On the UN Climate Change Conference in Katowice

by Henrique Schneider*

Dear friends. As usual, I was right. The United Nations climate summit in Katowice, that little Polish city created by coal and forged by fire, came to an end marked by:

  • There was an agreement to continue negotiations
  • A “thin” rulebook has been agreed upon
  • The “thin rulebook” contains principles and further workstreams
  • The market people are going to meet four times in 2019 in order to advance the operationalization of principles.

Yes, this is the literal quote from my last week’s email. However, and it pains me psychologically and somatically (in means, bodily) to admit that, by having been cut-off, I missed big drama and a potential goldmine for sarcasm. The summit was supposed to end on Friday but it went on until Saturday night … because of carbon markets! The very thing I like(d) to negotiate!

UN Climate Conference 2018 in Katowice, Poland
UN Climate Conference 2018 in Katowice, Poland

The only way the Polish Presidency found to come to an end was cut markets off the decision text. See the parallelism to my present situation? At the end, the “market” decision is procedural, reading:

“…that draft decision texts on these matters in the proposal by the President were considered, but that Parties could not reach consensus thereon;”

Does this change one of the bullet points above? Not at all. First, there has been some agreement on some technicalities concerning mitigation of climate change, adaptation to climate change and resilience in face of climate change. So, there is a very thin “Paris rulebook”. This thin set of principles has to be deepened in or by further negotiations in work streams. And even the market people have to continue negotiating. The same market-related decision says:

“Requests the Subsidiary Body for Scientific and Technological Advice to continue consideration of the mandates referred to … above, taking into consideration the draft decision texts …, with a view to forwarding a draft decision for consideration and adoption by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement at its second session (November 2019);”

If you are really interested in the decision texts, check them out here: https://unfccc.int/katowice

So, what happened?

The market negotiations were doing great in earlier 2018. Even during the summit, delegates managed to produce substantive texts. Remember, Article 6 of the Paris Agreement foresees three types of international cooperation:

  • 6.8: A transfer of efforts without price that only Mr. Marx would have been proud of. The negotiations on this track went very well, since only such as the Bolivar Venezuelans or the Plurinational Bolivians are interested in this – and Africa, of course, if it brings money.
  • 6.4: A transfer of efforts with prices. It is not a full market, rather a market-socialism to the likings of Mr. Lerner or Mr. Lange. There is a price mechanism, but you always pay more than what you get because whatever you buy, you have to share it with others (share of proceeds, net mitigation). Like any economic planning under socialism, this system is extremely complicated, so littler ground was gained in negotiations.
  • 6.2: A bi- or multilateral transfer of efforts using prices and markets resembling a Coase’ian market system. As we all know, whatever comes from Mr. Coase disregards its institutional embeddedness (despite of being utterly illogical). In the Paris-thing: even if it resembles a free market, no one really knows what it takes to become one. And here, Mr. Kirzner’s arbitrageur emerges trying to find all the loopholes in the design of the quasi-market system.

Negotiating this plethora of non-free-market-approaches – i.e. forgetting that free markets only develop by spontaneous order where property rights are sufficiently clear –, market negotiators underestimated Brazil’s appetite. That little country wants it all. It wants the market, the aid-money and the ability to claim that any mitigation effort taken there as belonging to them. They want to sell the good while keeping it as their property. This led the negotiations astray.

By the way, I have developed an idea on how to solve some problems – using blockchain. It a paper in progress you can read here:

https://www.dropbox.com/s/dfj6ztkjw5zw7s7/20181216_working%20paper_blockchain.doc?dl=0 

Comments welcome.

Apart from markets, there are other things bizarre. Take “Just Transition” as an example. It describes the transition towards a low‐carbon and climate‐resilient economy that maximizes the benefits of climate action while minimizing hardships for workers and their communities. It does not surprise that trade unions and the like appropriated that expression. But our friends in the so-called business sector are increasingly using it, too. The looters and munchers, subsidy-seekers and sycophants like the International Emission Traders Association IETA or the World Business Council for Sustainable Development WBCSD are uniting in the outcry for just transition, too. Why? Because they want money and to be erotically proximous to the state agents.

More optimistically, let this year’s commentary on the climate summit end with a piece of wisdom: “It was not the scarcity of stones nor the stone pricing that ended the Stone Age, but the emergence of a new technology, bronze.”

