more.1.htm                                       DENATIONALIZING MONEY 

Practically every nation is swindling its own people by printing a chronically 
depreciating paper currency  -  Hazlitt. 
Henry Hazlitt(1894-1993) was America's top economic journalist writing for the 
Wall Street Journal, New York Times and Newsweek. He authored 18 books the first 
being the inspirational 'Economics in One Lesson' in 1946. 
The Austrian school economic giants Ludwig Von Mises called Hazlitt 'our leader' 
and Friedrich Hayek lauded him similarly. Hazlitt was no economist  -  officially. 
No Ph.D. or a bachelor's degree adorned his walls. He was self-taught and the 
fact that he was relatively unspoiled by the influences of the academy allowed 
him to gain profound insight into the workings of economics. 
Hazlitt does more than show how even well intended government intervention 
actually hurt people. He wrote that, 'there is no more persistent and 
influential faith in the world today than the faith in government spending. 
Everywhere government spending is presented as a panacea for all our economic 
ills'. 
Whatever ethical or practical considerations may be brought forward to justify 
taxation, it is essentially coercive and all tax increases are most disliked and 
resented by the people. Historically speaking, the government, being fearful of 
popular unrest, sought alternative means for augmenting their revenues from 
taxation. It was for this purpose that all national governments eventually 
secured for themselves a legal monopoly of issuing money, empowering them to 
inflate, i.e., to create new money, virtually at will. 
The road to long term monetary stability leads ultimately to the complete 
abolition of the government monopoly of issuing money and, concomitantly, to the 
return of the function of supplying money to the free market. The most crucial 
and difficult step along this road involves reconstituting the existing 
fiat-money (dollar or taka), as commodity money. 
This would be done by restoring money to its original status as a legally 
redeemable claim to a fixed weight of the former money-commodity, gold. Only if 
and when this step is taken is there hope of ever achieving the ultimate aim of 
a wholly 'denationalized' money whose supply and value are at long last free 
from the arbitrary manipulations of a non-market monopolist. 
William Fellner of the American Enterprise Institute asserts that fiat-money has 
been misused in all history and has always led to corruption of the currency. 
The fatal flaw in the monetarist program for monetary stability lies in the fact 
that its policy prescriptions completely fail to address the fundamental cause 
of inflation, namely the governmental monopoly over money. 
Nobel Laureate Friedrich Hayek forcefully argues that the recurring bouts of 
macroeconomic instability that have always afflicted market economies are a 
consequence of the age-old government monopoly of the issue of money. According 
to Hayek, "there is no justification in history for the existing position of a 
government monopoly of issuing money. It has never been proposed on the ground 
that government would give us better money than anybody else would. It has 
always, since the privilege of issuing money was first explicitly represented as 
Royal prerogative, been advocated because the power to issue money was essential 
for the finance of government  -  not in order to give us good money, but in order to give to government access to the tap where it can draw money it needs by manufacturing it. That, is not a method by which we can hope to get good money. 
To put it into the hands of an institution which is protected against 
competition, which can force us to accept the money, which is subject to 
incessant political pressure, such an authority will not ever again give us good 
money". 
In a CATO policy paper Professor Joseph Salerno writes that, 'the virtue of a 
genuine, 100-percent gold standard, in contrast, is precisely that it 
establishes a free market in the supply of money and, in doing so, brings about 
a complete abolition of the governmental monopoly in this most sensitive and 
vital area of the market economy. Under pure commodity money, the money-supply 
process is totally privatized. The mining, minting, certification, and storage 
of the money commodity as well as the issuance of fully covered, i.e., 
100-percent gold backed notes and deposits are carried out by private firms 
operating in a free market'. 
The complete 'denationalization' of money, which thus occurs under a genuine 
gold standard, yields a money whose value is fully secured against arbitrary 
political manipulations of its supply. Under the gold standard, the quantity of 
money and hence its value is determined solely by market forces, such as the 
demands of the public for money and the costs associated with digging up gold. 
The most innovative scheme for establishing gold money involves a wholly 
private, 'parallel' gold standard which would exist side by side with the 
already established government fiat-money standard. Variations on this plan have 
been proposed by Henry Hazlitt and Professor R.H. Timberlake. 
Timberlake's plan would begin with the abolition of the central bank as a policy 
making bank. He argues that the Federal Reserve System of the USA can easily be 
dispensed with since 'banks have no reason to be regulated than grocery stores' 
and 'should be left alone to justify their existence in a free market system'. 
'Ending Federal Reserve discounting would simply be ending something that is 
largely an advertising gimmick for promoting the image of the Fed as a banker's 
welfare agency', writes Timberlake. 
Gold once in private hands would soon find its way into private depository 
institutions giving rise to gold-based demand deposits and notes redeemable upon 
demand in gold or Federal Reserve notes. This new system would not be a gold 
standard because the government would not declare gold or anything else legal 
tender. 
The existing US fiat-money  -  the dollar, was at one time merely a name for a 
specific weights of gold approximately one-twentieth of an ounce of gold money 
from 1834 to 1933. The sure method for restoring a 'free market commodity money' 
once again involves legally defining the monetary name already in use as some 
definite unit of weight of the former money-commodity. 
Hazlitt's proposal for private parallel gold standard wishes 'to get government 
as far as possible out of monetary sphere'. Governments should be deprived of 
their currency issuing power and the private citizens of every country should be 
freed, by mutual agreement, to do business with each other in the currency of 
any country. Hazlitt continues to add that the citizens should be allowed to 
mint privately gold or silver coins and to do business with each other in such 
coins. Private institutions should also be allowed to issue notes payable in 
such metals. 
Private issuers of money would be required to hold at all times the full amount 
in metal of the notes that they have issued just as a warehouse owner is 
required to hold at all times everything against which he has issued an 
outstanding warehouse receipt. A private gold standard would not immediately 
emerge on the ruins of the Fed but given the legal framework, a private 
100-percent gold standard would slowly emerge in step with the inevitable 
inflationary destruction of the fiat dollar. 
Each country that permitted gold proposals would be on a dual monetary system to 
take over completely on the very day that a government's paper money become 
absolutely worthless as it did in Germany in November 1923 and in scores of 
other countries at various times. 
Milton Friedman recognizes the unique potential of the gold standard as 
guarantee of monetary stability. According to him, 'a full commodity standard, 
for example, an honest  - to-goodness gold standard in which 100-percent of the 
money consisted literally of gold, widely supported by a public imbued with the 
mythology of a gold standard, and the belief that it is immoral and improper for 
government to interfere with its operation, would provide an effective control 
against government tinkering with the currency and against irresponsible 
monetary action'. 
Nizam Ahmad. 
May 03, 1998. 
    
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