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inflation By:
angel
WHY UNDER MONETARY FREEDOM INFLATION COULD BE
STOPPED WITHOUT BRINGING ABOUT UNEMPLOYMENT
--------------------------------------------- 1. Unemployment
and inflation do coexist and inflation causes much
unemployment which would cease with it . 2. Excessively
inflated prices would fall to market prices and so promote
sales and employment. 3. Less government spending would mean
more private spending. 4. Prices and wages could be adjusted
fast. If this is not done then this is not the effect of
stopping inflation! 5. Price adjustments through gold-value
clearing could take place already during a continuing paper
money inflation - leaving no adjustment problem. 6. While
FALLING prices do indeed deter from buying and promote
unemployment, FALLEN prices do the contrary. Under monetary
freedom there would only be FALLEN prices. 7. The un- or
under-used productive capital investment would, under monetary
freedom, be almost fully used and would thus ensure that there
arises or remains no unemployment. 8. Under monetary freedom
there would also be no difficulty to mobilize fully the real
working capital of any country: the goods and services ready
for retail sale and to finance with them full employment -
naturally at market wages and prices. 9. Monetary freedom
would allow all desired exchanges to take place and would put
Say's Law, that supply tends to create equivalent demand, into
practice. No sales difficulties or unemployment would result.
10.Unemployment is an unnatural condition: Under monetary
freedom it would no more occur than under barter.
**************************** TEN WAYS HOW, INDEED, WRONG
ATTEMPTS TO STOP INFLATION COULD LEAD TO UNEMPLOYMENT - UNDER
CONTINUED MONETARY DESPOTISM. 1. Stopping the note printing
presses suddenly while suppressing monetary freedom and
upholding all price and wage restrictions. 2. Paying men not
to work (unemployment "insurance"). 3. Deflationary withdrawal
of notes from circulation - while free banking remains
suppressed. 4. Replacing the old currency at an arbitrary
rate, not the free market rate, and most likely supplying not
enough new currency because under monetary despotism there is
no yardstick like the free market rate for currencies. 5.
Continuing monetary despotism with all its uncertainties and
the expectation of further inflation. 6. Tax increases and
their stricter collection - with their deflationary effects.
7. Delays in spending of tax-collected funds after the
official currency "reform". 8. Issuance of a new "reformed"
currency in quotas only. 9. Insistence on gold payments or
gold redemption - regardless of the availability of gold and
existing or possible alternative private contractual
arrangements, i.e.: part redemption (revival! J.Z., 1999) of
monetary despotism in the form of an exclusive gold standard.
10.Issuance of the new currency only to the extent that
foreign loans are available as "backing". I have no doubt that
there are more right ways and that many more mistakes could be
listed. This listing was only made to throw some doubts on
unchecked premises, official announcements and "expert" views
on the subject, including e.g. those of Milton Friedman, F.A.
Hayek, Murray Rothbard and Mark Tier. The essence of my case
is contained in the above statements. Whosoever wants to know
more has to put up with the following notes. WHY ENDING
INFLATION NEED NOT LEAD TO UNEMPLOYMENT There is an almost
unanimous consent among Libertarians and statists alike that
ending inflation would inevitably cause, at least as a side
effect and temporarily, unemployment during an adjustment
period. Some even consider unemployment itself as a cure and
full employment as inflationary. This is one of the reasons
why only all too few listen attentively to the conventional
libertarian proposals on how to stop inflation and why welfare
statists never interrupt their inflationary policies for long.
Most people simply prefer inflation to unemployment and for
them deflation is the opposite to inflation. If freedom and
justice were really causing harm, even if only in temporary
side effects, as here supposedly in the monetary sphere, then
the statist "security" addicts would never subscribe to them.
Unfortunately, most libertarians as well as all welfare
statists have still to learn that security against inflation
and unemployment can be obtained only through monetary
freedom. They have still to fully understand what inflation
means, what causes it and what it leads to - and then how it
could best be prevented. They have to become better advocates
of freedom or will have to continue suffering under monetary
despotism. I THE VIEW THAT ENDING INFLATION MEANS UNEMPLOYMENT
IS WRONG ON THE FOLLOWING 10 POINTS ("COUNTS" in the original.
J.Z., 1999.) --------------------------- 1. The popular view
overlooks that both, inflation and unemployment, coexist
always under monetary despotism - at least to some extent and
sometimes to an extreme degree, as e.g. presently under
"stagflation" (Stagnation in the middle of a 2-digit
inflation). Any rapid inflation does also, after a time lag,
produce a large-scale unemployment. This kind of unemployment
is brought to an end and not increased by ending inflation.
