Tag Archives: fiat money

Quantitative easing was the father of millennial socialism

By Andy Duncan

Is the Financial Times going all Austrian on us? The overall trend in global societal time preferences has been declining for thousands of years, as civilisation has grown and spread, particularly from ancient and classical Greece, which had writing, money, robust law, and best of all, an enduring tradition of freedom. But since the coming of fiat money, particularly from the inception in 1913 of the Federal Reserve, widespread money printing has caused huge time preference spikes, in our something-for-nothing society. With socialism being the religion of high time preferences and civilisational decay, to my mind the two are absolutely linked. For the FT to spot this is quite the revelation!

Here’s a quote from their recent article, which is outside their usual pay wall:

“The 2008 crash itself didn’t destroy wealth, but rather revealed how much wealth had already been destroyed by poor decisions taken in the boom. This underscored the truism that the worst of investments are often taken in the best of times.”

Remarkable. Of course, Mises was writing similar statements to this in 1912, before the birth of the Fed, in his epic master work, The Theory of Money and Credit:

It’s only taken a hundred and seven years for the FT to catch up!


An Easter Message

Christopher Houseman

Today, April 4th 2010, is Easter Sunday, when Christians all over the world celebrate the Resurrection from death of the Lord Jesus Christ, the God-Man sometimes known by the title “the Son of God”. Christians claim, on the basis of written accounts handed down from eye-witnesses, that three days after enduring death by crucifixion, Jesus of Nazareth came back from the dead. Those accounts add that the risen Jesus was seen, heard and even touched by up to 500 of his followers at a time over a forty day period before ascending into heaven.

The Resurrection is an event which Christians have celebrated for about forty generations past, but to we who believe it’s more than an event – it’s the Event which changes human history forever. According to the Christian Church, the Resurrection shows that God in Christ has conquered even death, and that the Jesus who willingly offers everlasting life to his followers is able to do what he’s promised. In Libertarian terms, the Easter story is about the triumph of Life and Truth over an unholy alliance of Imperial Politics and State-sanctioned Religion.

The Easter week-end marks the climax of one of the most distinctive aspects of the Judeo-Christian revelation. The story of world religion normally revolves around human beings trying to reach up to God. The Judeo-Christian story, by contrast, is about God reaching down to us. It’s based on two contrasting but related assumptions: that on the one hand human beings can’t bribe, cajole, or haggle their own way into the good books of an all-sufficient God; but that on the other the God who loves us enough to make and sustain us won’t just leave us to live and die without the chance to relate to God.

You might be wondering what much of this has to do with the Libertarian Alliance. The Alliance includes many atheists and agnostics who would accept little or none of what I’ve just written about the Lord Jesus Christ. It has no unified position on much of anything except the right of everyone to speak and live by the truth as best they understand it – without the modern, centralised, over-regulating, greedy, grasping State to stand in their way. Where might Christianity fit into a Libertarian world, except perhaps as one life-style option among many? The truth is that Christians and Libertarians have much more to offer one another here in Britain than mere tolerance of one another.

For instance, the Christian Institute has recently pointed out that the current understanding of “equality” in British political discourse means that many Christians have “a growing feeling that ‘equality and diversity’ is code for marginalising Christian beliefs” (Marginalising Christians: Instances of Christians being sidelined in modern Britain, page 7). Christians, it seems, should be “free” to practice their faith privately but not publicly. They should be “free” to answer questions (although even this freedom is under attack), but not to initiate conversations. They should be “free” to live under the law of the land, but not to initiate (or even retain) laws which embody and reflect their beliefs and priorities.

If such limitations were successfully applied to an ethnic group rather than a religious one, the results would often be marginalisation and, eventually, extinction. As noted above, British Christians are increasingly concluding that this is exactly what some British and European political leaders and social commentators have in mind for them and their faith. And while this cadre of anti-Christians is currently small, it is vocal, well-connected and highly motivated. If its members succeed in their legislative and cultural objectives, I suggest that the results will be horrifying for Christians and Libertarians alike.

