Cryptocurrency: Sound Money Is Key To Defending Our Liberties

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Sound Money Is Key to Defending Our Liberties

Tags BitcoinMoney and BanksStrategy
11 hours agoThorsten Polleit

The title of this article epitomizes what the Austrian economist
Ludwig von Mises (1881–1973) called the “sound money principle.” As
Mises put it:

    The sound-money principle has two aspects. It is affirmative in
approving the market’s choice of a commonly used medium of exchange.
It is negative in obstructing the government’s propensity to meddle
with the currency system.1

And further:

    It is impossible to grasp the meaning of the idea of sound money
if one does not realise that it was devised as an instrument for the
protection of civil liberties against despotic inroads on the part of
governments. Ideologically it belongs in the same class with political
constitutions and bills of right.2

Mises tells us that sound money is an indispensable line of defense of
people's liberties against the encroachment on the part of the state
and that sound money is a kind of money that is not dictated by the
state but is chosen by the people in the free marketplace. The world
we find ourselves in is a rather different place. Our monies—be it the
US dollar, the euro, the Chinese renminbi, the yen, or the Swiss
franc—represent fiat currencies, monopolized by the state.

Fiat money is economically and socially destructive—with far-reaching
and seriously harmful economic and societal consequences, effects that
extend beyond what most people would imagine. Fiat money is
inflationary; it benefits a few at the expense of many others; it
causes boom-and-bust cycles; it leads to overindebtedness; it corrupts
society’s morals; and it paves the way toward the almighty,
all-powerful state, toward tyranny.
Central Banking Is Marxist

It is certainly no coincidence that “the state” has been expanding
ever since the world adopted an unfettered fiat money regime back in
the early 1970s, and that as a result individual liberties and
freedoms have been under pressure ever since. The state feeds itself
on fiat money. It simply issues new debt, which is then monetized by
the its central bank, which is at the heart of the fiat money regime.

Perhaps you will find it surprising that I believe that the concept of
central banking is truly a Marxist concept. (I am not saying that
central banking is only favored by Marxists. Not at all! There are
also many other ideologies which approve of central banking.)

In their Communist Manifesto of 1848, Karl Marx (1818–83) and
Friedrich Engels (1820–95) compiled a list of measures necessary to
establish communism. Measure number 5 reads as follows:

    Centralisation of credit in the hands of the state, by means of a
national bank with state capital and an exclusive monopoly.

Against this backdrop there should be no doubt that once the state has
become the absolute ruler of fiat money, the door is open for it to
grow bigger and bigger, eventually turning into the dreaded deep
state. And the deep state, as we know well from history, has little
regard for individual freedoms and liberties.
Making Money Great Again: Returning to Sound Money

What needs to be done? Well, the challenge at hand is “Making Money
Great Again”! This requires, first and foremost, ending the state’s
money production monopoly and opening up a free market in money.  A
free market in money means that people have the freedom to choose the
kind of money they wish to use and that people have the freedom to
provide their fellow men with alternative goods that may serve them
well as money.

As things stand, however, a final solution to the “money problem” has
not arrived yet—even considering the emergence of the cryptocurrency
space. This is because the financial intermediation problem is still
unsolved in the cryptocurrency ecosystem; we will come back to this
issue in a moment.

But first let us address the question: How can we get from a
state-controlled fiat money regime to a free market in money?

The first strategy is monetary enlightenment—informing the widest
possible audience about the evils of fiat money and how it affects
their personal lives, families, and communities. This also includes
explaining to people that there is a superior and practicable
alternative to a fiat money regime, namely a free market in money.

The second strategy is making progress in the field of alternative
currencies and payment systems, especially in terms of technological
disruptions and their economic profitability. This is the activity
space for those among us who are propelled by entrepreneurial spirit.
The Limits of Cryptocurrency

The cryptocurrency community, the bitcoin community in particular, and
also precious metals–based payment system providers have been making
some headway in this area in recent years, but unfortunately victory
has not yet been achieved.