One simple explanation for this phenomenon lies in the fact
that capital is either a) held back in times of recognized
inflation with its uncertainties and certainties of losses -
in something like a capital strike, b) consumed to a large
extent, rather than invested at a loss, c) put into wasteful
and unproductive investments like unused land or gold
holdings, or d) used in malinvestments, due to deceptive paper
profits which in reality hide losses and lead lastly to the
closure of enterprises. As soon as inflation is obviously
ended and e.g. at least the hoarded and non-productively
preserved capital becomes again available to finance
employment, then, and to that extent, would the ending of
inflation promote full employment. 2. The stagflation
condition mentioned above, combining unemployment with
inflation, is also, partly, due to prices having raced ahead
of the printing of paper money - in expectation of further
inflation. The quantity of money available at any one time is
then not sufficient to sell all labour and goods offered at
these inflated prices. In this case, also, ending inflation
would reduce these excess prices to the market level
corresponding to the stabilized money circulation and to that
extent the unemployment existing during inflation would be
reduced and not increased. (On the distinction between falling
and fallen prices see under 6.) 3. When the inflationary
"spending' (See the comments on this in paper No. 1.) by
governments of their coercive paper currencies - amounting to
an indirect taxation of all money claims - is ended, and this
fact has become common knowledge, then, under monetary
freedom, spending by private people would increase at least to
the same extent (in purchasing power) and would exert an at
least corresponding demand for labour V provided only that
there are no other interferences with the free market, either.
4. The existing wages and prices need not remain at the old
levels for any length of time but can be adjusted immediately
- or as fast as people want to - under freedom. (See below,
under 5, on the gradualist approach.) To the extent that
inflation has distorted wages and prices, especially when it
has set them above the market level, as it often does,
inflation does cause unemployment, while it persists, This
unemployment would disappear with the restoration of the
market through monetary freedom and free trade - free pricing
leading to the sale of all available goods and services at
market prices. Required is only that the sellers of labour and
goods are satisfied with market prices, that it is possible to
determine free market prices easily and to pay these prices
easily. These latter two conditions require monetary freedom,
i.e., sound value reckoning - with freedom to choose between
competing value standards - and also freedom to issue private
and non-coercive exchange media. If prices and wages are not
fast and voluntarily adjusted but people resist these changes
then they will have to accept a degree of unemployment as a
result of their actions. When not reducing their price or wage
demands, they will not be able to sell e.g. their goods or
labour at above market level prices. They will then have
priced themselves out of the market. Thus they are then
voluntarily, not involuntarily unemployed, that is they are
not unemployed in the meaning discussed here. (See the notes
in section IV) They might as well ask for a weekly wage of 1
million dollars and complain afterwards about their
unemployment. They certainty could not rightly complain that
ending inflation caused their unemployment. 5. The adjustment
of prices need not take place for all prices at once but could
be done gradually, enterprise by enterprise, to the extent
that they opt out of monetary despotism and make themselves
monetarily independent. While for others inflation would still
continue, they could reckon in honest alternative value
standards and pay in honest private exchange media and insist
in being paid in them. They could then price all their goods
and services in stable standards and at market prices. They
could make this adjustment for their own immediate benefit
like e.g. the German Railway did before the Great German
Inflation ended on 19 November 1923. Thus private gold pricing
could finally set all price relationships right even before
the printing presses of the government are brought to a halt.
In other words, as a result of many such individual
adjustments for individual benefit, there would be no general
adjustment problem. 6. One distinction is not merely nominal
but fundamental: The end of inflation need not lead to a
FALLING of prices (unless, due to monetary despotism it is
followed by a deflation) but merely to single FALLS of the
prices of formerly over-priced goods (prices having raced far
ahead of note printing). While FALLING prices deter buyers -
who would then be interested in postponing buying, FALLEN
prices do actually promote buying. Thus, under monetary
freedom, inflation could actually be followed by a boom, based
on larger than normal consumer spending, on items which were
so far overpriced. 7. There remains much unused production
potential even in boom times. Few enterprises ever work at
full capacity. This potential is, naturally, much larger in
times of unemployment. There is no economic difficulty in
using this potential at free market prices and wages to get
rid of almost any degree Of unemployment. Under full freedom,
including monetary freedom, there is no reason why this
potential could not be used WITHIN A DAY to soak up all
existing unemployment. There are only legal, customary and
conceptual difficulties and even these could be successfully
and on a large scale ignored by a minority of able
entrepreneurs, financiers and workers acting in concert. This
unused production potential would anyhow be more than enough
to cope with the unemployment existing during the last stages
of inflation and the unemployment expected by most as a result
of ending inflation. In short, no new savings and long term
investments would be required to deal with the anomaly of
unemployment. 8. Another factor which is usually overlooked is
that in all civilized countries and under normal conditions
(no war or civil war and no complete exhaustion of stores due
to prolonged progressive inflations or deflations) there are
sufficient ready for sale goods - and, obviously, services -
in the community to finance with them, under monetary freedom,
the re-employment of almost any number of people, almost
immediately. These stocks and reserves form anyhow, under any
monetary system and financial arrangement, the real short term
working capital and redemption fund in any country. Monetary
freedom could transfer this capital into ready cash demand for
labour, at free market wages, payable in stable private money
with "shop foundation" and using gold reckoning or gold
clearing for measurement purposes (all prices being marked in
standardized gold weights and payable in anything
representing, that value). This kind of capital is not a long
term investment capital but only a short term capital,
allowing sufficient turn-over credit, exactly what is needed
to overcome most unemployment situations. 9. To stop inflation
and prevent any further inflation (over-issue of coercive
Legal Tender paper money) all kinds of private alternative
honest (non-coercive) and sound (stable) money types MUST be
free to be issued and must be free to drive out the bad
exclusive and coercive) inflated government paper money. These
private issues would at the same time drive out any degree of
unemployment existing or otherwise threatening (in the case of
a centrally mismanaged and exclusive forced currency). Free
money makes possible free exchange between free labour and all
goods and services freely offered on the market, i.e., full
employment to any extent desired by any labourer offering any
desired service. Say¦s Law (that supply tends to create
equivalent demand) works property under monetary freedom.