With the demise of Christianity, our primary cultural basis for distinguishing between the individual and the State would disappear too. Instead, the State would become the Western world’s arbiter of moral values, the assessor of the value of each individual human life, and finally (by a remorseless logic) the giver and taker of life on a scale unknown in the West (certainly not since 1945 at any rate). In short, the State would become a fully fledged pretender to godhood. During the 20th century, the loss of the boundaries between God and the State cost Eastern Europeans and Asiatics over 100 million civilian lives between them in what was probably the most expensive educational project in recorded history. You can read more about it in Professor RJ Rummel’s book Death by Government. How many millions of lives might the West be willing to throw away in the 21st century in order to learn the same lessons?

Would democratic humanists offer much resistance to such a State? I suggest their opposition would amount to very little. In the first place, if this life is all you’ve got, will you really risk it during the rise of an increasingly violent dictatorship to prevent an unknown number of complete strangers being killed? Some might, but most wouldn’t. Why lose so much forever in exchange for what one will never see? Some brave parents might make the ultimate sacrifice for their children – but what if the State subsequently took those orphans into “care”?

Secondly, the democratic humanist critique of dictatorship often rests on the twin pillars of utilitarianism and respect for legal procedure. This kind of critique is fuelled by current affairs. It suffers badly once State control of news and education can shape a nation’s understanding of what is socially “good” and can also spare a government’s blushes. What’s more, modern totalitarian States have often killed, exiled or co-opted prominent intellectuals and lawyers into ensuring that legal minutiae are complied with wherever possible. This second point in particular may help British Libertarians understand why their critique of the modern nation-state is only just starting to attract the mass media attention it needs and deserves.

By contrast to the democratic humanist approach, the Christian faith, rightly understood, proclaimed and applied, has the power to act as the moral conscience of the Libertarian movement in Britain and of the wider nation – as indeed it did to the Gladstonian liberals of the nineteenth century. In so doing, it would offer the Libertarian movement the moral ammunition it needs to see off the old criticism that Libertarians are really conservatives who want to smoke pot without getting arrested. It would also give Libertarians an acceptable basis for discussing the importance of family, community, culture and society. “laissez faire” isn’t rhyming slang among Libertarians for “I don’t care”, and I’ve yet to meet a Libertarian who thinks it should be.

But how can an assortment of classical liberals, cultural conservatives, voluntaryists, and anarcho-capitalists help the Church? What do Libertarians have to offer Christians, apart from the promise of leaving them in peace? To put it bluntly, if Libertarians could only offer Christians good-humoured toleration, it would be a great improvement on the current situation of the British Church. Even the most humanistic Libertarians I’ve met genuinely believe that the Church should be free to promote and live out its message in Britain to the greatest extent its moral, spiritual and material resources will permit. In Libertarian thinking, equality means equality for Christians too. Christian, if you really think this is what the current Establishment and its supporting chorus of so-called “New Atheists” are offering you, kindly reconsider. In fact, I suggest that Christians and Libertarians can and should actively co-operate in a number of areas.

Consider for instance the Libertarian slogan “For Life, Liberty and Property”, which potentially contains much that Christians should find appealing (see, for instance, John 10:7-10, Luke 4:18-21; 2 Corinthians 3:16-18). There can be no doubt that consistent application of this slogan would offer us all far greater freedom of conscience than we presently enjoy. Why, for instance, are Christians and everyone else in Britain forced through the tax system to pay for most of the 7 million plus babies aborted in the United Kingdom since 1967? How can forcible subsidies of the taking of millions of innocent lives be justified in a country that supposedly upholds our freedom of conscience as well as that of women who choose to have an abortion? I can assure any Christians who want to pursue this matter further that they’ll find a hearing and a number of sympathisers in the Libertarian Alliance.

