The case for (re-)privatizing money: Whoever controls the money, controls everything – and that’s why nobody should.

Arguments, debates and ideas on how to end the state’s monopoly on money have
been raging since Friedrich A. von Hayek brought the issue to the academic table,
though it was surely a topic of fiery conversations long before that too. However, in
terms of actually dethroning fiat money, real, practical progress is lacking. Nevertheless,
there is renewed reason for hope now. The current pressures are too unfamiliar and
unnerving to the average saver and taxpayer. Inflation is a good example: most
millennials had heard of it and some of them even read about it, but they never really
expected to personally encounter it. It was mythical creature, formidable and spine-
chilling, but only as far as one’s imagination would allow, like a fearsome dragon slayed
long ago.

The trouble is that after said average saver and taxpayer figures out that inflation is
actually real, they start to ask other questions too. What is really causing it? How come
some currencies fare better than others? How come the state – or, to be precise, its
entirely and unimpeachably independent arm, the central bank – can create cash
effortlessly out of thin air and I have to work for mine, but they’re still worth the same?
What is any state currency really backed by, anyway?

Beyond obvious problems like inflation that tend to dominate this debate, however, fiat
currencies carry a lot more risks, burdens and moral hazards. For one thing, they allow
the state to sneak into and to interfere in private affairs, where it really doesn’t belong. If
you think about it, it is indirectly, but forcibly, inviting itself into every single agreement
and transaction between individuals, by way of any contract denominated in its
currency, which constitute the vast majority of all contracts in a society. It gets worse, in
a practical way at least, when one considers the implications of being forced to pay
one’s taxes to the issuer of the currency in the currency they issue; no other means of
payment will do.

This onus to pay the state in the currency it issues and controls, is keeping citizens
finally hostage and unlike taxation itself, the merits of which can be debated ad
nauseam, it is ethically indefensible. It is reminiscent of the “company scrips” of the old
days. These were notes and coins that were issued by companies in the 19th century,
mostly in the US, that were used to pay workers. The scrip issuers were usually logging
or mining companies that ran their own stores too, selling essential goods at large
markups. Since scrip could only be used as payment in company stores or be
exchanged there at a steep loss due to exorbitant fees, employees were trapped in this
system where their hard-earned money was make-believe, but the confines it put on
them were very real indeed.

The scrip system was outlawed back in 1938 in the US and to most people today, it
would appear monstrously unjust for a private company to hold employees hostage in
this way. Yet it would appear that it’s alright if it’s the state that does it and if the victims
are not just a few employees that can always find a different job, but the entire
population that cannot simply find a different nation; mainly because they all do it.

Sociopolitical implications

What often goes under-discussed in the debate of private currencies are arguments that
have less to do with monetary and economic issues and more with the way that society
and the body politic itself are affected by fiat money. For example, as many before me
have pointed out, one of the ways that unbacked and state-controlled money corrupts
free-market dynamics is that cheap money policies create so-called “zombie” companies. These are businesses that are underperforming, uncompetitive, heavily
indebted and generally failing, but continue to keep the lights on thanks to cheap debt,
the economic equivalent of artificial life support. On an economic level, we can see how
this is harmful: getting rid of this dead weight and making sure every business owner
active in an economy knows that there’s no safety net, would obviously make the entire
system more robust.

However, let us consider what this means on a sociopolitical level. The companies that
have access to cheap money on that scale, do not include the mom and pop grocery
store around the block, your local bakery or small family-owned construction business.
Quite the opposite, when these small businesses teeter on the brink of failure, the
“invisible hand” is allowed to go about its business unobstructed. The more this
happens and the more apparent this unjust phenomenon becomes to the working public
and to entrepreneurs, the more it highlights to them that there’s no free market, no real
competition and no level playing field; so, in that case, what’s the point of playing at all?

Another moral hazard that is often overlooked in this discussion is the effect that fiat
money has on the population’s time preference. Even if one has never considered the
dangers and risks of state currencies, it only takes a single inflationary experience for
any rational actor to realize them. As mentioned before, one can read all they want
about the “thief in the night” that is inflation, and perhaps truly believe that “it can never
happen here”, but it’s a whole different story to live through it, to feel the pressure of a
shrinking paycheck and to sit back and watch as all their saving in the bank lose value
from one day to the next.

As a result of such an experience, any sensible human is likely to question their
previous choices, all their hard work and all the responsible decisions they made to
achieve their long-term plans. If you know all that you’ve worked for can just simply
vanish tomorrow, why bother saving? Why not spend everything you make now, quickly,
while it’s still worth something? Why not buy that big-ticket item that you were thinking
about getting, maybe not now but in a few months when it would have made more
financial sense? If you wait, the price will shoot up and your salary will most likely not,
so the seemingly rational thing to do is to “get it while you can”. These are the same psychological dynamics and pressures at work here that we often seen employed in
marketing campaigns, and we know they work.