Spare labour leads then to demand for labour and spare goods
lead then to demand for these goods and the labour required to
produce more of them. The free issue of private currency money
tokens with a shop- or any other clearing foundation, and free
pricing, would see to that. (For details see Peace Plans Nos.
8-11 of my Peace Plans series) Unemployment is just the other
side of the coin of monetary despotism. Monetary freedom would
do away with both, inflation and unemployment. This
presupposes only free pricing for goods and services and no
other trade and property restrictions, either. 10. The popular
view overlooks also how unnatural a condition of unemployment
really is: it does not occur in a subsistence or barter
economy. It appears only in monetary economies - when monetary
exchanges are forcefully interfered with. In national and
world economies unemployment is actually as unnatural as in
private household economies. The demand for labour always
tends to exceed the supply - or rather drives labour costs up
until both balance for the time being, with all not so urgent
work postponed to the future. "There is always more work to be
done than there are persons to do it." Vsaid Leonard E. Read
in: "Having My Way" FEE, p. 130. The demand for labour is tied
only to the need for labour and its products. This need is
unlimited and can be satisfied to the extent of the full
working capacity of those having the need. Under monetary
freedom, the needs, to the extent that they are backed by
working ability and willingness can be transformed into
effective demand (if shop foundation is, as usual, available
for new issues of exchange media and effectively used for new
issues by the holders of that shop-foundation). The unemployed
would then get purchasing power into their hands - to the
limits of their working ability and willingness and to the
extent that they succeed in putting their notes into
circulation or can make use of free clearing, to clear their
requirements against their working power. Thus they would
supply themselves with work, Clearing their working ability
and willingness and effort against their consumer
requirements. (All this could be arranged freely, naturally,
through proper and specialized free clearing and banking
methods, details of which were explained in Peace Plans 8-11.)
In conclusion of this section I would like to say with -
surprise, surprise, Karl Marx, in his "Criticism of Political
Economy" (Abschn. 1, Kap. 2/2, end of section c):
"...Observers who studied the phenomena of money circulation,
only one-sidedly on paper money with legal tender, had to
overlook all the inherent laws of money circulation." II HOW,
ON THE OTHER HAND, 10 MISGUIDED ATTEMPTS TO FIGHT INFLATION
COULD LEAD TO UNEMPLOYMENT It must be admitted that certain
attempts to stop inflation, imperfect attempts, measures which
do not end inflation properly, can cause unemployment, will do
so and usually have done so in the past. All these wrongful
measures are based on monetary despotism. Inflation is just
one aspect of monetary despotism and unemployment is another.
