John Carney, senior editor at CNBC.com, writes, “One stark difference between Austrian Economics and Modern Monetary Theory has to do with their ideas about the origins of money.”
Carney summarizes the two positions, citing The Theory of Money and Credit for the Austrian view. He then says,
In truth, both these theories strike me as incomplete. The Austrian theory has never adequately explained how the government got control of money. Mises and others talk about the government monopolizing coinage but this still doesn’t explain why government money retains its role as the medium of exchange.
Someone needs to give John Carney a belated Christmas present: What Has Government Done to Our Money?
Because Murray Rothbard wrote an entire book on the topic that Mr. Carney claims the Austrians fail to address, we have to conclude that he doesn’t yet have WHGDtOM? in his personal library.
Perhaps he’d prefer the audio version. Right now, the MP3 CD is only $5!
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http://mises.org/resources/3747/The-Ethics-of-Money-Production
…as well.
How does any government get control of anything? By declaring that they control it, making up a cover story about how “we had to do it”, and then murdering, imprisoning or exiling anyone who defies them.
For a while they manage the things that they are controlling with relative efficiency and they refrain from taking immediate, full advantage of the situation. This buys them acquiescence and complacency from the majority of the public. Before very long, most of the public forget that the things which government controls ever existed privately and voluntarily, and (like Mr. Carney) can no longer conceive of how they could come into being without the government. That is when they are doomed. When they realize that they are getting nothing from government in return for their trust, it is already too late and their society is ruined.
Run your finger down the listings of departments and bureaus in the government directory … every entry has its own story of violence, deception, neglect, forgetfulness, and ultimately plunder and ruin.
The lead standard. If you don’t use the greenbacks, and resist using them and their attempts at getting you to use them, they’ll pump you full of lead. This effect also works on the international stage.
I don’t recall the source but I do recall reading that it actually originated with the Romans. Around the 2nd and 3rd centuries the emperors were debasing the currency to pay for their unending wars, inflating the coinage (first by cutting off a piece of the gold, then by seignorage declaring a $1 of gold coin to be suddenly worth $2 despite the lack of gold, then by mixing %’s of the metallic content of the coin, always less and less gold), causing terrible economic distortions, which resulted in the centurions demanding being paid in pure gold and commodities. Finally the emperors just demanded taxes be paid in their worthless money, and the only way for the people to get the worthless money was to trade their gold coin for it. And thus the link between wars, fiat currency, taxation, and coercive government is an ancient one. But one that kings and dictators have been well aware of.
And of course our own enlightened government has its own legal tender laws. In fact, it is a crime to use anything else for monetary transactions. Land of the free??
Also:
http://mises.org/books/currency.pdf
Rob hit the nail on the head. The only way to get the money to pay the tax was to work or trade commodites. This validaates the MMT position that spending occurs prior to taxation. The money is not wothless. People were obviously willing to trade things of value for them.
I saw Rod’s comment. He seems to be talking about “Pay up or die”. You call that a trade?
Mises absolutely addressed this issue, but he did so in abstract terms. He didn’t provide a step-by-step description of how government acquired control of the fiat currency, he simply explained why free banking is preferable, how it ceased to exist (he credits “a particular ideology”), and what the impact of government money is on the monetary system.
His best description of the above (in my opinion) is found in the book “Causes of the Economic Crisis.”
His theory desperately needs updating, however. It is complete and accurate, but we need another economist of his caliber to update the theory with the changes that have occurred in the financial system since 1950.
There really isn’t any need to determine a theory of how the government acquired fiat currency.
It’s a historical fact that this did happen. All you have to do is examine the mechanics of history to understand how it did happen. There are plenty of free books on this website that describe how the government(s) in the USA repeatedly tried, and failed, to acquire some form of fiat currency.
The reason it failed prior to the early 1900s is because of Gresham’s Law, ‘Bad money drives out Good’. They tried to print money only to negatively impact the economy areas they controlled and devalue the taxes they collect. People paid taxes with the worthless paper and used silver to trade with one another.
So in the last attempt, which so far is successful, they simply made it illegal to own ‘Good money’.
It’s not very complicated. You used fiat money or they will seize your property and if you resisted they could simply kill you.
I would think that something similar to the regression theorem would explain why fiat money continues to have value. Before it was fiat, it was gold-backed, and before it was gold-backed it was gold. Today’s value of money is derived from yesterday’s value of money.
@nate
“There really isn’t any need to determine a theory of how the government acquired fiat currency.”
Actually there is. Money originates Because it is a good like everything else. What makes it special is certain unique properties: homogenous, easily divisible, portable, recognizable, universally accepted, et al. See Prof. Salerno’s lecture. There’s a video link around here somewhere.
The point is that money originates in the market sans the state. State control can only come through forcefully employing measures designed to make people use it. There never were merchants standing around going “gee we”d love to trade but just have no means. If only the state would print money for us we’d be able to. ” It is vital to know how the state got control.
Oh an I recall the source. Michael Grant’s book Climax of Rome.
I would also recommend two articles by Hans-Hermann Hoppe, whose monetary writings are solidly in the Misesian/Rothbardian framework: “How is Fiat Money Possible?-or, The Devolution of Money and Credit;” and, “Banking, Nation States and International Politics: A Sociological Reconstruction of the Present Economic Order.”
http://mises.org/journals/rae/pdf/RAE7_2_3.pdf
http://mises.org/journals/rae/pdf/RAE4_1_3.pdf
If Carney’s to frugal to pay $5 for the audio version, Mises makes it available free of charge as a pdf on the www. http://mises.org/books/whathasgovernmentdone.pdf
I don’t quite see it as trade or die. I need money to live so I work. In the course of that I incur a tax liability. Businesses sell products and services to the government all the time vountarily. I do see your point though!
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