For their part, Libertarians can help Christians put meat on the bones of lines such as “Your will be done on earth as it is in heaven”. Christian teaching has not only to be proclaimed and explained. It must also be applied, which begs an obvious question: how? Let me give but one example where Libertarians have put in a great deal of thought over the past few decades. Western governments are becoming ever more desperate to suppress reports of their national debts by blaming the media, “speculators” and anyone else they can find. The politics of State-run redistribution, financed by ever-larger government deficits and overseen by corporately-sponsored political parties, is about to collapse in on itself (as is the custom of oversized black holes).

The results will be devastating for many ordinary households. As in times past, adversity will bring many to the doors of their local church looking for answers. When that happens, Christian leaders will have a choice. Will they emphasize that we are given God’s grace to live here and now too? Will they prepare now to explain later that the centralised, politically driven issue of fiat money (mere pieces of paper) through central banks is an abomination to God? A government-run fiat currency violates God’s commands to use just weights and measures (Deuteronomy 25:13-15), and involves secretly moving the landmarks (Deuteronomy 19:14) of savers by diluting the purchasing power of what they own in favour of the politically connected mega-banks and multinational corporations who get the new money first. The end result is that Big Banking and Big Business get to bid for today’s resources at today’s prices with tomorrow’s money supply. Little wonder that the rich get richer and the poor fall further and further behind when the state controls the money supply!

Will Church leaders also call for the State-controlled, relativistic National Curriculum to be scrapped? The Bible places the primary responsibility for education on parents, supported by the leaders of God’s people (Deuteronomy 6:4-7; Joshua 8:34-35; Nehemiah 8:1-10). I’m amazed how many Christians keep imagining all will be well if they can just give a Christian gloss to the God-hating, Christ-killing, micro-managing, grasping, one-size-fits-all State – and if that sounds like an overstatement, try looking at governments as God and Satan see them (Daniel 7; Luke 4:5-8). The compelling, conformist violence of the law (especially in the field of so-called “social engineering”) and the exercise of free choice informed by the royal law of love (James 2:8) are fundamentally different in nature. True, God gave the Law of Moses – but that was to teach people the reality of their sinfulness and their need for Christ (Galatians 3:21-29).

Will Church leaders have the knowledge and courage to inform the Christian call to repentance with specifics about how foreign policies, government “aid” programs, so-called “free trade” agreements and “conservationism” have been used to retard the industrialisation of the countries formerly known as the Third World? Closer to home, will they call time on the politics of State-run redistribution as a massive exercise in electoral bribery from the voters’ own pockets? Or will those leaders just say that God wants the suffering crowds to know the presence of Jesus and ask them to keep coming back to learn more about a better hereafter? Such a message, while not false in its content, would clearly be an inadequate portrayal of the Christian life to a materially and spiritually impoverished people in desperate need of both eternal Truth and practical responses amidst financial ruin.

Whether you’re a Church leader, an “ordinary” Christian, or just someone looking for a principled, reasoned and radical alternative to the database state, please accept this invitation to contact the Libertarian Alliance. Meantime, regardless of your own beliefs, I hope you’ll accept best wishes for a very Happy Easter from the Libertarian Alliance and I.

The Kevin Dowd lecture on free banking | Samizdata.net

Sean Gabb

The Kevin Dowd lecture on free banking | Samizdata.net

The Kevin Dowd lecture on free banking

Johnathan Pearce (London) Globalization/economics

As promised, I have some thoughts following on from the talk given by Kevin Dowd, a professor at the Nottingham University Business School and a noted advocate of what is called “free banking”. He gave his talk at the annual Chris R. Tame Memorial Lecture as hosted by the Libertarian Alliance. (The LA was founded by Mr Tame, who died three years ago at a distressingly young age after losing a battle against cancer.)

Professor Dowd covered some territory that is already pretty well-trodden ground for Samizdata’s regular readers, so I will skim over the part of the lecture that focused on the damage done by unwisely loose monetary policy of state organisations such as central banks, or the moral-hazard engines of tax bailouts for banks.