The anti-inflationary "measures" discussed here do not
completely end and prevent inflation but, instead, continue
and preserve its preconditions and allow if to blow up at any
time again. There is neither a justification nor a need for
continuing monetary despotism and thus burdening us with
either inflation or unemployment or both. "STOPPING" INFLATION
BY ANY OF THE FOLLOWING WRONG STEPS WOULD, INDEED, BRING ABOUT
SOME UNEMPLOYMENT - AND THE LIST IS NOT COMPLETE: 1. Stopping
inflation suddenly and without warning - by stopping the
government's note printing presses - while at he same time
continuing to suppress the issue of alternative sound private
exchange media and the use of alternative sound standards of
value and upholding all restrictions on price and wage
reductions and then waiting until the inflated prices - which
had raced ahead of the printing presses - do finally come
down, gradually, in spite of the restrictions, but much
slower, due to them, back to the market prices corresponding
to the remaining circulation of state paper money. Thus
unemployment must result. The economy has then no adaption
elasticity left for the short run, due to over-regulation,
particularly monetary despotism and wage and price fixing. It
can occur when the whole process is a sudden and imposed one
instead of a growing and gradual one, starting with private
gold pricing and gold clauses in contracts and market rates
for the Inflated currency and with sound, parallel private
note issues to counter any currency shortage when and wherever
it occurs. Hindrances to this adaption and instead the
retention of monetary despotism would indeed bring about or
preserve unemployment. The unemployment inherent in central
banking would not be overcome. To a large extent there would
be a self-caused unemployment by people who have priced
themselves out of the market. This is not the kind of
unemployment this essay is about. The anti-inflationary
measures should not be blamed for this. They would just reveal
this abuse. 2. When some industries reduce their staff as a
result of a statist currency reform "ending" inflation and
when there are high unemployment benefits provided out of
taxes, then many will rather loaf and receive these benefits
as long as possible than go out looking for and accepting
available work at market wages. During the last
government-organized recession in Australia such "benefits"
were paid to the tune of up to $ 150-250 a week. Paying men
not to work can be successful as such - but it does not prove
genuine unemployment or at least not unemployment to that
extent. 3. The attempt may also be made not only to stop the
note printing presses but also to withdraw notes from
circulation - forcing all prices and wages down in a
deflationary way in order to reach e.g. a certain parity
between paper and gold. This would cause unemployment now, as
it has in the past, when the exclusive and forced currency
system is retained and private sound issues remain suppressed,
It would lead to the unemployment caused by falling prices as
discussed under I/6. 4. Another faulty approach to "stopping"
inflation would be the replacement of the existing currency at
an arbitrary rate (not the market rate) by another state paper
money which is subject to justified suspicions and also likely
to be at least temporarily under-issued. The fear of further
inflation, and the absence of the free market rate for
currencies as a measuring stick, would then combine to induce
the monopolistic money managers to issue too small a
circulation to allow all desired sales of labour and goods to
take place - as happened in Germany in 1923/4. 5. Unemployment
will also result when, after the statist "currency reform",
which still retains monetary despotism and its state paper
money, there is still too much uncertainty left and further
stop-go changes are expected. The fear of further inflation
would prevent many investments - as long as governments retain
the power to engage in more inflations. More inflations must
really be expected when one remembers the vested interest
governments have in inflation and the records of governments
in this respect. Think of the successive inflations of the
French Revolution and the almost continuous inflations since
WW II. Prices would remain ahead of the circulation and thus
prevent the clearing of stocks on the market, causing
unemployment and motivating ignorant politicians to engage in
more inflation in vain attempts to overcome this unemployment.
Under all centralized issue systems and under the rule of
Legal Tender, a currency will always fluctuate between
deflation and inflation and often have both. 6. Unemployment
will also result from ending inflation suddenly and then
increasing taxes severely and also really collecting them,
forcefully and speedily - whilst before, due to inflation and
inflation-motivated payment delays and to collection
difficulties, the tax had been greatly reduced or almost
abolished during galloping inflations. 7. When there are long
delays in spending tax funds collected in the reformed and
stable but still exclusive new currency, as in Germany in
1923/4, when almost a quarter of the total circulation was
temporarily hoarded in public offices, then unemployment will
also result. Such intervention cannot take place without
disastrous results, at least not within the framework of an
exclusive currency. 8. Another faulty approach, used in the
German 'currency reform" of 1948, was to issue only
per-head-quotas of the new currency and not to exchange at all
or only at a reduced rate, large amounts exceeding this quota.
Not only the money covered by the quotas but also the
unrecognized funds were expressed in the inflated prices. Thus
there follows, inevitably, a sharp deflation, a deprivation of
currencies, at least in certain spheres. It would be very
unlikely for such a quota plan to exactly determine quotas
corresponding to the market requirements - and it could never
do justice to individual money holders. Only a complete
exchange at market rates could do that. The only fair currency
reform would be to withdraw the old currency only by and by,
while it is being gradually exchanged for the new currency, at
the going market rate, 9. Trouble will also arise if one
insists on gold payments and gold redemption funds for all
paper money and all clearing transactions and on recognizing
the claim of creditors to demand the nominal gold value in
real gold from their debtors, when the debts fall due,
regardless of the availability of gold to them - instead of
merely granting them a right to clear and reckon or account in
gold weight units accepting or issuing other than gold coins
or gold certificates in payment - at their, gold value on the
free market. 10. Another vain attempt to end inflation and
stop unemployment consists in issuing a new currency only to
the extent that foreign loans can be obtained as a "cover" for
the new currency. These loans would stand in no direct
relationship to the currency required in this country at this
particular time. They are likely to fall short of these
requirements and thus this "reform" would be likely to lead to
deflationary under-issues of the new currency. In short, all
unemployment which followed so far on statist measures to end
inflation was due to the remaining state interventions
particularly with the monetary sphere and interventions with
private work, sales and purchase contracts. III SOME
CONCLUSIONS Obviously most people do not know how to stop
inflation without causing still more unemployment or how to
stop unemployment without causing inflation What can one
expect under such circumstances? People's minds are so full of
errors myths and prejudices on the subject that they are not
even willing to listen patiently to explanations of the truth
on the subject, Only experimental freedom offers a way out.