 


*Henrique Schneider is a Swiss economist, HoD at the Swiss Trade Association and engaged in adult education.

Are Cryptocurrencies a Road to a Denationalization of Money?

by Emanuele Canegrati*

This paper was presented at the III. ECAEF/CEPROM Conference on “Concurrent Currencies: Curse or Cure?” in Monaco on Dec. 6, 2018. These academic conferences in honor of Jacques Rueff are planned and organized by ECAEF (European Center of Austrian Economics Foundation, Liechtenstein) and hosted in Monaco by CEPROM (Center of Economic Research for Monaco).

Abstract

Over the last several years very few topics have entered the debate of the financial world more than the entire subject of cryptocurrencies. This new type of monies has sparked a fierce discussion among economists, politicians, financial experts and entrepreneurs over their nature, functions and their value. Creators of these blockchain technology-based currencies believe they are the future of the global monetary system, where all transactions will be executed digitally, in a simple yet safe manner. Their detractors however, simply believe they are the greatest bubble ever seen in the history of finance.

III. ECAEF/CEPROM CONFERENCE, MONACO 2018
Concurrent Currencies. Curse or Cure? Papers of the III. ECAEF/CEPROM Conference

And yet, the proliferation of these currencies hints that a new era is dawning, where private, digital currencies will replace those of issued by the State. This revolution has been envisaged by Friedrich A. von Hayek in his 1976’s book “The Denationalization of Money”, where he backed the idea of a monetary system made of private currencies created by issuers to compete for acceptance on the market, while replacing government issuance of a national currency, use of which is imposed in the form of legal tender laws. Until the advent of the blockchain technology, Hayek’s idea seemed only a chimera. Now, with the technology available to everyone, more and more people realize that the chimera of denationalization of money is turning into reality.

Introduction

In his 1976’s book “The denationalization of money”, Friedrich A. von Hayek backed the idea of a monetary system made of private currencies created to compete for acceptance on the market, while replacing government issuance of a national currency, use of which is imposed in the form of legal tender laws. Hayek’s proposal aimed to create a free market-based monetary system and break up the central banks’ monopoly in money creation.

Hayek did not think of a monetary system made of an infinite number of currencies, as he specified in his 1978 revised and enlarged edition “Denationalization of Money: The Argument Refined”, where he maintained that rather than entertaining an unmanageable number of currencies, markets would converge on one or only a limited number of monetary standards …

Read the full version here ->
Cryptocurrencies Road to Denationalization of Money (.doc)


*Emanuele Canegrati is an economist, senior analyst at the London-based Forex broker BP Prime. He is a Faculty Member of the Liechtenstein Academy Foundation. He works as economist at the Italian Parliament and the Italian Ministry of Economy. He is a guest professor of Economics at LUISS University and La Sapienza University in Rome. He was Visiting Fellow at the London School of Economics and at the Luxembourg Income Study Office. This paper was presented at the Annual Conference of the Center of Economic Research for Monaco (CEPROM), held at the Oceanographic Museum in Monaco, 5 – 6 December 2018, Monaco.

Let People Decide Freely What Money They Want to Use

by Johan Norberg*

This paper was presented at the III. ECAEF/CEPROM Conference on “Concurrent Currencies: Curse or Cure?” in Monaco on Dec. 6, 2018. These academic conferences in honor of Jacques Rueff are planned and organized by ECAEF (European Center of Austrian Economics Foundation, Liechtenstein) and hosted in Monaco by CEPROM (Center of Economic Research for Monaco).

As I was pondering the origin and purpose of money, a friend brought me back to reality. He sent me a message from school about a problem with snack boxes. Apparently, the children had started trading food with one another, and turned school into a wild marketplace. Puffed rice cakes in the boxes created bigger problems than anything else because the children had started using them to pay for other goods, and even to buy help and services.

III. ECAEF/CEPROM CONFERENCE, MONACO 2018
Concurrent Currencies. Curse or Cure? Papers of the III. ECAEF/CEPROM Conference

This school doesn’t have a central bank, and yet, the children developed a medium of exchange with all the textbook attributes: It is standardised so that it functions as a unit of account – whereas the fruits they bring vary in quality and size, rice cakes come from the same producer and each unit has the same diameter, weight and taste. And it is a store of value, since it is more durable than perishable fruit. Unlike our fiat money, it is also based on something of real value. If the owner does not want to save for the future, he can always eat his rice cake.

