THE SOFT OPTION

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MONETARY FREEDOM TO STOP INFLATION WITHOUT CAUSING UNEMPLOYMENT

Discussion Paper No.2 of the

RESEARCH CENTRE FOR MONETARY AND FINANCIAL FREEDOM,

written, published, printed and distributed in the PEACE PLANS series, as PEACE PLAN No. 19 B, 1976, by: John Zube.

Address by 1999: 35 Oxley St. or P.O. Box No. 52. Tel No.: (02) 48 771 436

E-mail: jzube@acenet.com.au

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SUMMARY OF 10 REASONS WHY UNDER MONETARY FREEDOM INFLATION COULD BE STOPPED WITHOUT BRINGING ABOUT UNEMPLOYMENT

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1. Unemployment and inflation do coexist and inflation causes much unemploymentwhich 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 notthe 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.

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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 contractualarrangements, i.e.: part redemption (revival! J.Z., 1999) of monetarydespotism in the form of an exclusive gold standard.

10.Issuance of the new currency only to the extent that foreign loans areavailable 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.)

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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 – 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." –said 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 – 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

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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.

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"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." – 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.

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RESEARCH CENTRE F0R M0NETARY AND FINANCIAL FREED0M

Secretary: John Zube, 35 Oxley St., Berrima, NSW, Australia 2577.

Available publications:

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1. The Case for Economic and Political TOLERANCE as the only Sound Policy, 32pp. By Ulrich von Beckerath & John Zube. – 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

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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. – J.Z.

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