Let those who know better - or who believe that they do -
demonstrate at their expense and risk, and also for their own
benefit only, that they are right. The others would be free to
imitate the successful techniques at any time. In short: Let
good money drive out the bad: Let the people provide as much
good money as is needed to bring about all desired exchanges
at free market prices. People are not willing to listen to
mere theoretical explanations because they already presume to
know all the answers required (or that their experts know them
for them): It has to be either inflation or unemployment,
according to them - and so they end up saddling us with both.
No wonder then that a science presumed to leave us only the
choice between two evils is not very popular, is rather
regarded as a "dismal" science, still. Nevertheless, these
ignorant people pretend to be "realists" while they practise
their coercive, immoral, inefficient and contradictory systems
based on myths, and they look down on anyone who would point
out the flaws as a utopist or theorizer, dreamer or money
crank, while, paradoxically, they do not grant him
experimental freedom to "cure" him of his "errors".
(Admittedly, most of the alternative proposals are as bad or
even worse than the present system.) As a rule they are
committed to the money issue monopoly and to Legal Tender and
they never consider any alternative to either. These systems
themselves also help to blind them against the alternatives. A
loyal monarchist does not see the positive aspects of a
republican, democratic or libertarian life style. Those who
prefer an exclusive gold standard to an exclusive paper
standard, do indeed prefer a quality standard to the worst
possible standard - but they still insist on exclusiveness and
are blind to the need for freedom to exchange goods and
services through unrestricted clearing, using any clearing
technique, even private paper note issues, independent of the
coercive paper-money policies governments like to pursue and
also of gold production, gold stocks and imposed gold
redemption requirements, without having to adapt one¦s prices
or production to the quantity of any exclusive exchange media
made available by any "monetary authorities" with despotic
powers, even if they are otherwise libertarian ones. Inflation
is no cure for unemployment and unemployment is no cure for
inflation. The existing "stagflation' should be sufficient to
prove this. Nor is unemployment an unavoidable side-effect of
stopping inflation. This would only be the case if one
insisted on retaining the system of monetary despotism (a
system which always leads to a fluctuation between inflation
and deflation, when it does not lead to both at the same time)
and (or) upholding economic interventionist measures like e.g.
coercive wage and price controls. Inflation is a
characteristic of monetary despotism and falls with it -
including its unemployment features. It does not lead to
additional unemployment, not even temporarily, under monetary
freedom, i.e. in a market economy which is free also in the
monetary sphere - and, naturally in all other respects.
Unemployment is one of the main features of a monopolistic,
centralized and coercive money system and it falls with it -
provided the market is otherwise free also. To the extent that
prices and wages are free to adjust and are immediately
adjusted, and that value reckoning and the transfer of values
are completely free and that people know the techniques of
stable value reckoning and of providing sufficient exchange
media at free market rates - there will be no unemployment -
except a voluntary one, Under freedom the price collapses in
any industry whose prices were inflationarily boosted would
lead merely to corresponding wage and profit reductions (or
losses) and a corresponding incentive for workers to look for
other and better paying jobs. But it would not necessarily
lead to unemployment even in these industries. Instance: Just
because excessively high food prices would come down does not
mean that unemployment among farmers would result. During the
adjustment period not even short-term unemployment need occur
but merely a voluntary transfer of labour - overnight or
within days at most - from one industry or enterprise to
another due to government spending being reduced and replaced
by private spending which is somewhat other-directed in its
preferences, and due to wages being reduced in some industries
and increased in others. To the extent that people will
continue to price themselves and their goods out of the market
and try to work with an exclusive paper standard and an
exclusive and coercive exchange medium, their efforts will be
"rewarded" by the effect of their measures: a corresponding
unemployment. But for this they have no one and nothing to
blame but themselves. Involuntary unemployment can happen only
in a market which is not free monetarily or otherwise. It
cannot happen when money issues and value reckoning in
particular and property and trade and trade in general are
completely unrestricted. Under monetary freedom enough private
and non-inflationary currency (various competing currencies
subject to free market rates and the refusal to accept, and to
competitive value reckoning and stable value pricing) can be
issued to avoid any involuntary unemployment and other sales
difficulties for consumer goods and services which are needed
and wanted by people, people who are willing to give their
productive labour in return for them, at market prices and
wages. Monetary freedom solves the problem - provided only
that there are no other interferences, none with property and
trading rights, with wage contracts or other prices, with the
free practice of all professions, jobs and trades and with the
free mobility of persons and goods. If one tries to solve the
problem with an incompletely liberated market, especially
without monetary freedom, one will, indeed, be in
difficulties. Freedom is indivisible. It includes monetary
freedom. Most libertarians have overlooked this and still
embrace remnants of despotism: more or less complete despotism
in this sphere. They have to suffer the consequences of their
insufficient appreciation of liberty. Let anyone, who can,
provide any acceptable cover and standard, let him issue his
own non-coercive currency. Let good money (gradually but fast)
drive out the bad money and we would not experience any
difficulties from this but would, on the contrary, profit from
this in all respects right away. IV SOME NOTES AND COMMENTS
WHAT IS INFLATION? It is a condition where bad money is
allowed to drive out good money by being given exclusive and
coercive powers: Legal tender and issue monopoly
characteristics. Consequently, this type of money is enabled
to drive up all prices, including wages, seeing that all must
be expressed and traded in this bad currency. Price and wage
increases are the only way out left to the sellers but even
they do not render this process harmless. Almost all time
consuming monetary relationships are disastrously affected by
this intervention. Although monetary economic calculation does
not become impossible, it does become difficult and very
faulty. The more of this exclusive and coercive currency, is
forced into circulation, the higher prices, including wages,
will be V sooner or later, later when temporarily there is
some hoarding going on. All creditors are harmed soon, all
debtors later - particularly once investors become aware of
inflation. Inflation is not just over-spending. Without Legal
Tender and the issue monopoly this kind of money could not be
spent, no more so than I could overspend with my IOUs and my
cheques - without being refused or very soon found out and
penalized. Issuing forced or fraudulent money is not
"spending". 2. WHAT STOPS INFLATION? Ending Legal Tender and
ending the issue monopoly would make inflation impossible.
