This article was originally published by Matt Ray at The Mises Institute.
For more than a century, an inflationary monetary policy has plagued the United States. Most recently, price inflation has become the most obvious consequence of the Federal Reserve’s actions to the public. Other effects, while less visible, have been no less pernicious. Indeed, inflation is particularly insidious because rising prices can mask a transfer of wealth. Additionally, the Fed’s policies of artificially low interest rates and quantitative easing have discouraged savings and fueled boom-bust cycles.
As these monetary issues have continued to intensify, the need for solutions has become more urgent. The purpose of this article is to demonstrate the ways in which paper money and centralization reinforce each other and to explore how political decentralization can promote sound money.
One of the more obvious ways fiat money enables centralization is by removing the limitations on the power of the government to inflate the currency that exists under a commodity money standard. Under a system of unbacked fiat money, there are fewer limitations on the ability of the regime to increase government spending by inflating the money supply.
Still, the central government risks the depreciation of its own currency in terms of harder currencies. As a territorial monopolist of compulsion, however, a state can compel the acceptance of its currency through legal tender laws and by taxing or even prohibiting alternatives within its jurisdiction. From this, it follows that as a state expands the territory under its control, it can compel more people to accept its currency—for example by requiring the payment of taxes in the government’s official currency. To illustrate this, we will review some of the ways the United States government has reinforced its currency.
In 1865, the federal government imposed a tax on state banknotes to limit their circulation. However, Franklin Roosevelt went even further by prohibiting American citizens from owning more than a small amount of monetary gold. While this prohibition has since been repealed, capital gains taxes still limit the use of gold. Internationally, military dominance has helped the United States secure the dollar’s status as reserve currency through international monetary agreements and supranational organizations like the International Monetary Fund, which allow for coordinated inflation. These are some of the ways in which centralization has enabled the US’s fiat money.
In distinct contrast, decentralization would weaken the current monetary system. Indeed, taken to its logical conclusion, decentralization would eventually require the abandonment of the current system and the restoration of sound money. Hans-Hermann Hoppe explains:
Yet if one then imagines a proliferation of ever smaller national territories, ultimately to the point where each household forms its own country, [Milton] Friedman’s proposal is revealed for what it is—an outright absurdity. For if every household were to issue its own paper currency, the world would be right back at barter. No one would accept anyone else’s paper, economic calculation would be impossible, and trade would come to a virtual standstill. It is only due to centuries of political centralization and the fact that only a relatively small number of countries and national currencies remain, and hence that the disintegrative consequences and calculational difficulties are far less severe, that this could have been overlooked. From this theoretical insight it follows that secession, provided it proceeds far enough, will actually promote monetary integration. In a world of hundreds of thousands of independent political units, each country would have to abandon the current fiat money system which has been responsible for the greatest worldwide inflation in all of human history and once again adopt an international commodity money system such as the gold standard.1
As we have seen, the current system of freely fluctuating paper currencies with the US dollar as a reserve currency would not have been possible without political centralization. Put differently, the system of multiple paper currencies hinders exchange. At the same time, the further decentralization proceeds, the more difficult it becomes to maintain a relatively high standard of living under a policy of autarky. Thus, as decentralization proceeds and the pressure for free trade increases, it becomes increasingly necessary to adopt an international currency outside the control of any government.
To be sure, there are more direct ways to restore sound money. Ludwig von Mises has explained how this could be accomplished. However, we should not expect policymakers to embrace Mises’s proposal any time soon. In the short term, the nullification or repeal of all taxes on alternatives to fiat money—such as gold and bitcoin—is a reasonable goal for a decentralist strategy.
Decentralization is not a panacea that will cure our monetary ills overnight. But it would represent an important first step toward the restoration of sound money.
That’s not a request for sound money; a request for sound money is the restoration of sovereign fiat and breaking with the Federal Reserve.
A profitable bitcoin investment is like any other foreign currency trade; of course its going to be taxable in the national fiat.
A profitable gold trade is like any other commodity trade; of course its going to be taxable in the national fiat.
It would be far more logical to ask for tax breaks on a losing bitcoin investment.
The reason why non-physical gold sells so well, is that’s plugged into the tax writeoff system.
Its highly unlikely any present-day national leader is going to be the financial equivalent of Roman Emperor Caracalla.
Emperor Caracalla decentralized and debased Roman citizenship by granting citizenship universally to all aliens throughout the Empire, removing Roman the last driving force behind Imperial unity.
Not all of us want the USA to crash and burn so other organized forces can take over and/or partition the country.
B A.T. – In order to restore and recapture rights and freedoms to the individual citizen and states, central authoritarian power must be reduced to the point of impotency. The only way that can happen is secession and partition. In order for a central government to maintain power and control it must exist at the expense of individual and state’s rights, which are otherwise all amply explained and guaranteed in the Constitution.
Since the fed. government is never satisfied with its level of power it will eventually evolve into an absolute autocratic/oligarchy nation to have the power and control it desires. Without secession it is not if but when. For some reason though, many people would rather live with their necks under a boot heel and see their children kiss their chains than see US territory secede.
