What a Free Market in Money Might Look Like



9000918546_b71ff81828_bThorsten Polleit writes (originally in German):

Market competition brings results that satisfy the wants of its participants. The market brings more goods and better goods at ever lower prices. And just as competition in the market for books, sneakers and crayons work well, so would a free market for money also work.

Consumers would have a free choice in currencies provided by the market. Each would choose the market offering that best meets his needs in his view. No one would ask for “bad money,” but would seek”good” money, namely, money which is scarce, which can not be increased, which is divisible, which is durable, which is portable, and which is generally appreciated. In other words, those who demand money would determine what is money.

A Discovery Process With An Unknown Outcome

Currency competition is a discovery process. One can not know what the outcome will be. However, We can estimate today what “good money” might be. We should include precious metals, especially gold and silver, as natural money candidates. A precious metal money would not necessarily be physically present. It could for example be digitized. With it, you could continue to pay as usual with checks, credit card, direct debit, internet banking and Apple Pay or Paypal.

The important property of the precious metal money would be that the money would no longer be manipulated by governments and central banks. The “boom-and-bust” cycles would have an end, and money savings would no longer by chronically devalued, the debt delusion would be stopped, the ever-growing, freedom-destroying states, no longer empowered by fiat money, would be curtailed.

As part of currency competition is quite conceivable that a small number of mediums of exchange arise including Bitcoin, the cybercurrencies, or a combination of several currencies: Bitcoin for the daily, small-scale payments on the Internet or supermarket, Gold silver and preferably for large payments and savings.

Try Federalism, Not Federal Domination



From the moment it became obvious Tuesday’s Republican wave would make shore, media mouths began talking up the problems its leaders would face in converting a widespread rejection of Obama’s policies into a positive agenda. Given that the abusive centralization of power was the core of what the electorate was saying no to, leaders would do well to focus on restoring Constitutional federalism.

At America’s founding, decentralization of power—a federal system, rather than a national system, (better described as “The States, United solely for specified joint purposes,” than “The United States”)—played a key role in protecting Americans’ liberties from infringement. However, in America today, for every problem, real or imagined, a “federal father knows best” program is imposed or proposed, regardless of how individual, local, or varied Americans’ preferences are.


America’s founders did not envision the federal government as being involved in virtually any decision made by anyone, much less as the domineering senior partner for almost every decision made by everyone. As Alexander Hamilton wrote in Federalist 17: “all those things…proper to be provided by local legislation, can never be desirable cares of a general jurisdiction.” James Madison wrote in Federalist 39 that “the new Constitution will…be a federal, and not a national constitution,” and in Federalist 45 that “The powers delegated by the proposed Constitution to the Federal Government are few and defined…exercised principally on external objects.”

The current nationalization of every decision is blatantly inconsistent with individual rights and our founders’ federalism, designed to constrain national government to few, enumerated powers. Since Americans sharply disagree about what they want government to do, national imposition really means some political majority is empowered to impose its will on others nationwide, no matter the harm those tyrannized over bear. In contrast, federalism allows the “law and order” necessary to freedom to be provided without empowering national political domination.

Under federalism, the potential of voting with your feet into other jurisdictions limits the burdens majorities can impose on those who disagree. Even more, leaving arrangements to be made voluntarily in markets represents a democracy in which every dollar vote counts, without providing the ability to violate others’ rights.

As Dwight Lee put it, “the chief concern of the framers of the Constitution was not that of insuring a fully democratic political structure. Instead they were concerned with limiting government power in order to minimize the abuse of majority rule.” Or as R.A. Humphreys summarized, our founders “were concerned not to make America safe for democracy, but to make democracy safe for America.” And as Albert Jay Nock recognized, the expansion of the state is not an expansion, but rather a contraction, of social (voluntary) power, in which, “The State has said to society, You are either not exercising enough power…or are exercising it in what I think is an incompetent way, so I shall confiscate your power, and exercise it to suit myself.”

The Bill of Rights demonstrated the importance of limiting the national government’s ability to infringe on electoral minorities. It did not involve “positive” rights to receive things without an obligation to earn them, because extracting the resources to pay for them necessarily violates others’ inalienable rights to themselves and their productive efforts (called theft, unless the government does it).