This implies allowing any kind of private alternative exchange
medium which is subject to a free market rate and the right of
everyone to refuse to accept altogether or at par any exchange
medium but the ones he issued himself. It would also mean
allowing people to agree among themselves on any kind of
alternative standard of value they believe they can trust or
have reasons to trust. It would require that all wages and
goods prices are priced out in alternative sound standards.
Most likely, for general acceptance, would be a
gold-weight-reckoning-unit. This kind of gold standard would
not require any redemption at par by the issuer but it would
require - for its continued wide acceptance at par, at least
locally, that on the free gold market it would be accepted at
par with its nominal value. Among the alternative exchange
media, the most likely and important would be the currencies
issued by shop associations, notes covered by consumer goods
and services in daily demand. Such currencies would have "shop
foundation". Repeal Legal tender and the central bank
monopoly, allow gold pricing and gold clearing and a free gold
market, free pricing for wages and goods, free production and
free trading, and there would be no other "disturbance" as a
result of stopping inflation than the closing of some and the
opening of other job opportunities - a process which goes on,
all the time, anyhow. Ideally, the existing paper currency
should not be suddenly withdrawn but merely, for easier
handling, reduced in denominations, without quotas or other
limits, while stopping further issues and letting it circulate
only at its market rate against the free standards and media
accepted on the market. Ending Legal Tender would, on its own,
soon end most price distortions caused by inflation even when,
temporarily, the over-issue of state paper money - at a
continuously deteriorating market rate, - would still go on.
Temporarily people would still be willing to accept it at its
market rate - as long as no acceptable alternatives are
offered to them or provided by them. The free market rate and
free choice of the standard of value would make stable pricing
possible, stable value reckoning and would thus provide
employment even while the exchange medium, with which these
stable prices are paid, is still deteriorating. But under
freedom to issue alternative exchange media, the bad paper
would soon be driven out by sound private issues. Ending not
only the Legal Tender despotism but also the coercive monopoly
of the central bank, would allow good alternative private
currencies to drive out the bad government paper currency and
this change would also have no unemployment promoting effects.
On the contrary: Obviously, to the extent that it would reduce
government demand for labour, it would increase private demand
for labour. Moreover, every private issue lastly based on
labour or labour products, would have to come back to be
"redeemed" in this cover (at its nominal value) and would thus
promote employment, in the same way as your IOUs, if they were
redeemable in your labour, would come back to you and keep you
employed. Any additional currency issued after stopping the
government's inflation should be exclusively consisting of
private issues. (Based on voluntarism and individual secession
and exterritorial and autonomous association under personal
laws, governments would also be reduced to private
associations of volunteers.) All these private issues should
also be subject to the right to refuse to accept them and to a
free market rate. They would, therefore, be non-inflatable.
(See PEACE PLANS No. 19A on the Legal Tender Crime.) The free
market rate for exchange media (against e.g. a gold weight
reckoning unit) keeps the quantify of exchange media nicely
balanced between inflation and deflation and retains the
motive to issue additional money tokens as long as they can be
issued at par, thus preventing deflation and promoting the
sale of labour and goods, while it effectively deters the
issuer from over-issuing as he could do so only at his own
expense, being under obligation to immediately accept a note
at 100% which he had just issued at, let us say, 95%. Even a
slight discount of his notes would then exclude them from most
of the circulation area which they had achieved so far, due to
wide-spread refusals to accept them. WHAT IS UNEMPLOYMENT?
Unemployment is here defined as a condition where an able and
willing worker cannot easily find a job although he would be
satisfied with market level wages, paid in competitive and
optional currencies, using optional standards of value, in
extension of freedom of contract. The cure for any
unemployment due to overpricing of labour is all too obvious
to require elaboration. Anyone not able to earn his wage
cannot expect anybody except a government to be willing to pay
him a wage or a salary. 4. WHAT CAUSES THIS UNEMPLOYMENT?
