Tuesday, 6 August 2013

Sound Money, Monetary Freedom, and the Government

By Dr. Richard M. Ebeling (20 August 2012)
The gold standard alone is what the nineteenth-century freedom-loving leaders (who championed representative government, civil liberties, and prosperity for all) called “sound money.” The eminence and usefulness of the gold standard consists in the fact that it makes the supply of money depend on the profitability of mining gold, and thus checks large-scale inflationary ventures on the part of governments.
Ludwig von Mises

To discuss a possible roadmap to monetary freedom in the United States requires us to first determine what may be viewed as a “sound” or “unsound” money. Through most of the first 150 years of U.S. history, “sound money” was considered to be one based on a commodity standard, most frequently either gold or silver. In contrast, the history of paper, or fiat, monies was seen as an account of abuse, mismanagement and financial disaster, and thus “unsound” money.

The histories of the Continental Notes during the American Revolution, the Assignats during the French Revolution, and then Greenbacks and the Confederate Notes during the American Civil War, all warned of the dangers of unrestricted and discretionary government power over the monetary printing press.ii This view was summed up in the middle of the nineteenth century by the famous British economist, John Stuart Mill, whose Principles of Political Economy was a widely used textbook for decades not only in his native Great Britain, but in the United States, as well:
The issuers may add to it indefinitely, lowering its value and raising prices in proportion; they may, in other words depreciate the currency without limit. Such a power, in whomsoever vested, is an intolerable evil.... To be able to pay off the national debt, defray the expenses of government without taxation, and in fine, to make the fortunes of the entire community, is a brilliant prospect, when once a man is capable of believing that printing a few characters on bits of paper will do it . . . There is therefore a preponderance of reasons in favor of a convertible, in preference to even the best-regulated inconvertible currency. The temptation to over-issue, in certain financial emergencies is so strong, that nothing is admissible which can tend, in however slight a degree, to weaken the barriers that restrain it.
Episodes of great inflations in countries like Germany, Austria, and China in the twentieth century only have reinforced the advocates of “sound money” on the dangers of paper money in the hands of any political authority.

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