Gary North: Mises on Money
Posted by Orrin Woodward on January 30, 2014
Gary North may be the best synthesizer of Ludwig Von Mises‘s philosophy of money and banking. In fact, I believe Mr. North is one of the best minds when it comes to Biblical principles and economic matters period. I have read over ten of his books and he always stretches my thinking in economic and Biblical concepts and how they relate. Few people think as clearly, logically, and cogently as North does which is why I am sharing this portion of his insightful book called Mises on Money. I finished the book while flying into St. Louis on Tuesday. Anyone wanting to know what government and the central banks are doing to our money need to read this book!
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Mises offered a theory of money that was self-consciously based on a theory of individual decision-making. He offered no grand scheme for political reform. He offered only one policy: shrink the State. Mises presented a comprehensive theory of money which rested on only two legal pillars, both of which have been undermined by modern law: (1) the enforcement of contracts by the civil government; (2) the right of peaceful, non-fraudulent voluntary exchange. His monetary theory was a consistent extension of his theory of the free market. He did not rely on a theory of State regulation of the monetary system, any more than he relied on a theory of State regulation of any other sphere of the economy.
He denied the need for such regulation. He showed why such regulation is counter-productive for a society. He recommended only one monetary policy: the State’s enforcement of voluntary contracts. That was his recommended economic policy in general. This minimalist theory of civil government makes his theory of money unique in the history of academic economic thought. Mises’s answer to the question, “What kind of money should we have?” was simple: “whatever individuals voluntarily choose to use.” He wanted the State to get out of the money business. This included the State’s monopolistic agent, the central bank. He offered a comprehensive theory of money that demonstrated that the State does not need to be in the money business in order for a free market social order to prosper.
The money system, as is true of the other subdivisions in a free market economy, is part of a self-adjusting, self-correcting system of dual sanctions. These dual sanctions are profit and loss. Money is market-generated. It is also market-regulated. It is a product of consumer sovereignty, not State sovereignty. The State is always an interloper in monetary affairs. The State reduces market freedom and efficiency. The State makes things worse from the point of view of long-term economic stability. So does the State’s now-independent step-child, central banking. This theory of endogenous money is unique to Mises and his followers. No other school of economic opinion accepts it. Every other school appeals to the State, as an exogenous coercive power, to regulate the money supply and create enough new fiat or credit money to keep the free market operational at nearly full employment with nearly stable prices. Every other theory of money invokes the use of the State’s monopolistic power to supply the optimum quantity of money.
No matter how often some non-Austrian School economist says that he is in favor of the free market, when it comes to his theory of money, he always says, “I believe in the free market, but. . . .” As Leonard Read wrote in 1970, we are sinking in a sea of buts. When they are not outright collectivists, non-Austrian School economists are defenders of the so-called mixed economy: economic direction to the free market provided by State officials, on pain of punishment. This position is clearest in their universal promotion of non-market, State-regulated, central-bank money. Mises denied that there can be a mixed economy. There are only State directives that affect market operations, in most cases negatively. (Rothbard substituted, “in all cases negatively.”)
Mises’s theory of money offers hope. The public is in charge, not central bankers. The public will decide what money it prefers and how it will be used. The free market is economically sovereign, not the State.