Employment means exchange of labour for other services and
goods with the help of money (an exchange medium using a value
standard). Fundamentally, employment is as unlimited as the
productive ability of workers and the need for the services
and products of workers. Thus full employment would be a
natural condition if nothing interfered with it. The main
interference is the monetary policy pursued, by governments.
Governments monopolized the medium through which most
exchanges - directly or indirectly - are brought about: the
medium of exchange, money. The prices and wage policies
practised by governments and other coercive and monopolistic
associations, like unions and other pressure groups, are only
secondary and not dealt with here. Any monopoly leads to
shortages to a reduction of exchanges to difficulties and
even, in some cases, to the impossibility of exchanging labour
for desired goods and services. In this case the money
monopoly means unemployment due to a monopoly-caused shortage
of sound exchange media. (The coercive factor involved allows
over-issues and inflation as well.) 5. WHAT STOPS
UNEMPLOYMENT? The competitive issue of private money notes and
tokens would, i.e. of certificates using a stable standard of
value, subject to a free market rate against this standard and
also to complete refusal by anyone but the issuer to accept
them at all. Within such an issue system as many exchange
media as are required could be issued - and no more. With such
a system any shortage of currency resulting from the
government's present monopolization of the money system could
be easily overcome, while any inflation of the general price
level would be avoided. (At most some private issues would
deteriorate but they would not influence the general price
level, prices being marked in preferred stable standards.) 6.
DO UNEMPLOYMENT AND INFLATION EXCLUDE EACH OTHER? Due to the
issue monopoly of governments and the coercive and exclusive
character of their paper money and due o the absence of any
indicator - in the absence of the free market rate for means
of payment - to measure the limits for sound issues, any
centrally managed currency will always tend to fluctuate
between deflation (monopolistic money shortage causing
unemployment, sales difficulties and bankruptcies) and
inflation (coercive over-issues, forcing all prices up).
Without free pricing socialism is as impracticable and chaos
producing in this sphere as in all others. Unemployment and
inflation do under this system also occur simultaneously as
not all spheres of the economy can be equally supplied with
currency, not even with inflated currency. Due to the issue
restrictions at least local deflations tend to persist while
other areas may suffer from an inflation or one proceeding at
a faster rate because they are at the same time more
thoroughly flooded with money. Think of the current example of
starving private industry of funds (e.g. by deflating this
sector through extreme taxation) while lavishly "spending" on
some areas of the public sector, often with "funds" coming
directly from the printing presses. Add to this the fact that
once an inflation has become noticeable it will be taken into
account by raising prices in expectation of further price
increases and as a precaution against losses they are then
often raised above the market level (considered as an
equivalent between the present money circulation and the
present quantity of goods and services). Thus the inflated
money is not enough at any time to buy all goods and services
thus priced, at least not during a commonly known progressive
inflation. 7. WHAT IS MONETARY DESPOTISM? It is a condition
where the government "regulates" and manipulates the standard
of value, all paper money, banknote issues and issues of
clearing house certificates, all coinages and also, as far as
it can, all credit and clearing transactions. The system is
characterized by central banking, money, credit and banking
legislation full of prohibitions, licensing quotas, penalties
and privileges like issue monopolies, also by deposit
regulations and confiscations. Even a system which imposed
private gold coinage and a 100% covered gold redemption
currency, as an exclusive currency, would be a system of
monetary despotism - although in many respects better than the
present system. It would force all monetary trading to adapt
itself to the availability of gold, instead of using gold
merely as the most suitable standard for measuring values. It
would not allow any possible and desirable trade for which no
gold "measuring sticks" would be available. Indeed, the
economy could adapt even to such a system - but at what price?
Initiated coercion and monopolies of the legally established
kind are harmful even when proposed and practised by people
who are libertarians in other fields. 8. WHAT IS MONETARY
FREEDOM? Monetary freedom exists when everyone can open a note
issuing bank, issue banknotes and other clearing certificates
and notes usable at least as local currency, when everybody is
free to clear his debts and assets in any way agreeable or
contracted for, using any agreeable or contracted standard of
value and exchange medium when everyone may freely refuse to
accept at all or at par any exchange medium not issued by
himself or under contractual acceptance obligation. It is a
system where nobody has a legal or presumed claim to demand
payment in any particular exchange medium, be it gold, silver
or any other substance or any particular paper medium - unless
he has himself contractually undertaken such a risky dealing
in futures. It is a condition where variously based private
paper money types and coins can be freely issued accepted,
agreed upon or refused and where none of them has the moral
and economic disqualification of compulsory acceptance and
compulsory value (Legal Tender or forced currency). Under
these conditions not even the state could any longer issue any
Legal Tender money. Its tax-based notes (or contribution-based
notes under voluntary taxation or insurance) would, instead,
also be subject to free market rates and measured in a
relatively stable standard like a gold weight unit. In this
state of affairs even gold would not be declared to be legal
tender. Everyone would then be only under his contractual
acceptance obligations. Everyone would be free to clear and
pay his debts or claim his assets in whatever means and using
whatever techniques are agreeable to him and his business
associates, customers, employers and employees. SUMMARY OF
SOME REQUIRED STEPS ------------------------------ 1. Repeal
of Legal Tender and introduction of free market rates for all
currencies. 2. Introduction of gold clauses and gold pricing
now. 3. Repeal of the Reserve Bank's privileges. 4.
