User:Neo139/Separation of Money and State

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The separation of money and state is the proposed abolition of public authority over monetary affairs.[1][2][3][4] The claim is essential to many classical liberal advocates,[5][6][7][8] and differs from free banking (which does not preclude an official currency),[5] or full reserve or gold standard models (that the government needs to enforce).[9] Some authors cite the proposed abolition in reference to the separation of church and state, arguing it would provide a similar advantage to liberty and prosperity.[10][2]

Overview[edit]

Historically, classical liberals and libertarians share the same scepticism about the idea of macroeconomic policy setting by monopolistic institutions. They reject all types of central economic planning, including the setting of interest rates and management of the money supply. Economists such as Ludwig von Mises or Friedrich von Hayek were among the most notable supporters of that idea in the twentieth century.[11][12][improper synthesis?][third-party source needed]

However, contrary to proponents of the gold standard (which involves public authority), advocates of separation between money and state do not reject fractional reserve banking or credit-based money. They rather assert that producers and consumers should be able to freely choose any medium of exchange proposed on a marketplace of currencies. They most notably reject legal tender laws and banking licenses.[13]

When used as a reference to the separation of church and state, the phrase separation of money and state is meant to claim that such a separation would bring about a comparable benefit to individual freedom and wealth.[14][15]

History of the proposal[edit]

The involvement of government into monetary affairs is old as civilisation. The Code of Hammurabi, the best preserved ancient law, was created ca. 1760 BCE in Babylon. Earlier collections of laws include the Code of Ur-Nammu (ca. 2050 BCE), the Code of Eshnunna (ca. 1930 BCE) and the code of Lipit-Ishtar of Isin (ca. 1870 BCE). These laws formalized the role of money in civil society. They set amounts of interest on debt, and taxes in pre-defined legalized money.[according to whom?][16][failed verification]

Similarly, monetary debasement by government has also been a common historical practice, as an ends to popularity or to war.[17] The most notable example in antiquity is that of the Roman currency.[18] Originally, the Denarius was nearly pure silver, weighing about 4.5 grams. During the Julio-Claudian dynasty, it contained approximately 4 grams of silver, and then was reduced to 3.8 grams under Nero. The Denarius continued to shrink in size and purity, until by the second half of the third century, when it was only about two percent silver, and was replaced by the Argenteus.[19][20] This practice compelled Cicero to declare: “Nervos belli, pecuniam” (Endless money forms the sinews of war).[21]

The first scholars to have intelligibly argued in favour of stripping the government from the authority of issuing and regulating the supply of money are the early liberals of the Enlightenment. Consequently, the same values underlied the founding documents of the United States. Thomas Jefferson wrote on the issue of banking: "I deny the power of the General Government of making paper money, or anything else, a legal tender".[22]

On the contrary, the WIR Bank introduced a private currency in Switzerland in 1934, which met no resistance by the government, and which arguably lessened the impact of the Great Depression on that country.[23] Although WIR started with only 16 members, today it has grown to include 62,000. Its total assets are approximately 3.0 billion CHF (as of 2005).[24]

More recent attempts at escaping the government monopoly on money was generally met with harsh repression as soon as notability was achieved.[neutrality is disputed] The owners of the E-gold private electronic currency were indicted in 2007 by the United States Department of Justice on four counts of violating money laundering regulations; in July 2008 the company and its three directors pleaded guilty to charges of "conspiracy to engage in money laundering" and the "operation of an unlicensed money transmitting business" in the U.S. District Court.[25] Similarly, Liberty Dollar founder Bernard von NotHaus was convicted of counterfeiting on March 18, 2011. Attorney for the Western District of North Carolina, Anne M. Tompkins, described the Liberty Dollar as "a unique form of domestic terrorism" that is trying "to undermine the legitimate currency of this country".[26][27][28] The Justice Department press release quotes her as saying: "While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country."[28]

As is often the case in periods of economic contraction, alternative currencies proliferated late in the millennium decade, although such scrips generally do not replace conventional money.[29]

Criticism[edit]

The proposal markedly opposes the neo-classical, charlatist and monetarist macroeconomic theories[30][31][32][33][34][35]

