its GDP and employment by devaluing its currency and increasing its exports. There
It is no coincidence that the countries that have seen their currencies devalue the most in the postwar period were also the ones that suffered economic stagnation and decline. But even if all of these problems with devaluation as the route to prosperity were inaccurate, there is one simple reason why it cannot work, and that is: if it worked, and all countries tried it, all currencies would devalue and no single country would have an advantage over the others.
International economic summits are convened where world leaders try to negotiate each other's acceptable currency devaluation, making the value of the currency an issue of geopolitical importance.
The other main school of government‐approved economic thought in our day and age is the Monetarist school, whose intellectual father is Milton Friedman. Monetarists are best understood as the battered wives of the Keynesians: they are there to provide a weak, watered‐down strawman version of a free market argument to create the illusion of a climate of intellectual debate, and to be constantly and comprehensively rebutted to safely prevent the intellectually curious from thinking of free markets seriously. The percentage of economists who are actually Monetarists is minuscule compared to
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Monetarists prefer tax cuts to stimulate the economy, because they argue that the free market will better allocate resources than government spending. While this debate over tax cuts versus spending increases rages on, the reality is that both policies result in increased government deficits which can only be financed with monetized debt, effectively an increase in the money supply.
A decline in the price level, or deflation as the Monetarists and Keynesians like to call it, would result in people hoarding their money, reducing their spending, causing increases in unemployment, causing a recession.
the Austrian school is focused on establishing an understanding of phenomena in a causal manner and logically deducing implications from demonstrably true axioms.
For Mises, the absence of control by government is a necessary condition for the soundness of money, seeing as government will have the temptation to debase its money whenever it begins to accrue wealth as savers invest in it.
A world of constant money supply would be one similar to that of much of the eighteenth and nineteenth centuries, marked by the successful flowering of the Industrial Revolution with increased capital investment increasing the supply of goods and with falling prices for those goods as well as falling costs of production.
A society which constantly defers consumption will actually end up being a society that consumes more in the long run than a low savings society, since the low‐time‐preference society invests more, thus producing more income for its members. Even with a larger percentage of their income going to savings, the low‐time‐preference societies will end up having higher levels of consumption in the long run as well as a larger capital stock.
between unsound money and war. First, unsound money is itself a barrier to trade between countries, because it distorts value between the countries and makes trade flows a political issue, creating animosity and enmity between governments and populations. Second, government having access to a printing press allows it to continue fighting until it completely destroys the value of its currency, and not just until it runs out of money. With sound money, the government's war effort was limited by the taxes it could collect. With unsound money, it is restrained by how much money it can create
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On a national level, nations using sound money are far more likely to stay peaceful, or to have limited conflict with one another, because sound money places real constraints on the ability of government to finance its military operations.
on its own soil, near its people and its supply lines. A monarch who focused the military on defensive action would find his citizens willing to pay taxes to defend themselves from foreign invaders.
The 2005 United Nations Human Development Report12 analyzed death from conflicts over the past five centuries, and found the twentieth century to be the deadliest.
and fought in battlefields between professional armies. A major war of the nineteenth century in Europe was the Franco‐Prussian war of 1870–1871, which lasted for 9 months and killed around 150,000 people, roughly an average week's tally in World War II, financed by the easy government money of the twentieth century. With the gold standard restricting them to finance war from taxation, European governments had to have their expenses prepared before battle, spend them on preparing their military as effectively as possible, and attempt a decisive victory.
The deadliest wars of the nineteenth century were the Napoleonic wars, which were carried out before the gold standard was formally adopted across the continent, after the French revolution's foolish experiments with inflation. (See Table 5.13)
Liberalism triumphed on the principle that the best government is that which governs least; now for all the western nations political wisdom has recast this ideal of liberty into liberality. The shift has thrown the vocabulary into disorder. Whereas liberalism held the role of government as allowing individuals to live in liberty and enjoy the benefits, and suffer the consequences, of their actions, liberality was the radical notion that it was government's role to allow individuals to indulge in all their desires while protecting them from the consequences. Socially, economically, and
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their predecessors or some nefarious conspiracy. Democracy thus becomes a mass delusion of people attempting to override the rules of economics by voting themselves a free lunch and being manipulated into violent tantrums against scapegoats whenever the bill for the free lunch arrives via inflation and economic recessions. Unsound money is at the heart of
Unsound money was a boon to tyrants, repressive regimes, and illegitimate governments by allowing them to avoid the reality of costs and benefits by increasing the money supply to finance their undertakings first, and letting the population handle the consequences later as they witness their wealth and purchasing power evaporate. History is replete with examples of how governments that have the prerogative to create money out of thin air have almost always abused this privilege by turning it against their own people.
that Vladimir Lenin, Joseph Stalin, Mao Ze Dong, Adolf Hitler, Maximilien Robespierre, Pol Pot, Benito Mussolini, Kim Jong Il, and many other notorious criminals all ruled in periods of unsound government‐issued money which they could print at will to finance their genocidal and totalitarian megalomania.