Establishment of private competing clearing houses issuing
also standardized clearing house certificates on the clearing
principle. 5. Establishment of bank note issuing banks issuing
notes based on the banking principle or the real bills
doctrine. 6. Extension of the Australian shop currency system
into one of local currencies with shop foundation in most
shops. 7. Recognition and practice of the rights to issue and
to refuse currencies and to choose and agree upon standards of
value. The result of these and other related steps would be a
self-regulating monetary system allowing all kinds of desired
exchanges to take place at free market prices: a system
without inflation and unemployment.
**************************************************************************************
"But, of course, there's no reason on earth why the issue of
ware-house receipts should be a government function." -
Leonard E. Read, "The Freeman, 1/75. "I believe that if money
is to be useful to traders as a medium of exchange then the
decision as to what shall serve as money must be worked out by
traders in the market, VOLUNTARILY, rather than by government
edict." V Read. Ibid. "Government has no more a
responsibility for an honest money than for an honest yard. It
just ought to leave both alone." J.Z. "To provide a sound and
honest currency is not impossible it¦s just illegal." - J.Z.
"When monetary freedom is illegal, monetary despotism and all
its abuses are the only remaining legal alternative." - J.Z.
"Unless the government money is freely priced, the government
will never know whether it is putting in too much of its money
or not enough." - J.Z.
--------------------------------------------------------------------------------------
RESEARCH CENTRE F0R M0NETARY AND FINANCIAL FREED0M Secretary:
John Zube, 35 Oxley St., Berrima, NSW, Australia 2577.
Available publications: ---------------------- 1. The Case for
Economic and Political TOLERANCE as the only Sound Policy,
32pp. By Ulrich von Beckerath & John Zube. V Only fiched
copies are left now. 2. 4 papers on Financing the Workers
Party and denationalizing and reprivatizing the economy at the
same time, 48pp. By John Zube. 3. Peace Plans No. 1l,
reprinting in full: Ulrich von Beckerath's "Compensation Money
and Public Insurance" - with monetary freedom comments, 112
pp. His other 2 monetary freedom books are available only on
microfilm: PP 9&10. 4. "Stop the Legal Tender Crime", 48
pp. By John Zube. Only on fiche now. 5. "THE SOFT OPTION:
Monetary Freedom to Stop Inflation without Causing
Unemployment", 16 pp. By John Zube. PLANNED PUBLICATIONS
-------------------- 6. "Let Freedom Pay Its Way", a 50 page
essay, by John Zube, on how a libertarian party could finance
its way to victory by an advance distribution of individual
claims against the national assets. (It came out as PP 19 C.)
7. A monography on Gresham's Law, properly interpreted. (Not
yet done by 1999.) 8. A survey of different gold standards in
form of a chart. (Not yet out by 99.) 9. A chart survey of the
variety of exchange media proposed. " 10. An essay on sound
tax foundation paper money. " 11. A critique of the notion of
money and credit "creation". (Not yet out as an essay but see
fiched correspondence on this.) 12. An essay on libertarian
ways of financing defence. (Only some letters exist on this in
the LMP series, so far.) 13. An essay on the financing of
rightful revolutions. (Alas, not yet out, either.) 14. An
essay on time purchased of enterprises by their staff, without
cash outlay or savings. (No separate essays are out. But see
the Beckerath papers on this.) 15. A survey of the variety of
circulation channels of free enterprise money. 16. Abstracts
of the free banking literature. 17. A critique of the note
issue monopoly. Sorry, but 15-17 are not yet out, either. On
the other hand, LMP has fiched hundreds of monetary freedom
titles, including a 124pp free banking bibliography. A
handbook on monetary freedom and one dealing especially with
cause and cure for unemployment are still in the works by
February 1999. John Zube, 11. 2. 1999. Note: I merely scanned
this text in and afterward somewhat corrected the scanning and
did minor editing. The scanning may still have left some
mistakes I did not notice, apart from my own and usual ones.
The Word 97 program sometimes insists upon its own layout and
stubbornly resists my correction attempts. Somewhat corrected
and edited on 26.6.1999 & 2.7.99.
Bibliography
V J.Z. Go back to:
lmphomepage.htm.htm Go forward to: app23-lt.htm.htm
Word Count: 7841
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