See also[edit]

References[edit]

  1. ^ "If we want free enterprise and a market economy to survive [...], we have no choice but to replace the governmental currency monopoly and national currency systems by free competition [...]." Friedrich von Hayek. Good Money, Part 2. University of Chicago Press. Retrieved 2013-01-25.
  2. ^ a b "There was one very intelligent reviewer of my first booklet who said, well, three hundred years ago nobody would have believed that government would ever give up its control over religion, so perhaps in three hundred years we can see that government will be prepared to give up its control over money. We have not got that much time. [...] To put [money] into the hands of an institution which is protected against competition, which can force us to accept [it], which is subject to incessant political pressure, such an authority will not ever again give us good money. [...] There is no justification in history for the existing position of a government monopoly of issuing money. It has never been proposed on the ground that government will give us better money than anybody else could.”Friedrich von Hayek. Good Money, Part 2. University of Chicago Press. Retrieved 2013-01-25.
  3. ^ "Money [...] is the nerve center of the economic system. If, therefore, the state is able to gain unquestioned control over the unit of all accounts, the state will then be in a position to dominate the entire economic system, and the whole society. [...] Freedom can run a monetary system as superbly as it runs the rest of the economy. [...] There is nothing special about money that requires extensive governmental dictation." Murray Rothbard. [[What Has Government Done to Our Money?]]. Mises Institute. Retrieved 2013-01-25. {{cite book}}: URL–wikilink conflict (help)
  4. ^ "If government manages to establish paper tickets or bank credit as money, as equivalent to gold grams or ounces, then the government, as dominant money-supplier, becomes free to create money costlessly and at will. As a result, this inflation of the money supply destroys the value of the dollar or pound, drives up prices, cripples economic calculation, and hobbles and seriously damages the workings of the market economy." Murray Rothbard. "Taking Money Back". Mises Institute, 1995. Retrieved 2013-01-25.
  5. ^ a b Friedrich von Hayek. [[The Denationalization of Money]], 3rd edition. IEA, 1990. Retrieved 2013-01-25. {{cite book}}: URL–wikilink conflict (help)
  6. ^ Murray Rothbard. [[What Has Government Done to Our Money?]] (PDF). Mises Institute, 1980. Retrieved 2013-01-25. {{cite book}}: URL–wikilink conflict (help)
  7. ^ Murray Rothbard. "Taking Money Back". Mises Institute. Retrieved 2013-01-25.
  8. ^ William Leggett (1801-1839) was a Jacksonian Democrat and a staunch proponent of economic freedom. "Our primary ground of opposition to banks as they at present exist is that they are a species of monopoly. [...] When a legislative body restrains the people collectively from exercising their natural right of pursuing a certain branch of business, and gives to particular individuals exclusive permission to carry on that business, they assuredly are guilty of a violation of the republican maxim of Equal Rights [...] What then is the remedy for the evil? Do away with our bad bank system; [...]. We hope, indeed, to see the day when banking, like any other mercantile business will be left to regulate itself; when the principles of free trade will be perceived to have as much relation to currency as to commerce". William Leggett. "Essays in Jacksonian Political Economy, Separation of Bank and State". Lawrence H. White, ed., 1834.
  9. ^ Ludwig von Mises. [[The Theory of Money and Credit]]. Mises Institute, 1912. Retrieved 2013-01-25. {{cite book}}: URL–wikilink conflict (help)
  10. ^ See Chapter 8 (Separation of Money and State). Thomas H. Greco, Jr. The End of Money, The Future of Civlisation. Chelsea Green Publishing, Jun 4, 2009. Retrieved 2013-01-25.
  11. ^ See The Theory of Money and Credit and Austrian business cycle theory
  12. ^ Ludwig von Mises work excerpts:
    • For two hundred years the governments have interfered with the markets choice of the money medium. Even the most bigoted tatists do not venture to assert that this interference has proved beneficial. Human Action; p. 419; p. 422