Even during times of “tame” inflation, however, the same push to overconsume and to
spend beyond one’s means is still present. In fact, it is built into the fiat money system
itself. The ease of the money creation process, the debt-fuelled illusion of growth and
the constant and absolute need for more and more credit, all mean that the entire
edifice is founded upon overspending. If that stops, then it will all implode.

Let us turn to the political consequences for a moment and examine the impact of the
weaponization of the currency. One of the most obvious ways this power is abused
becomes abundantly clear during geopolitical tensions and periods of conflict, like the
one we’re in right now. Dominant currencies owe their dominance to their fiat nature, to
the advantage they provide to their governments to manipulate them and in times like
these, the currency becomes yet another weapon in a nation’s arsenal and it is used to
inflict usually indiscriminate damage. After all, economic blockades and embargoes
imposed upon any country threaten to plunge it into economic turmoil in its entirety. The
farmer is hurt as much as the military officials or any political actors that support a
corrupt regime. In fact, to be accurate, the farmer is almost always hurt more, and so
are his children. It is therefore not uncommon, or even entirely irrational, for the
descendants of those who lived through hard times like these in e.g. Cuba or more
recently Venezuela, to blame their predicaments more on those who imposed these
policies instead of the regime that was ruling their nations at the time. The long-term
effects of practices like that often involve the perpetuation of division and hatred,
prolonged conflict and loss of economic opportunity for the next generation, maybe a
couple more after that too.

There’s a “carrot and stick” approach to using and abusing the monopoly on money, and
the aforementioned tactic is the stick, but it’s the carrot that gets a lot less analyses and
editorials, even though it has an equally, if not more, deleterious effect. From the “bread
and circuses” of the empires of old, to the spending budgets of today’s governments,
the tactic hasn’t changed much. The only difference now, is that there is nothing,
absolutely nothing to limit the increase in the money supply and there’s every reason
not to. We’ve seen generous and usually very strategically targeted spending promises
come up in all Western democracies, every election cycle. Those promises got more
and more ambitious over time, to the point that the idea of Universal Basic Income (UBI)
came to be seriously considered, even tested in some nations. Cooler heads and more
reasonable voices prevailed at the time, highlighting the extremely dangerous
inflationary and social consequences such a system would have. But then covid
happened and we saw something we hadn’t seen before: The floodgates opened and
an unprecedented blanket stimulus wave was unleashed. To many, this proved that
utopian ideas like UBI can indeed be enforced, as the inflationary pain can be
addressed by giving out more money. As childish as this might sound, this is what we
just witnessed in the US and its Inflation Reduction Act, an act that absurdly wants to
fight inflation with even more spending, and in many European nations and their subsidies and even direct payments to households to help with their groceries and
electricity bills.

While the downward spiral of this approach is fairly obvious, its sociopolitical effects are
not that instantly recognizable. Once all rational arguments against overspending and
overprinting are removed from the public debate and once these considerations and
constraints come to be dismissed or viewed as easily addressed “non-issues”, then
what any future political race boils down to is which candidate can spend more. Not only
does going down this path strip all decency, morality and merit from the democratic
process, as it removes the need to compete on actual issues and ideas, but it also sets
society itself on a very dangerous trajectory. If justice, competence, compassion,
integrity, intellectual prowess and knowledge have nothing to do with selecting one’s
leadership, and only the direct checks (in whatever from they may come) are the deciding factor, then one cannot be surprised if we find ourselves
scrapping the bottom of the moral barrel and seeing dangerous, misanthropic and toxic
ideologies get embraced – for the right price.

Looking ahead

Those that support the status quo and see the state’s monopoly on money as an
essential ingredient not only to economic stability, but to social order too, have for years
tried to defend it by listing all the reasons that the people should be afraid of private
currencies. Arguments like this have spread fears of chaos and disorder should the fiat
dominance come to an end. The rise of crypto saw certainly gave a lot of ammunition to
private money opponents, who cleverly chose to focus on the volatility, or the fraud and
security risks. As humans, risk aversion is hardwired in our brains, and the losses cause
a much sharper emotional response in us than the gains do. Thus, it is easy to ignore all
the benefits of privacy, of independence from the banking system, of cheap and efficient
transactions, all because of a “horror story” of an exchange getting hacked and Bitcoins
going missing – even though that never had anything to do with the security of Bitcoin

Even though there are reasons to be optimistic about a shift in the monetary order, for
the public to demand that shift it is essential that these fears are assuaged. It must be
understood that the “reckless experiment” is not the privatization of money and that the
need for a central authority is simply not valid. It never has been. Far from a
revolutionary and radical idea, private currencies have long predated fiat ones. Not only
have they been with us for millennia, but even more importantly, they still are,
increasingly so, and they are here to stay. Gold, silver, and now crypto and other private
currencies, are all better options than the dollar has ever been, and the only way for a
“critical mass” of people to see that too, is to use them themselves, freely, voluntarily
and for whatever purpose they see fit.


Vahan P. Roth
Dinner Speech at the Opening Dinner, XVII. Gottfried von Haberler Conference on ‘Taking
Money out of Politics: A Case for Private Currencies?’, ECAEF, Vaduz May 11, 2023.

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