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Euro-sclerosis
Euro-sclerosis
There appears to be little or nothing in the monetarists’ handbook to enable them to assess the risk of a loss of confidence in the purchasing power of a paper currency. Furthermore, since today’s macroeconomists have chosen to deny Say’s Law1, otherwise known as the laws of the markets, they have little hope of grasping the more subtle aspects of the role of money in price formation. It would appear that this potentially important issue is being ignored at a time when the Eurozone faces growing systemic risks that could ultimately challenge the euro’s validity as money.
The euro is primarily vulnerable because it has not existed for very long and its origin as money was simply decreed. It did not evolve out of marks, francs, lira or anything else; it just replaced the existing currencies of member states overnight by diktat. This contrasts with the dollar or sterling, whose origins were as gold substitutes and which evolved in steps over the last century to become standalone unbacked fiat. The reason this difference is important is summed up in the regression theorem.
The theorem posits that money must have an origin in its value for a non-monetary purpose. That is why gold, which was originally ornamental and is still used as jewellery endures, while all government currencies throughout history have ultimately failed. It therefore follows that in the absence of this use-value, trust in money is fundamental to modern currencies.
The theorem explains why we can automatically assume, for the purposes of transactions, that prices reflect the subjective values of the goods and services that we buy. This is in contrast with money that is not consumed but merely changes hands, and both parties in a transaction ascribe to money an objective value. And this is why the symptoms of monetary inflation are commonly referred to as rising prices instead of a fall in the purchasing power of money.
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The End Is Near, Part 1: The “War On Cash”
The End Is Near, Part 1: The “War On Cash”
As the saying goes, you can know a person by the quality of his or her enemies. This is also true of societies, where moral evolution can be traced by simply listing the things on which they declare war. Not so long ago, for instance, the world’s good guys — the US, Europe’s democracies and a few others — fought existential battles against fascism and communism. Then they went after poverty and discrimination. They were, at least in terms of their ideals, on the side of personal freedom and opportunity and against institutionalized control.
But then came the war on drugs, in which the US imprisoned millions of non-violent people guilty only of voluntary transaction. Not long after that we declared war on “terror,” using the enemies created by our own incompetent foreign policy as an excuse for a vast expansion of surveillance and police militarization.
And now, seemingly out of nowhere, comes a new enemy: cash. Around the world, governments and banks are making it harder to save and transact with paper and coin. The ultimate goal seems to be the elimination of private tools of commerce, in favor of transparent (to governments and banks) plastic, checks and online payment systems. The following excerpts are from longer articles that should be read in their entirety:
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The “War on Cash” in 10 Spine-Chilling Quotes
The “War on Cash” in 10 Spine-Chilling Quotes
The war on cash is escalating. As Mises’ Jo Salerno reports, the latest combatant to join the fray is JP Morgan Chase, the largest bank in the U.S., which recently enacted a policy restricting the use of cash in selected markets; bans cash payments for credit cards, mortgages, and auto loans; and disallows the storage of “any cash or coins” in safe deposit boxes. In other words, the war has moved on from one of words to actions.
Here are nine quotes that should chill the spine of any individual who cherishes his or her freedom and anonymity:
1. Kenneth Rogoff (from the intro to his paper The Costs and Benefits to Phasing Out Paper Currency):
Despite advances in transactions technologies, paper currency still constitutes a notable percentage of the money supply in most countries… Yet, it has important drawbacks. First, it can help facilitate activity in the underground (tax-evading) and illegal economy. Second, its existence creates the artifact of the zero bound on the nominal interest rate.
In other words, cash (not money) is the source of all evil and must be destroyed because governments can’t trace its every movement, and it represents a limiting factor on central banks’ ability to continue their insane negative-interest-rate experiment.
2. Citigroup’s Chief Economist Willem Buiter responds to the monetary economist Charles Goodhart’s description of abolishing currency as “shockingly illiberal.”
(T)his cost has to be seen against the cost that the anonymity of currency presents to society. Even though hard evidence is hard to come by, it is very likely that the underground economy and the criminal community are among the heaviest users of currency.
This, I believe, is the hidden intent behind all the excited talk about banning cash: to do away with the personal anonymity it offers.
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