This little story reveals why Carl Menger’s theory of the origin of money as an organic process – “Money has not been generated by law. In its origin it is a social, and not a state institution”1 – is much more realistic than the idea that it started as a government edict. Menger meant that bartering was a hassle since it took a double coincidence of wants. If the baker does not want a copy of my book, I have to find a butcher who does who is willing to exchange it for meat that the baker wants, in order to get my bread. People learn that this hassle is reduced the moment they trade with some good that is in demand by most people. This good eventually becomes money.

This is also the evidence from economic history. Archaeological and historical records show that early civilisations traded with the help of goods like stones, shells, barley, furs and salt. As they became more advanced they began to use precious metals like gold and silver. Puffed rice cakes fits into a long history of economic behaviour …

Read the full version here ->
Let People Decide (PDF)


*Johan Norberg is a Swedish author and historian, devoted to promoting economic globalization and what he regards as classical liberal positions. This paper was presented at the Annual Conference of the Center of Economic Research for Monaco (CEPROM), held at the Oceanographic Museum in Monaco, 5 – 6 December 2018, Monaco.

Régimes monétaires et cultures économiques

Jörg Guido Hülsmann*

This paper was presented at the III. ECAEF/CEPROM Conference on “Concurrent Currencies: Curse or Cure?” in Monaco on Dec. 6, 2018. These academic conferences in honor of Jacques Rueff are planned and organized by ECAEF (European Center of Austrian Economics Foundation, Liechtenstein) and hosted in Monaco by CEPROM (Center of Economic Research for Monaco).

La liberté monétaire est-elle un mal à éviter, ou au contraire un remède à rechercher ? Cette question a été abordée maintes fois dans l’histoire de la pensée économique depuis le 16e siècle. Elle a été abordée essentiellement, et à juste raison, des points de vue économique et politique. Sans doute trouvons-nous ici le cœur de la question. Il est nécessaire d’avoir des idées claires sur les conséquences économiques et politiques qui découlent de la liberté monétaire, par opposition au traditionnel monopole régalien, avant de trancher sur sa mise en place, ou non.

III. ECAEF/CEPROM CONFERENCE, MONACO 2018
Concurrent Currencies. Curse or Cure? Papers of the III. ECAEF/CEPROM Conference

Cependant, il convient de porter l’attention également sur ses ramifications culturelles. L’on peut reconnaître l’arbre par tous ses fruits, pas seulement par ses avantages et inconvénients économiques. Les institutions monétaires ne mènent pas une existence autonome, séparée du reste de la vie humaine. Elles ont forcément des ramifications sur le vivre ensemble des citoyens ; sur leurs priorités ; sur leurs manières de regarder le monde ; sur ce qu’ils aiment et détestent ; sur ce qu’ils considèrent être un problème ; et sur ce qu’ils pensent être une solution.
Mais quel est le poids de cet impact culturel de la monnaie ? Surtout, comment se manifeste-t-il concrètement ? Quels sont les mécanismes qui sont ici à l’œuvre ?

Le temps qui nous est imparti ne permet malheureusement pas de faire un tour complet de la question. Nous allons nous concentrer sur les mécanismes les plus importants, et nous allons les mettre en relief en comparant deux régimes monétaires diamétralement opposés, celui de la liberté monétaire, d’un côté, et le régime de l’interventionnisme monétaire qui prévaut aujourd’hui dans la quasi-totalité des pays du monde.

Dans ce qui suit, nous allons donc d’abord esquisser les traits caractéristiques de ces régimes monétaires et leurs conséquences sur les prix (I). Puis nous allons rappeler les principaux points de critique qui sont typiquement adressés à l’interventionnisme monétaire (II) avant de présenter, en plus de détail, ses conséquences culturelles (III) …

Read the full version here ->
Régimes monétaires et cultures économiques (PDF)


*Jörg Guido Hülsmann is a German-born economist of the Austrian School of economics who studies issues related to money, banking, monetary policy, macroeconomics, and financial markets. Hülsmann is professor of economics at the University of Angers’ School of Law, Economics, and Management. This paper was presented at the Annual Conference of the Center of Economic Research for Monaco (CEPROM), held at the Oceanographic Museum in Monaco, 5 – 6 December 2018, Monaco.

