Wednesday, June 6, 2012

The Case for Monetary Freedom

By Jon Matonis
Thursday, May 31, 2012

The Cato Institute has just come out with their Spring/Summer 2012 edition on Monetary Reform in the Wake of Crisis. It is the published version of their 29th Annual Monetary Conference which addressed the fundamental issue of how to prevent another global financial crisis without merely tinkering on the edges of the government fiat money regime.
"The first step is to rethink the role of government and central banks in the existing system, and then consider alternatives — such as the gold standard — that would substitute rules for discretion, increase choice in currency, and allow markets to determine the optimal quantity of money. After nearly a century of U.S. central banking, it's time to reconsider whether the Federal Reserve's monopoly status, discretion, and growing regulatory powers are more a source of crisis than a cure."
Always relevant and informative, this issue has two particular noteworthy addresses -- the first by Dr. Ron Paul and the second by James Grant of Grant's Interest Rate Observer.

Ron Paul is the Chairman of the House Financial Services Subcommittee on Domestic Monetary Policy and in 2009 he introduced the Free Competition in Currency Act. This article is based on his Keynote Address at the Cato Institute’s 29th Annual Monetary Conference, November 16, 2011, in Washington, D.C. In stark contrast to the Paul Krugman, Bill Still, and Ellen Brown inflationistas, Paul's keynote address, "Why Monetary Freedom Matters," passionately makes the case for denationalizing money and repealing legal tender laws as the only remedy to restore a functioning and free market monetary system:
"I took the position that I wouldn’t close the Federal Reserve down in one day. The Fed will close itself down eventually when it destroys the value of the dollar. But I don’t want that to happen, either closing it down in one day or waiting for a collapse of the whole system. My idea is similar to what F. A. Hayek (1976, 1978) had talked about. Why don’t we denationalize money, legalize competition, allow free markets to work, and allow free-market banking to work? I think we should legalize competition in currencies, which means that first we recognize the Constitution and repeal the legal tender laws.
I have a bill that actually legalizes competition. We also would have to address the subject of fractional reserve banking—I think what we have put up with in fractional reserve banking and the pyramiding of debt is atrocious, but there is a disagreement in libertarian circles about exactly what you do with fractional reserve banking in a free market—but that is a small argument compared to whether or not we should have competition in currencies and allow something else to circulate."
Then, in "Banking Dysfunction," James Grant systematically exposes both the fallacy and folly of capital adequacy reserves and examines the misdirected regulatory thrust:
"Let us be clear: on Wall Street, there was never a capitalist Eden. There was, however, an era of capitalist clarity in which the owners of the banks and investment banks not only reaped the profits but also bore the losses. Insolvency, in the case of a nationally chartered bank, meant a capital call for the stockholders, the proceeds earmarked for the depositors and other senior creditors. It was, after all, the investors’ bank, not the taxpayers’.
What’s truly and importantly new in banking is the definition of cash. When cash was gold, or notes convertible into gold, the basis of credit was gold. There could be only so much credit because there was only so much gold. Today, cash is paper, and paper is the basis of credit. There can be a titanic volume of credit because of paper there is no end."
In a separate Cato paper this month on "Competition in Currency: The Potential for Private Money," Thomas Hogan writes that, "the lack of participants in the private banknote market appears to be due to the uncertain legal status of private note issue and the rigorous prosecution of currency-related crimes."


  1. Jon you have not understood Ellen Brown and Bill Still if you are lumping them in with Paul Krugman. Krugman wants to print money, increase the debt and pay off the interest assuming that his strategy creates growth. This strategy hasn't worked so far, so he advocates doing it harder. Ellen Brown is talking about creating banks owned by the state instead of the private sector, so that the profits from lending money are ploughed back into the economy where they can be used to pay the interest, instead of re-lending them or burying them, or gambling them which would increase overall indebtedness. Bill still is talking about transferring the money creation power to democratic, accountable government from private banks, and converting the debt money into equity.
    Both Ellen brown and bill still are talking a lot of sense and they outside the false paradigm of inflation vs austerity.
    Don't expect anything progressive from the Cato institute. The Gold standard may curtail inflation but will do nothing about
    fraction reserve banking
    systemic financial fraud
    corruption in government
    Control of money by the 1%
    Crony capitalism
    and all the rest. The current holders of gold will have the most gain as the gold price goes up. then it will be business as usual. We need to be looking further afield for real solutions and Ellen Brown and Bill Still are doing there damnedest to show us acceptable alternatives.

  2. State-owned banks or government-owned money printers are not a new way of looking at the money issue. The fundamental problem is the State's involvement in the monetary sphere to begin with. Monetary freedom refers to freedom of choice in currency which would abolish legal tender laws and State-sanctioned money.

  3. There was wide-open 'monetary freedom' in the USA in the 1830's.

    How did that work out??

  4. Fed’s monetary policy is actually one of the reasons of continues economic crisis. Ed Butowsky was right with his statement, "this policy program that Obama chose hurts the middle class and single woman the most because they spend a higher percentage of their income on food and energy, which are rising the fastest due to his printing of money"