ftcb21 on Nostr: THE PRODUCTION OF MONEY in a free society is a matter of free association. Everybody ...

THE PRODUCTION OF MONEY in a free society is a matter of
free association. Everybody from the miners to the
owners of the mines, to the minters, and up to the cus-
tomers who buy the minted coins, all of them benefit
from the production of money. None of them violates
the property rights of anybody else, because everybody
is free to enter the mining and minting business, and
nobody is obliged to buy the product.

Things are completely different once we turn to
money production in interventionist regimes, which
have prevailed in the West for the better part of the
past 150 years. Here we need to mention in particular
two institutional forms of monetary interventionism:
(fraudulent) fractional-reserve banking and fiat money.
The common characteristic of both these institutions is
that they violate the principle of free association. They
enable the producers of paper money and of money
titles to expand their production through the violation
of other people’s property rights.

Banking is fraudulent whenever bankers sell
uncovered or only partially covered money substitutes
that they present as fully covered titles for money.
These bankers sell more money substitutes than they could have sold if they had taken care to keep a 100
percent reserve for each substitute they issued.
The producer of fiat money (in our days typically:
paper money) sells a product that cannot withstand the
competition of free-market monies such as gold and
silver coins, and which the market participants only
use because the use of all other monies is severely
restricted or even outlawed. The most eloquent illus-
tration of this fact is that paper money in all countries
has been protected through legal tender laws. Paper
money is inherently fiat money; it cannot thrive but
when it is imposed by the state.

In both cases, the production of money is excessive
because it is no longer constrained by the informed
and voluntary association of the buying public. On a free market, paper money could not sustain the com-
petition of the far superior metal monies. The produc-
tion of any quantity of paper money is therefore exces-
sive by the standards of a free society. Similarly, frac-
tional-reserve banking produces excessive quantities
of money substitutes, at any rate in those cases in
which the customers are not informed that they are
offered fractional-reserve bank deposits, rather than
genuine money titles.

This excessive production of money and money
titles is inflation by the Rothbardian definition, which
we have adapted in the present study to the case of
paper money. Inflation is an unjustifiable redistribution
of income in favor of those who receive the new
money and money titles first, and to the detriment of
those who receive them last. In practice the redistribu-
tion always works out in favor of the fiat-money pro-
ducers themselves (whom we misleadingly call “cen-
tral banks”) and of their partners in the banking sector
and at the stock exchange. And of course inflation
works out to the advantage of governments and their
closest allies in the business world. Inflation is the
vehicle through which these individuals and groups
enrich themselves, unjustifiably, at the expense of the
citizenry at large. If there is any truth to the socialist
caricature of capitalism—an economic system that
exploits the poor to the benefit of the rich—then this
caricature holds true for a capitalist system strangulated
by inflation. The relentless influx of paper money
makes the wealthy and powerful richer and more
powerful than they would be if they depended exclu-
sively on the voluntary support of their fellow citizens.
And because it shields the political and economic
establishment of the country from the competition. emanating from the rest of society, inflation puts a
brake on social mobility. The rich stay rich (longer)
and the poor stay poor (longer) than they would in a
free society.21
The famous economist Josef Schumpeter once
presented inflation as the harbinger of innovation. As
he had it, inflationary issues of banknotes would
serve to finance upstart entrepreneurs who had great ideas but lacked capital.22 Now, even if we abstract
from the questionable ethical character of this pro-
posal, which boils down to subsidizing any self-
appointed innovator at the involuntary expense of all
other members of society, we must say that, in light
of practical experience, Schumpeter’s scheme is wish-
ful thinking. Credit expansion financed through print-
ing money is in practice the very opposite of a way
to combat the economic establishment. It is the pre-
ferred means of survival for an establishment that can-
not, or can no longer, sustain the competition of its
competitors. #bitcoin