Posts Tagged ‘freemarkets’

The debate between fiat and commodity monetary standards is slowly re-entering the mainstream. See here, here and here. To those new to the subject, this is simply a debate as to whether the money in your pocket is backed by nothing other than government mandate and coercion (fiat) or a by a physical commodity that has value beyond it’s use as money (usually gold or silver).

This is a debate which many had considered to be closed, an argument that only existed on the fringes of academia amongst eccentric free marketeers. Succesive rounds of quantitative easing, coupled with negative real interest rates have thrust this debate back into focus.

It is bizarre that it has taken so long for this issue to re-surface. The intellectual superiority enjoyed by paper money is based on a 42 year experiment that has seen the value of all paper monies race each other toward their intrinsic value – ZERO.

The alternative, a commodity standard based on gold or silver (or a combination) is viewed  by the mainstream as atavistic, “a barborous relic”. This completely overlooks the historical track record of commodity money as society’s choice of preferred choice of exchange media.

The majority of coverage will argue against the gold standard, no doubt citing the flawed gold bullion standard (1925-1931) and Bretton Woods system (1946-1971) as representative of the failings of commodity backed monies.  Neatly overlooking that both standards were not the product of the free market but centrally planned and enforced by government.

The establishment has good reason to fear the return of a TRUE gold standard via the free market, beyond the control and manipulation of government and central bank. Such a gold standard would enforce fiscal responsibility, removing the state’s ability to run up unsustainable debt backstopped by the printing press. The current monetary world order is a top down system, designed, implemented and controlled by state bureaucrats and apparatchiks for the benefit of the establishment and it’s chosen favourites. There are plenty of vested interests who are keen to see it remain that way.

I would encourage the reader to look beyond the standard criticisms. One thing is for certain – the gold standard is back on the radar. This can only be a postive thing, especially as the loose monetary policy pursued by central banks world over causes more people  to wake up to the reality of their savings  being stolen through central bank induced inflation.

Unfortunately, I have to get a bus to work everyday. Generally speaking, buses are pretty awful. They are usually one (or a combination of) the following; late, smelly, relatively expensive, overcrowded, uncomfortable, indirect.

But why should this be so? Horse drawn buses were used in the early 1800s so you would think that 200 years of innovation and technological progress would have produced something far more adequate than our present day reality. I mean think about it, the first commercially available mobile phones were introduced in 1983 and just look what has happened a mere 20 years later! Phones that are not just mobile but maps, music players, computers, diaries, Internet equipped… you get the idea. What is even more amazing is that this technology is increasingly available to almost everyone in society.

Back in 1983 a mobile phone have cost you $3,995 (almost $10,000 in today’s terms if you factor for inflation!!). For your money you would get a 790g block with err…  30 minutes talk time. Today I can walk into any mobile phone shop and walk straight back out with a product vastly superior to it’s 1983 forebearer for a fraction of the cost. How is this so?

Well it’s certainly not due to government intervention. Rather predictably, it’s our old friends – capitalism, competition and (relatively) free markets. A combination of these factors ensured that the quality of mobile phones went up and the price went down, making this product ubiquitously available across society. Government intervention in the form of taxes and regulation has no doubt had some negative effect on this sector but has not been significant enough to have seriously dampened the productive force of capitalism.

Let’s return to the example of the bus. The bus network (in Britain at least) is prone to a plethora of state interventions. Much like the rail network, most routes are awarded by a regional QUANGO to private operators. Other bus companies are then not permitted to compete on the same route. The obvious result of which is that there is little/no competition for a bus company once it has won the right to a route. This type of privatization is better than direct state ownership of the industry, but only marginally.

Without allowing truly free competition between different operators service, quality and affordability will never improve. No doubt the bus companies like it this way and likely lobbied hard to achieve this status quo, which would exemplify the unholy alliance between big business and government.

In the meantime, my mobile phone contract is up for renewal and I have an veritable bounty of cutting edge devices to choose from. Coincidentally my bus pass is also up for renewal. Sadly, my choices in that respect are rather more limited.