Presently, the federal State sees states as merely units of the federal government. The central (federal) government would not willingly allow even one state to exist as sovereign (although Constitutionally each are). Once a state breaks loose it and its citizens are no longer under a massive central authority, it and they would by default will be freer. Other states would quickly leave too. The fed. State know that.
Now if some citizens in other states want a heavy-handed government they can have it, but that state would not keep many of its people long knowing they can merely move across a state line.
We could all still maintain security as states or as new countries, we could form a defense pact similar to NATO, and also develop pacts to facilitate economic and commerce concerns. Other agreements could negotiate freedom of movement and from one state to another, and a variety of necessary items.
History has always shown devolved power and control equals more freedom, evolved power and control equals less freedom, it’s that simple.
No to a central authoritarian government, no to fiat money, no to national Dem. and Rep. parties, no to the MIC, no to onerous fed. laws and regulations, no to invasive surveillance and spying on citizens, no to its globalist agenda, and no to its endless effort to take away our rights.
SECESSION NOW !!!
America is a mortgage, and we no longer hold the mortgage.
I fail to see any plan to actually accomplish this.
That means it is wishful thinking instead of an actionable workable strategy.
IOW, a fantasy.
Unfortunately, the vast majority of people are sheep and controlled by the herd instinct and timidity. They are incapable of initiative or independent thought and action, even when they are suffering or or miserable and desire change. However, a critical mass of people for change is developing. A majority was never necessary to change a country or a society, or actually any institution, for the good or the bad. And the various causes/reasons for secession or partition or whatever the terminology are gradually congealing into a unity that will be formidable. One cannot say for certain when, or what the exact catalyst will be, but the breakup of the US is inevitable.
Otherwise, you should prepare for the future by teaching your children and grandchildren to meekly submit to all authority, that obedience to the government is the highest virtue, and to surrender all their individual freedoms for the greater good. The government will thank you for instilling defeatism in them. For extra good measure you should also teach them be effeminate, and to hate themselves and hate God.
How would you convince the general public that a gold standard is preferable to, say, a bitcoin standard, or a silver standard? After all, only 1% of the general public believe that precious is money.
Where would you get the gold to back up this standard? Are the banks going to hand it back to the government from which they stole it? Is the government going to redistribute it to the people whom they stole it from?
Even if you revert to a gold standard, it matters little. The economy is not a monetary construct, it is an energy construct. The world runs on cheap energy in the form of coal, oil, and other hydrocarbons. Any type of monetary system is based on surplus of these fuels to keep the wheels turning. There is now a lack of net energy surplus worldwide. The rotary motion is reduced to stops and starts. It will eventually stop completely when the supply chains break.
No monetary system can stop the coming collapse of industrial civilization and you are going to be back to barter anyway. Mad Max is just over the horizon. Better put some leather conditioner on them assless chaps and tune up the sand rail.
Marxists believed that power -socially control- was being concentrated in the hands of those who controlled the means of production as the industrial revolution took control of our way of life.
They failed to understand that it is those who control the energy that is needed to run the means of production that are really in control.
We do what they say and live how they decide we should live with little real choice in the matter.
Nothing can be done about it.
In the United States, a return to the Constitution under Article 1, Sect. 10 would probably be the best way. It declares that only silver and gold are legal tender, and lists the weight and trade ratios of one to the other. The nature of free trade is inherently deflationary, and if all trade were in precious metals, no government or entity could impose inflation on the citizenry. If a one ounce silver coin is declared to be a “dollar” in the U.S. and a “Euro” across the pond, it would buy the same goods and services in either economy. We don’t need “new solutions” we need to return to what worked for thousands of years before to globalists came to power.
Matt Ray, thanks for the brilliant analysis. Our current system of “unbacked fiat currency” logically leads to “booms & busts” as the STATISTS cannot control themselves (always greater spending of TAX dollars in an effort to pander to one group or another for votes). Gold-backed currency might have saved the Republic 50, or so, years ago but the politicians (Represented by Nixon) were unwilling to deal with the hard decisions then. Now we have pushed the much more severe reckoning into our near future & current time.
Inflation is a severe & hidden TAX on working folks
Matt and -crane rigger,
You two are not seeing the geopolitical landscape for what it is. America is a mortgage, and you (the people) no longer own the mortgage. This article’s strategy is too late. It has been too late for some time. It’s impossible to develop strategies based on faulty premises.
I had to seek a definition for “autarky” which seems to mean a severe type of independence that has very little involvement in international trade. I disagree with the idea that an international currency, or some other method of exchange, is required to perpetuate our international markets. This Republic is NOT a mortgage. Our govt. has managed our wealth very poorly, borrowing heavily from other nations, but I disagree with the conclusion that we are DEBT-SLAVES to other nations.
Close, but NO cigar.
Money is being used to control us. It gives you a false sense of security.