Gold Money in a Digitalised World Economy

by Thorsten Polleit*

This paper was presented at the III. ECAEF/CEPROM Conference on “Concurrent Currencies: Curse or Cure?” in Monaco on Dec. 6, 2018. These academic conferences in honor of Jacques Rueff are planned and organized by ECAEF (European Center of Austrian Economics Foundation, Liechtenstein) and hosted in Monaco by CEPROM (Center of Economic Research for Monaco).

(1) What this paper is all about

The emergence of new technologies and their impact on peoples’ lives – the buzzwords are digitalisation and digital transformation – brings far-reaching change. In fact, it may even revolutionise the world’s current monetary system by giving people a free choice of
currency. Needless to say that such a development could turn out to be fairly disruptive, inducing economic and political change on a possibly grand scale: The propagation of new technologies among consumers and corporates – distributed ledger technologies (DLT) in particular – could ultimately pose a challenge to the prevailing state-controlled fiat currency architecture.

III. ECAEF/CEPROM CONFERENCE, MONACO 2018
Concurrent Currencies. Curse or Cure? Papers of the III. ECAEF/CEPROM Conference

At the very heart, a free choice in currency and its concomitant competition among currencies, if let loose, would presumably also affect the state as we know it today and with it the established economic and political-social order. – The purpose of this paper is twofold. First, it wants to explain that a free market in money is nothing to fear, that it is the ‘natural order of money’ and as such highly desirable from an economic and socialethical viewpoint. Second, the article attempts to outline that a free market in money is practicable and feasible, and that the idea of a free market in money has already gained quite some ground in recent years.

Right at the start I should emphasise that a free market in money is the direct result of what Ludwig von Mises (1881 – 1973) termed the sound money principle: “[T]he soundmoney principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.” And further: “It is impossible to grasp the meaning of the idea of sound money if one does not realise that it was devised as an
instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.”

This paper has been structured as follows: It starts with some fundamental insights into monetary theory (2). To make a case for afree market in money, the economic and ethical deficiencies of today’s fiat currencies will be highlighted (3). Against this backdrop, the functioning of a free market in money will be outlined and its potential for development will be illustrated by (i) latest moves in various US federal states to officially treat gold and silver as money and (ii) recent attempts to provide a digitalised gold trading and payment system (4). After some remarks about the economic and social-political consequences a return to a free market in money might entail (5), the article concludes with some considerations as to whether a free market in money will (still) be possible (6).

(2) Fundamentals of Monetary Theory

Let us start with a simple question: What is money? Answer: Money is the universally accepted means of exchange, and as such, it is a good like any other. However, it money the most liquid good: It has the highest marketability of all goods. Monetary history informs us that precious metals, gold and silver in particular, have been the preferred means of money.

Why is that so? Well, a good that shall serve as money must have specific physical properties. For instance, the good in question must be scarce, homogenous, durable, transportable, divisible, mintable, and it must represent a relatively high value per unit. In basically all countries and civilisations, two commodities have been dominant whenever they were available to compete as money with other media: gold and silver. Money originated from the spontaneous actions in the free marketplace, as pointed out by the Austrian economist Carl Menger (1840 – 1921) in his landmark book Grundsätze der Volkswirthschaftslehre published in 1871.

Endowed with a minimum intelligence, people will sooner or later engage in a division of labour, resulting in a specialisation of production. To reap the fruits of a higher productivity of labour fully, trading becomes necessary. To make trading most convenient, people will take recourse to an indirect means of exchange. And the most commonly used indirect means of exchange will ultimately be voluntarily chosen as money. Menger also pointed out that money has developed from commodities such as precious metals. This idea was later (praxeo-)logically explained by  Ludwig von Mises, who put forward the so-called regression theorem.

Three additional monetary theory insights should be noted here. – First, the optimal number of monies in an economy is one – for if all people use the same money, the efficiency of economic calculation is optimised. That said, in a free market system there would be a tendency towards the emergence of a single money …

Read the full version here ->
Gold Money in a Digitalised World Economy (PDF)


*Thorsten Pholleit is Honorary Professor of Economics, University of Bayreuth (thorsten.polleit@uni-bayreuth.de). This paper was presented at the Annual Conference of the Center of Economic Research for Monaco (CEPROM), held at the Oceanographic Museum in Monaco, 5 – 6 December 2018, Monaco.