The Bill of Rights defended “negative” rights–prohibitions against unwanted intrusions by government. Even its central positive right–to a jury trial—exists to defend individuals’ negative rights against railroading by the superior power of government. And the Ninth and Tenth Amendments made clear that all rights not expressly delegated to Washington do not rest there.

Government has no resources but those taken from citizens. Therefore, majority largesse is limited by how much harm the government can impose on involuntary “donors.” Federalism sharply limits that abuse, preventing the milking of the citizens those governments “represent” by more than the cost of leaving a state or municipality, rather than the much higher cost of leaving the country. This exit option is a central protection against government abuse when it is not eviscerated.

Power in America has been increasingly taken from individuals and local self-government, forcibly centralized in Washington. Federalizing everything, including plainly private and local choices, has not benefitted nor unified America, as indicated by the increasing intensity of the battles to control what is to be imposed on everyone. For Republicans to live up to the “no” they campaigned for with a positive agenda, they need to resurrect the Constitution’s federalism, leaving people to make their own decisions beyond the very few areas where their choices must necessarily be in common. Only then can they begin undoing the ever-growing gravitational pull of centralized political determination, which is tyranny, even when it is tyranny of the most recent majority.

After QE, Whither the Economy?



Charles Plosser

Charles Plosser

Jeff Peshut of RealForecasts.com  gives an insightful analysis of the likely effect of the termination of the Fed’s QE programs on TMS, the money supply aggregate formulated by Murray Rothbard and myself and regularly calculated by Michael Pollaro.

Peshut shows that the three rounds of QE succeeded  in dramatically increasing the growth rate of the money supply.   TMS stood at about $5.6 trillion at the beginning of the QE1 in November 2008, growing to $10.5 trillion by the end of September of this year.  The average annual increase of TMS was thus over $800 billion during the period of quantitative easing.  The year-over-year growth rate of the money supply reached a high of over 16% during QE1, around 15% during QE2, and leveled off at 8% during the “tapering off” period of QE3.

Peshut also has a valuable discussion of the differential  impact of QE on base money, composed of currency plus “covered money substitutes” (equal to bank reserves), which is directly controlled by the Fed, and “uncovered money substitutes,” which are the deposits directly created by bank lending.

Peshut foresees the TMS growth rate accelerating in the short term and than decelerating toward zero through 2016, assuming the Fed maintains its current policy stance.  I have a slight quibble with this forecast.  As of now the Fed is continuing its ultra-easy monetary policy of targeting a zero interest rate, and most Fed officials do not foresee a change in this policy at least until mid-2015.  Charles Plosser, the soon to retire President of the Philadelphia Fed recently expressed strong reservations about this policy as the economy continues to pick up steam.  According to Plosser:

That [sic] are many indicators that tell us rates are too low.  We have been at zero for nearly six years and there is no precedent in history, even when inflation is too low, to have rates at zero when unemployment rates are as low as they are.  We are really behaving in a way that is outside historical norms and that should make us nervous.

And I am very nervous.  Trying to artificially suppress interest rates at extremely low levels as businesses increase borrowing and asset prices boom–a la the Greenspan Fed–is a recipe for a continued  massive expansion of the money supply that raises the prospect of another runaway bubble followed by a financial disaster.

The Costa Mesa Mises Circle



Here is a sampling of photos from our great Mises Circle event this past weekend in Southern California. The topic: Society without the State. Ron Paul and Judge Andrew Napolitano were our special guests. Over 300 people attended, plus 50 more in an overflow room and hundreds more watching online. Video of individual speeches will be available soon! Audio recordings are available now.



Thorsten Polleit on the Negative Interest Rate



Thorsten Polleit wrote the “con” side of a debate over whether or not the negative interest rate in Germany is a good thing. Dr. Thorsten’s contribution is in opposition to the “pro” side authored by Ulrich von Suntum (Universität Münster). This all appears (in German) in Wirtschaftswoche (tr: Economy Week) magazine.