The destruction of sound money had come before, hailed with wonderful feel‐good stories involving children, education, worker liberation, and national pride.
“There is only one good thing about Marx, at least he was not a Keynesian.”
While such a conception might appeal to ivory‐tower idealists who imagine it will only lead to positive outcomes, in reality this leads to the destruction of the market mechanisms necessary for economic production to take place. In such a system, money stops functioning as an information system for production, but rather as a government loyalty program.
one of the main attractions of moving away from the gold standard was the reduction in the costs of goldmining that would ensue from switching to government‐issued paper money, whose cost of production is far lower than that of gold.
they also severely underestimated the real costs to society from a form of money whose supply can be expanded at the will of a government susceptible to democratic and special‐interest politics. The real cost is not in the direct cost of running the printing presses, but from all the economic activity forgone as productive resources chase after the new government‐issued money rather than engage in economic production.
For as long as the credit keeps flowing, the victims are oblivious, and an illusion of increased wealth is created across society as both the victim and the robber think they have the money.
But the more pernicious method of creating zombies is not through direct government payments, but through access to low‐interest‐rate credit. As fiat money has slowly eroded society's ability to save, capital investments no longer come from savers' savings, but from government‐created debt, which devalues existing money holdings.
It controls and supervises the banks that allocate capital, sets the lending eligibility criteria, and attempts to quantify risks in a mathematical manner that ignores how real‐world risks work.
Firms that can get low‐interest‐rate credit to operate will have a persistent advantage over competitors that cannot. The criteria for success in the market becomes more and more related to being able to secure funding at lower interest rates than to providing services to society.
more efficient way of organizing economic activity. Even after the collapse and utter failure of the Soviet Union, the same textbooks continued to be taught in the same universities, with the newer editions removing the grandiose proclamations about
Academic debates concern ever‐more‐arcane minutiae, and all parties in these fraternal disputes can always agree that both parties need more funding to continue these important disagreements.
Only the successful bankers and banks stay in their job, as those that fail are weeded out. In a society of sound money, there are no liquidity concerns over the failure of a bank,
Fractional reserve banking, or maturity mismatching more generally, is likely to continue to cause financial crises without a central bank using an elastic money supply to bail out these banks.
From this we see how banking has evolved into a business that generates returns without risks to bankers and simultaneously creates risks without returns for everyone else.
Instead of the allocation being decided by the most prudent members of society with the lowest time preference and best market foresight, it is decided by government bureaucrats whose incentive is to lend as much as possible, not be correct, as they are significantly protected from the downside.
a world in which almost all firms are financed through central bank credit expansion, there can be no simple way of discerning which industries are growing because of the injection of bezzle steroids, but there are some telltale symptoms. Any industry in which people complain about their asshole boss is likely part of the bezzle, because bosses can only really afford to be assholes in the economic fake reality of the bezzle. In a productive firm offering valuable service to society, success depends on pleasing customers. Workers are rewarded for how well they do that essential task, and bosses
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job is by proving valuable to the layer above him. A job in these firms is a full‐time game of office politics. Such jobs are only appealing to shallow materialistic people who enjoy having power over others, and years of being maltreated are endured for the paycheck and the hope of being able to inflict this maltreatment on others. It is no wonder that people who work these jobs are regularly depressed and in need of constant medication and psychotherapy to maintain basic functionality.
Bitcoin represents the first truly digital solution to the problem of money, and in it we find a potential solution to the problems of salability, soundness, and sovereignty.
Bitcoin was the first engineering solution that allowed for digital payments without having to rely on a trusted third‐party intermediary.
growth in its value cannot possibly increase its supply; it can only make the network more secure and immune to attack.
is BitTorrent, a protocol for sharing files online. Whereas in centralized networks members download files from a central server that hosts them, in BitTorrent, users download files from each other directly,
