However the details end up being worked out, the Brexit has revealed serious weaknesses not merely in the economic, political, and financial institutions of the European Union, but in the assumptions that guided — and continue to guide — the structuring of those institutions. This has led to an inherent instability that led, seemingly inevitably, to the Brexit.
|Keynes's Monetary Fables|
We’re sorry to burst anyone’s bubble, but — contrary to the standard Keynesian assumption that the government must control the money supply — a strong political union is not essential to the establishment and maintenance of an economic union or even a common currency. Very much the contrary: a sound economic union is essential to the establishment and maintenance of any political union.
Nor is it inevitable that economic unions or common currencies lead automatically to political unions. They can, of course, but it is in no wise inevitable. As has happened many times throughout history, a currency union led to stable economic and financial conditions, but left national sovereignty strictly alone. The Latin Monetary Union and the Scandinavian Monetary Union are cases in point. Yes, the Zollverein, the German Monetary Union, did eventually lead to a political union, but that was the result of other factors that had nothing to do with the monetary union per se.
The simple fact is that forming a political union of any kind before a sound financial system has been installed — or at the very minimum the two go in tandem — is, and has always been, a serious mistake. Try as they might, no government that ever existed has been able to legislate either morality or prosperity. They don’t stop trying, of course, and the more they try, the more chaotic things get.
|Providing the good life is not the State's job.|
The fact remains, however, that it is not the government’s job to control economic activity through money and credit manipulation (or anything else), any more than it is the government’s job to make everyone a good person. Provide the institutions for it, of course, and create and maintain the environment within which people have access to the means to carry out economic activity, and thereby become good people leading what Aristotle called “the good life” (i.e., the virtuous life), but government cannot force people to be productive, any more than it can force people to be virtuous: in both cases it’s a form of slavery, and the production and presumably good behavior usually stops the moment the force or threat of it is taken away. After all, how many slaves would work if they weren’t afraid of punishment?
That is why it is a proper role of the State to set the standard for the currency and adjudicate and enforce contracts in the event of disputes, but not to create money (especially backed by its own debt), or interfere in legal contracts, especially to gain political ends, despite the assertions of John Maynard Keynes, the chief architect of the modern disaster we call the financial services industry as well as monetary and fiscal policy throughout the world.
|Sound money is essential to a stable social order.|
A sound economy is essential to a sound political system. A sound financial system is essential to a sound economy. A sound banking system is essential to a sound financial system. A sound monetary system is essential to a sound banking system.
It necessarily follows, then, that any hope of achieving a sound political system and stable social order must begin with a sound monetary system. The fact that the European Union tried to implement and maintain a stable political and social system while employing one of the worst money and credit systems ever devised by the mind of man is the reason for the Brexit, as well as many of the other troubles Europe is experiencing at the present time.
That this is happening in Europe is doubly ironic, as recent history gives the most graphic possible example of the power inherent in a sound money and credit system — and the danger inherent in an unsound system: Germany after the First World War and the events that led to the rise of Adolf Hitler.
And therein lies a tale. . . .