Sound Money Isn’t Enough

Today we recognize a distressing possibility: Sound money does not ensure sound government.

That is, sound money – in our fallen world of sin and vice – cannot constrain sinful and viceful men hostile to sound government.

Nor can constitutions and bills of rights. Is it proof you need? We merely refer you to the innumerable rascalities of the United States government.

The Daily Reckoning has for years beat its tom-toms for private, decentralized money. That is because we believe private, decentralized money is the money of freedom.

And we are heart and soul for freedom – our freedom, your freedom, the fellow’s freedom three miles down the street… the fellow’s freedom 3,000 miles across the country.

That is one reason we embrace gold. It is independent of the state. Government cannot fabricate it into existence at a stroke. Human labor must haul it out of the ground.

Gold exists in adequate – yet limited – quantities. The fiat dollar exists in potentially unlimited quantities.

A Dangerous Servant and a Fearful Master

The paper dollar — or today’s digital dollar — is also the great bogey of the boom/bust cycle. It inflates bubbles of every model, of every make.

Meantime, paper money fuels big government in the manner oxygen fuels fire. And as Washington long ago warned:

“Like fire [government] is a dangerous servant and a fearful master.”

Unlike the fiat dollar, gold is a sound money. It is therefore an honest money.

And as we have argued before: Anything honest in this world of sin and vice is worth a huzzah, worth a defense.

So little honesty remains.

Unlike fiat money, sound money encourages the virtues of saving… thrift… deferred gratification. It sets the mind to the future.

And an honest, sound money is a disciplined money. It chains government down in thick, impossible fetters.

A state in charge of money is a fox in charge of a henhouse.

“Gold Embodies the Public Spirit of an Alley Cat”

As we have also written before, gold resists social improvement. The greater good is beyond its care. It lacks all human compassion.

Gold embodies the public spirit of an alley cat. We like that about gold. It suits our frosty and aloof disposition.

And it turns from the sound of trumpets. “You go over there,” gold tells its paper counterpart. “I’ll stay here.”

Paper money, fiat money, debased money, this is the money for public service.

That is because fiat money is civic-minded. It has a heart. And unlike gold, it follows orders.

Whatever war, whatever boondoggle, whatever swindle it is ordered to throw in with… it will throw in with.

Fiat money willingly sacrifices its value for the greater good. Gold, meantime, fiercely and jealously guards its own.

The Evils of Government Money

“Austrian” school economist Ryan McMaken:

State-controlled money is immoral, dangerous and impoverishing. It paves the way for government theft of private wealth through the inflation tax, and thus allows the state to do more of what it does best: wage wars, kill, imprison, steal and enrich the friends of the regime at the expense of everyone else. Privatizing the monetary system and imposing a “separation of money and state” would help limit these activities.

Today many cryptocurrency drummers believe these digital currencies are 21st-century gold. They are private creations of the free market. Governments cannot monkey them.

Utopianists even believe cryptocurrencies can banish the state altogether, consigning it forevermore to history’s hell box.

Sound Money Won’t Fix the World

Yet does private, decentralized money necessarily equal freedom from state clutches? McMaken:

It’s also important to not overstate the benefits of taking money out of the hands of the state. The temptation to push the “fix the world” idea to utopian levels is often seen among cryptocurrency maximalists, and among some gold promoters as well…

The idea that changing to different money will somehow end theft, poverty or even war is the sort of messianic thinking that would have given old-school Marxists a run for their money.

Gold – after all – predated the state. Yet gold did not box in the state, the ambitious, avaricious and mischievous state.

The state grew and grew under gold… as the tick grows and grows under intake of blood. Again, McMaken:

States long predate the money monopolies they now enjoy. During the sixteenth and seventeenth centuries — without the benefit of fiat currencies — states created enormous standing armies for the first time. They established mercantilist economies. Many rulers managed to assemble large bureaucracies to serve absolutist states. States were centralized to a degree that had not been seen in Western Europe since the Romans. It was a period of enormous gains in state building for princes and their agents.


Yet these states could not “print money” nor enjoy the benefits of fiat money except in very short-lived and limited cases. Indeed, this period of immense state growth was also a period of “concurrent” and “parallel” currencies during which a wide variety of gold and silver coins — most of them foreign — competed within the borders of a single state. Many efforts by regimes to issue questionable, debased money failed because there were so many alternatives. But this didn’t stop, say, Louis XIV from hammering together a powerful state.

Here is McMaken’s frowning and spirit-stealing conclusion:

So when we ask ourselves the question “Can states survive without fiat currency?” the answer is clearly, “All experience points to yes.”

Alas… all experience does point to yes.

The state does not require a monopoly on money to conduct its business, this fellow notes. What does it require?

It merely requires a monopoly on coercive power – the coercive power of taxation in particular.

Taxation is the bloodstream of the state, the living and vital bloodstream of the state. So long as taxes flow in, the heart is busy… and the blood flows freely.

Do you believe cryptocurrencies deliver you from the tax collector’s iron clasp? Have another guess…

No Escaping the Tax Man

Some advocates of cryptocurrencies have nonetheless attempted to claim that when the financial system is decentralized through crypto networks states will somehow be unable to tax. This would work if resources took no form other than money. But that’s not the case. Since human beings are physical beings — with needs for food, water, shelter, heating and more — the state need only concentrate on taxing and monitoring physical goods. This would certainly shift the tax burden from the financial sector to physical assets, but it wouldn’t end the ability to tax.

Rather, if states find themselves with less access to the monetized economy, states will instead increase taxes on real estate, retail trade, fuel and hard-to-move physical capital. These states could even require that these payments be made in the state’s preferred money, thus ensuring the continuation of state-controlled money, even if that money is a less preferred money within a competitive framework.

And if you refuse?

Those who refuse to comply would see their assets confiscated at the point of a state-wielded gun.

Sound Money: Only One Piece of a Much Larger Puzzle

In conclusion:

Yes, taking the control of money out of the hands of politicians and bureaucrats is clearly a good thing, and ought to be done quickly and thoroughly. But it won’t “fix the world.” It’s only a piece of a much larger puzzle.

One piece of a much larger puzzle… indeed.

As we argued near the onset: Sound money – in our fallen world of sin and vice – cannot constrain sinful and viceful men hostile to sound government.

Alas, the ability to constrain sinful and viceful men is the puzzle piece that forever eludes us…


Brian Maher

Brian Maher
Managing Editor, The Daily Reckoning

The Daily Reckoning