For instance, bitcoin still has some scalability and performance
issues. Currently, the bitcoin network settles a peak of around
350,000 transactions worldwide every day, and given its present
configuration, it is presumably running at almost full capacity. By
comparison, the German fiat money payment system alone processes more
than 75 million transactions on average every business day.3 From the
payment processing viewpoint, bitcoin cannot outshine fiat currencies
yet.

What is more, a currency in a modern economy must provide for the
possibility of financial intermediation (an issue I mentioned
earlier).4 People typically demand payment or storage services for
their money, or they want to lend and borrow money—irrespective of the
kind of money they actually use. Often peer-to-peer is not enough, a
third party is required.

Providing intermediation services outside existing state regulation is
difficult. In fact, it would put an upper limit on the financial
sophistication of any cryptocurrency. This is a heavy drag on their
competitiveness compared to fiat currencies. And if a cryptocurrency
comes out into the open space, it will have the state breathing down
its neck, drowning it in business-destroying regulations and
restrictions. Because the financial intermediation problem is still
unsolved, one has reason to remain skeptical that—given the current
circumstances—existing cryptocurrencies will succeed in pushing aside
the state and replacing its fiat currency just like that.

Precious metals suffer from similar problems. In many countries, the
state subjects gold and silver to value-added taxes and/or capital
gains taxes. This makes them uncompetitive versus fiat currencies in
terms of using them in daily transactions.
The Key to Free Market Money Is Deconstructing the State

In fact, is it possible that a free market in money can ever emerge as
long as there is the kind of state we know today? The state is, as
most of you probably know, the territorial monopolist of ultimate
decision-making with the right to tax its citizens. We can rightfully
expect that this kind of state will do its best to crush any
competitor to its fiat money and prevent a free market in money from
emerging.

So if we want a free market in money, the sobering logical conclusion
is this: we need to reform, to deconstruct, the state (as we know it
today).

Now the uncomfortable truth is out, because the state is possibly the
fiercest adversary you could choose. How can we hope to achieve
victory?

Well, there is certainly no magic spell. One possible and
straightforward strategy might be appealing to people's inner self,
and that is their right to self-determination.

The right to self-determination is inalienable and it is an
indisputable truth. Each and every individual is the owner of his or
her body and the owner of goods acquired in nonaggressive ways
(without violating the physical integrity of someone else's property).
We cannot dispute these words without causing a logical contradiction.

The right to self-determination implies that the citizens of a state
have the right (1) to make it known, by a freely conducted plebiscite,
that they no longer wish to be members of the state and (2) to form an
independent state or to attach themselves to some other state. In
other words: the right to self-determination includes the right of
secession, that is, people's right to break up the big state and to
deconstruct it into smaller units.

Smaller political units are less powerful, more peaceful, and free
market oriented. They keep taxation low, or may even go without it and
become wealthier. Just think of, e.g., Shanghai, Hong Kong,
Switzerland, Liechtenstein, or Monaco. This is because small political
units must compete for capital and talents with other political units.
They must behave themselves nicely. Otherwise, people and capital will
leave their territory. Given a great number of small political units,
there is a good chance that some of them will allow for, even
encourage, a free market in money, setting an example that creates
emulators.
Conclusion

It is hard to say which route would be the most effective in “Making
Money Great Again.”

Perhaps the cryptocurrency community will somehow succeed in ending
the state (as we know it today), leaving a truly free market in money
in its place.

In the meantime, however, it certainly would not hurt if we (1) kept
educating the wider audience about what good money is and what bad
money is and also (2) kept unmasking the state (as we know it today),
showing that it is incompatible with and a violation of the
inalienable right to self-determination of each and every human being.

In any case, it is of the utmost importance to wrest the money
monopoly out of the hands of the state. Otherwise, there is indeed
little hope that the free society (or what little is left of it) can
survive.