Once
in a while we get comments from Austrian school economists about how binary
economics is completely off the wall, a cluster of errors, inflationary
nonsense . . . you see the drift. When
people disagree on matters monetary, pretty much anything goes if it undermines
the other person’s position.
That’s
why we were baffled by a
recent e-mail we received from the Ludwig von Mises Institute, advertising
a “Bitcoin Sale,” i.e., 25% off on
all book purchases made using the Bitcoin virtual currency through September
19, 2014 (last Friday). At least, we
assumed it was books; the e-mail didn’t actually specify whether or not it
also applied to purchases of tee shirts and sweatshirts, coffee mugs, and
chamber pots with photos of John Maynard Keynes pasted in the bottom.
Here’s
what baffled us. Austrian economics is supposed to be one of the “hard money" Currency
School sects. The general idea is that
“real” money — to be “real” money —
has to be either gold, or backed by gold.
You’ll find variations on this, of course (such as silver), but “good as
gold” seems to be the Austrian guiding principle, at least when it comes to
money.
We really don’t have too
many problems with that position. Some,
yes, but while an inelastic asset-backed reserve currency can cause serious
problems, they are nowhere near the magnitude of what you can get yourself in
to with an inelastic or, cosmically worse, elastic
government debt-backed reserve currency.
Inelastic debt-backed reserve currencies contributed to a series of
financial panics from 1844 to cir.
1913 in Great Britain and the United States, while elastic debt-backed reserve
currencies did the same thing on a massive scale after 1913 (can you say
“German hyperinflation”?), and have resulted in the global debt crisis.
The ideal, of course, is an elastic, asset-backed reserve
currency. This is what the Federal
Reserve was designed to provide, and what the German Reichsbank did provide,
prior to 1914. The First World War
resulted in the hijacking of the former, and the complete collapse of the
latter.
(For another piece of irony that we might post on in the future,
Keynes completely undermined the soundness of the Federal Reserve once it was
put back on track after World War I by instituting a debt-backed reserve
currency with the New Deal, less than a decade after Hjalmar Schacht performed
his economic miracle in Germany by restoring an asset-backed reserve currency
that stopped the hyperinflation.)
Now for the irony in this situation. For all the Austrian championing of
asset-backed currencies, it seems more than a little odd that they would
acquiesce in the whole Bitcoin craze.
Austrians are supposed to be “hard money” folks, yet the Bitcoin is the
softest of soft currencies.
That is, the Bitcoin is not based on or backed by gold or any
other hard asset, but by speculative opinion as to the value of a virtual (i.e., non-existent) commodity, the
Bitcoin itself. The Bitcoin backs itself, which is similar to the error
AIG made when it invested its insurance pool in the very thing it was insuring.
This simply does not make sense. Even the Euro, a reserve currency that has never been anything other than debt-backed, is secured (if that is the right word) by the ability of the various governments of the countries using it to tax and redeem the debt they have issued to monetize their deficits. The Bitcoin is not backed by anything whatsoever.
This simply does not make sense. Even the Euro, a reserve currency that has never been anything other than debt-backed, is secured (if that is the right word) by the ability of the various governments of the countries using it to tax and redeem the debt they have issued to monetize their deficits. The Bitcoin is not backed by anything whatsoever.
The fact that the Ludwig von Mises Institute is
now accepting Bitcoins does suggest something, however. There might now be a willingness on their part to listen seriously
to the proposals in the Just Third Way instead of dismissing them out of hand
without anything approaching an objective assessment.
After all, if they’re willing to accept “money”
that has no backing at all, this suggests that they are at least willing to
discuss a reformed money and credit system in which the money to clear existing
inventories is backed by any existing asset with a definable value
(technically, a “mortgage”), while new capital formation and future production
is financed by bills of exchange backed by the present value of future
increases in production.
After all, asset backing, even if it isn’t gold,
has got to be better than no backing at all.
#30#
