Sound Money, Prosperous Dreams, and the Many Managers

“Freedom granted only when it is known beforehand that its effects will be beneficial is not freedom” – Friedrich A. Hayek

Sound money advocate James Grant had a nice piece the other day over at the Wall Street Journal titled “The Endless Spending Spree.” If it’s not obvious from the title, he was referring to the never-ending government spending bonanza that will not stop in the face of a massive downturn in revenues, and perhaps cannot be stopped as we move forward into the “golden years” for the baby-boomers (more on that in a moment).

Sound Money …

Grant is a sound money advocate, as am I. I suspect we would agree on the benefits of sound money, but I also suspect we support sound money for different fundamental reasons. (OK, they’re really the same reason, but we support that same reason for different reasons.) I support sound money, call it the “gold standard” if you want – but it doesn’t have to be based on gold, for the simple reason that unsound money is fundamentally immoral.

Money is a medium of exchange and a store of excess production. You produce a set of widgets, exchange them with your employer (or perhaps in a free marketplace) for money, which you then use to buy other products and services to consume in your daily life. In that instance money serves both purposes at once. It is obviously the medium of exchange that makes the free market run more smoothly than could a barter system. But, for that brief moment in time from paycheck to grocery store, it is a unit of storage for the value of the goods you have produced. If you happen to not consume all of your production immediately, then money serves as the mechanism whereby you save the excess until you wish to consume it. (This is called “savings” – and it used to be thought of as a good thing.)

Unsound money fundamentally corrupts the “storage” mechanism of money. If the government prints money while you’re not looking, the excess production that yesterday would have bought you two loaves of bread will now only buy you one (because the excess money will bid up the price on the loaves of bread – we call this “price inflation”). It is a changing weight and standard, which the Bible so adamantly rejects as immoral. Consider  Prov 16:11, Lev 19:35, or the “clobber verse” Amos 8:4-7:

4 Hear this, you who trample the needy and do away with the poor of the land, 5 saying, “When will the New Moon be over that we may sell grain, and the Sabbath be ended that we may market wheat?”— skimping the measure, boosting the price and cheating with dishonest scales, 6 buying the poor with silver and the needy for a pair of sandals, selling even the sweepings with the wheat. 7 The LORD has sworn by the Pride of Jacob: “I will never forget anything they have done.”

While my objection to fiat currency is based in Biblical morality, Grant’s is based in freedom and even historical economic analysis. Unsound money is fundamentally unfree, and history shows that sound money isbetter, when one considers the boom-bust cycles of federal interventionism in free markets.

Government Spending & Debt …

The main thrust of the article is that the departure from sound money, the removing of the “shackles” that it provided, has only removed restraint in “running to evil” as the Bible puts it. Since we did away with the last vestiges of the gold standard, government debt has exploded, and continues to explode. Why not? What really is the purpose of holding back when it’s just money?

Grant only goes so far as to point out the massive explosion in the official debt – that is, the money we’ve already borrowed and promised to pay back. As of this writing that number stood at $15,621,556,343,975 … and climbing fast. (Given the just-under 309 million people in the U.S. as of the 2010 census, that comes out to $50,555 per man, woman, and child … though the debt clock in the link notes that it’s just under $138,000 per tax payer.)

This is a small fraction of the story though. The “unfunded liabilities” stand around $100 trillion – another $323,000 per person. Got that? If we go “dutch” on that bill, my family of five is on the hook for $1,865,000 that the federal government has spend or otherwise promised on our behalf.

Now, you may protest that the unfunded liabilities are not the same, and perhaps their not. When it comes to debt, it represents money that has been borrowed with the promise of repayment. In the case of unfunded liabilities, there is no pre-borrowing, only a promise of payment. That means two things: (1) the accounting is less precise (we know exactly how much we’ve actually borrowed) and (2) the protest of the shirked party will have a different style of argument in the case of eventual default. These are small differences.

As Mish is fond of saying, that which cannot be paid back will not. The $115,000,000,000,000 debt will not be paid back – because it cannot be paid back. The promises have all been lies. “Vote for me and I’ll give you this, that, or the other at the expense of somebody else” – but it all comes up empty. Our paychecks, our livelihoods, the extent of our production, has been promised away many times over.

Those Dreams of Growth …

The politicians have a nice way around this obvious shortfall. They claim that we’ll simply “grow” our way out of debt. That is, if the economy grows at a significant rate then the debt will be a much smaller proportion of GDP (probably the right measure) and we’ll be fine. Of course, they say this as they add trillions to the debt every year in the name of growth. But you can’t spend your way to prosperity – honestly you can’t.

Forget the Keynesian nonsense for a second and let’s think about economic growth. In very simple terms economic growth is an increase in productivity. We have to produce more. In order to pay for the debts racked up by our democratically elected government, we have to dramatically, dramatically increase our productivity.

The first step of course is to go out there and work harder, but that’s hardly a government policy. What policies could we hope to employ that will lead to dramatic economic growth? History has taught us that the best means of increasing productivity is freedom. That is, free people, who are free to dream, create, innovate, and keep the fruits of their labor will indeed improve their productivity. They will invent, they will work hard, they will produce to levels not seen. It’s in our nature. We were created by a Creator, we want to create, we want to thrive, we want to go do fantastic and wonderful things. Quite frankly, it takes aggressive government oversight and destruction of freedom to keep us back from unfettered growth.

Alas, these are the shackles we have chosen for ourselves. We have chosen a government that invades every aspect of our economic lives (which is to say, our free interaction with one another in the productive activities of our lives). We have chosen “many  managers” instead of free workers. Somehow we believe that if we just had excellent managers over our free economic interactions (and LOTS of them) we could squeeze out more productivity. This, of course, fails every time it’s tried. But humans are a stubborn lot. We have a real hard time setting aside the notion that “I am smarter than my neighbors and can live their lives for them” – which, of course, is exactly the action of regulatory interventionism in a democracy.

Death Throws …

So here we are. The freight train is running headlong toward a reckoning. I won’t say “we’re doomed” … I’ll simply say the current system is doomed. When the monetary system, cooked up to transfer from the poor to the rich, and the political system, cooked up on the promise of something for nothing to buy votes, begin to strain under the weight of their unsustainability – a reckoning will come. What will that reckoning look like? I’m not sure. It could be really ugly – and it could be a simple transition back to freedom. To be sure, somebody’s going to get far less than they were promised, but we, as a people, are not under any compulsion to continue  the slide toward serfdom. We really can still choose freedom. (In other good news – we don’t have to go first … we can watch the whole thing unfold in Europe first and then choose our path.)

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