    • The monopoly problem mankind has to face today is not an outgrowth of the operation of the market economy. It is a product of purposive action on the part of governments. It is not one of the evils inherent in capitalism as the demagogues trumpet. Human Action, p. 363; p. 366
    • The endeavors to expand the quantity of money in circulation either in order to increase the governments capacity to spend or in order to bring about a temporary lowering of the rate of interest disintegrate all currency matters and derange economic calculation. Human Action, p. 225; p. 224
    • It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. The Theory of Money and Credit, p. 454
  13. ^ Thomas H. Greco, Jr. The End of Money, The Future of Civlisation. Chelsea Green Publishing, Jun 4, 2009. Retrieved 2013-01-25.
  14. ^ See developed argument in chapter 8 (The Separation of Money and State) of the book The End of Money, The Future of Civlisation by Thomas Greco. "A useful parallel can be drawn between the necessary separation of money and state and the recently established question of separation of church and state [...] the evils that have been spawned by such collusion between political power and financial power are far worse even than those that arose historically from the collusion between political power and religious power." Thomas H. Greco, Jr. The End of Money, The Future of Civlisation. Chelsea Green Publishing, Jun 4, 2009. Retrieved 2013-01-25.
  15. ^ The Globe and Mail relates the Hayek proposal of money/state separation with the hyperinflation debacle in Zimbabwe, by arguing the end to legal tender laws on April 12 2011 brought about the recovery. "End a government’s monopoly over money and you can even moderate, as Mr. Noko calls Mr. Mugabe’s regime, a rapacious kakistocracy. (The Greek kakistos means worst: government by the wicked and the corrupt.)"Neil Reynolds. "A choice of currency leads to a choice for security". The Globe and Mail, Aug 2011. Retrieved 2013-01-25.
  16. ^ Charles F. Horne (1915). "The Code of Hammurabi : Introduction". Yale University. Retrieved September 14, 2007.
  17. ^ Free Banking: Theory, History, and a Laissez-Faire Model, Larry J. Sechrest, 1993
  18. ^ L Adkins, R A Adkins (1999-06-24). Handbook to Life in Ancient Rome. Oxford University Press, 16 Jul 1998. ISBN 0195123328. Retrieved 2012-06-09.
  19. ^ Currency Crisis and Debasement, Forbes, March 2010
  20. ^ Gold: The Once and Future Money, Nathan Lewis, Wiley Publishing, 2007
  21. ^ See Wikiquote and Philippicae
  22. ^ Thomas Jefferson on Politics & Government, The National Debt, 1798
  23. ^ Currency Pluralism and Economic Stability: The Swiss Experience, Wojtek Kalinwski, October 2011
  24. ^ "Wir Bank History: Milestones/ Chronology". Wir Bank. Retrieved March 22, 2012.
  25. ^ Grant Gross (2007-07-22). "IDG News Service Internet currency firm pleads guilty to money laundering". Archived from the original on 2009-04-14.
  26. ^ "Defendant Convicted of Minting His Own Currency" (Press release). United States District Court for the Western District of North Carolina: U.S. Attorney’s Office. March 18, 2011. Archived from the original on December 17, 2012.
  27. ^ Lovett, Tom (March 19, 2011). "Local Liberty Dollar 'Architect' Bernard von NotHaus convicted". Evansville Courier & Press.
  28. ^ a b "Editorial: A 'Unique' Form of 'Terrorism'". The New York Sun. March 20, 2011. Archived from the original on April 3, 2011.
  29. ^ Alternative Currencies Grow in Popularity, Time Magazine, Dec 2008
  30. ^ Friedman, Milton (1960). A Program for Monetary Stability. Fordham University Press.
  31. ^ Nelson, Edward (2007). "Milton Friedman and U.S. Monetary History: 1961–2006" (PDF). Federal Reserve Bank of St. Louis Review (89 (3)): 171.
  32. ^ Milton Friedman, "Should There be an Independent Monetary Authority?", in L.B. Yeager, editor, In Search of a Monetary Constitution
  33. ^ Paul Krugman, Deficits and the Printing Press (Somewhat Wonkish), New York Times, 2011
  34. ^ Knapp, George Friedrich (1924), The State Theory of Money, Macmillan and Company
  35. ^ MMT Monetary Theory vs. Austrian Monetary Theory, CNBC Senior Editor, Jan 2012]
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