Monday, September 2, 2013

Separation of money and state

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- It's simple: separation of money and state

- What do you mean by that?

- How does it sound?

- It sounds good. I don't know really know why.

- Is it because it reminds you of separation of church and state?

- Yeah. We've got that since the independence, so I guess I'm grateful the founders were of the Enlightenment.

- Well, our generation faces the same fight. What our ancestors achieved with church, we must accomplish with money.

- It sounds like a slogan. What do you mean?

- It means we need to abolish state sovereignty over money.

- Is that even possible? Kings, governments and regimes have always coined their money. That's the first thing they ever do, after the flag and before the anthem.

- Right. That needs to change.

- But why? Who else should manage the money?

- No one. Or better put, everyone. Money should spontaneously emerge from the free market place.

- But wait. That would mean chaos! Banks would be all-powerful and would dictate governments. Money would take all kinds of weird forms, from fraudulent debt certificates to cigarettes. The rich would get richer, and the powerful even more corrupt.

- I don't think so. Let them issue their debt certificates. I'm happy to let them compete. As long as the market is free, there is no government coercion and contracts are enforced fairly, gold is likely to emerge as the dominant currency.

- Can you imagine, in the 21st century, to carry your little bag of barter gold around, that's preposterous and vulgar! You must be joking!

- You could trust some of your gold to a cash company, that would issue electronic certificates for it. The market would then decide the value of those certificates. So you could use a plastic card or mobile phone nonetheless.

- Even if that's true, there is not enough gold to go around. We extract very little every year, and there's no way to manufacture it. So it wouldn't work.

- Any gold is enough gold. And the fact that its inventory is constant is a good thing. We don't care how the centigrade relates to temperature, as long as we agree on what's cold. And because it's rare, gold also stores the very value it is spontaneously chosen to measure.

- So if all the money is gold, and all the gold is money, then how am I going to measure the cheapest of things? A chewing-gum, two micrograms of gold please?

- It that makes you happy, why not. Electronic certificates certainly make that possible. You could also use silver and other commodities, or computing power, or anything of value to anyone else.

- Even if that's possible, I don't see the advantage. Central banks help avert economic shocks and downturns. They were established to prevent all the crises that happened because of the gold standard. They saved us a good many times.

- Saved who? Anyway, I disagree. My analysis rather points to central banking having caused the multi-generational impoverishment of societies through inflation, war, corruption, famine and pollution. In any case, I think it's morally wrong to enforce victimless crimes, whether through monetary monopoly claims or otherwise.

- Again with your libertarian logic. No, I don't buy it. Modern central banks are already distinct from government. They are a fundamental component of our Western democracies. We have passed through the Enlightenment of Economics. Experts and professors now have the proper models and data to steer us through harsh economic times. We would be lost without them.

- Even if they were benign, and uncorrupted by their phenomenal power, central economic planning doesn't work. A committee of old men, however eloquent or savant, cannot productively manipulate interest rates and asset prices. So let's agree to disagree on item 5 of the communist manifesto.

- That's preposterous! I'm shocked! You well know modern central banks are distinct from government! Next thing I know, you'll be saying the private and public sectors merge at the summit of power, and you'll be calling my views fascist! So which one is it? Communist or fascist?

- Certainly collectivist. But it doesn't really matter, does it? The Internet is making this debate obsolete.

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