Instead, I want to focus on those aspects of Professor Dowd’s talk in which he tried to sketch out what a laissez faire, free market banking system would actually look like. This is essential; a great deal of commentary so far – while it is very good – has mainly focused on how we got into this fix and why the fixes being attempted by Western governments are proving so stupid. As PJ Rourke said recently, the attempt by the Obama administration to flood the market with cheap money as a “solution” is a bit like the case of when your Dad has burned the dinner, so you ask the dog to cook it instead. No, what Professor Dowd did this week was lay out three broad areas for reform.

Firstly, he says we should remove many of the existing regulations, government-mandated deposit protection schemes, bank capital adequacy rules and other restrictions on what banks can do and how they work. For example, government support for depositors – who are also effectively creditors to their banks – means that there is a moral hazard problem; the banks have less incentive than they would otherwise have to act prudently if there is always the government, acting like a sort of 7th Cavalry, able to ride to the rescue. That has to go. Professor Dowd also wants to hack away at the morass of rules and regulations that violate client/banker confidentiality, or those rules that force banks to lend to people, as is the case in the US, where banks are forced to lend to certain groups or else violate laws about racial discrimination, etc.

Secondly, Professor Dowd addresses the issue of letting banks fail. At the present, policymakers adopt a sort of “too big to fail” doctrine; this doctrine, while not explicitly laid down in any form of statute or operating manual – as far as I know – is a rule that says that some institutions are so large, and the attendant systemic risks posed by their failure so catastrophic, that they should not be allowed to go out of business. The problem of course is that this rule of thumb is often arbitrary and subject to political horse-trading. To wit: the US government’s decision to let Lehman Brothers go down last September, followed shortly by the $85 billion bailout for AIG, showed a total lack of clear message to the markets, and to bankers, one way or the other.

Professor Dowd believes that banks should be allowed to fail and furthermore, if modern limited liability laws were weakened or abolished completely, then such massive conglomerates would be economically and legally unsustainable in the first place.

As a result, banks would probably be smaller, and there would be a lot more of them, so the failure of any individual bank, while unpleasant for some, would not wreck the system as could happen if a mega-bank goes wrong. Also, instead of wide-ranging and hideously expensive bailouts, Professor Dowd favours putting banks into administration, writing down, in full, the value of their loan books, and getting depositors to exchange their status as creditors for that of an equity holder.

This “debt for equity swap” arrangement, while it would anger depositors who lose money, would come with the promise, and hopefully the reality, of a rise in the capital value of their equity stake in a bank if confidence returns to a more robust banking sector, as the debt/equity swap recapitalisation is designed to achieve. And of course banks are entirely free, as are their clients, to take out deposit insurance in a commercial market.

The third leg of his solution is broader, and more long-term, although there are some immediate measures that could be taken. Professor Dowd is against fiat money – money not backed by actual commodities or real assets of any kind – and in moving to a commodity-based/asset-based system. He is not, by the way, necessarily arguing for the gold standard or some gold-based system, although he points out that in the 200 years up to the First World War, the UK enjoyed a remarkable period of stable prices, with the odd blip. What he is arguing, however, is that the message on a banknote that says “I promise to pay the bearer on demand the sum of X” should be an enforceable legal contract, not what amounts to the jeering joke that it now is.

In the subsequent Q&A session afterwards, one person made the excellent point that a simple reform would be to ban legal tender laws. Such laws currently require a person to accept as legal tender a currency that the state has mandated for a particular region. Instead, if a person wants to refuse to accept sterling and only wants to accept dollars, euros or Swiss francs instead, he can do so. He can also choose to trade in whatever medium of exchange he wants, and with whoever wants to accept it.

Inevitable questions arise. First of all, in thinking about free banking, private monetary systems and the like, the first objection will be is that this will be very messy; there has been no real experience of such monetary systems in the past, etc.

But this is incorrect. Free banking, as defined by Professor Dowd, in fact operated in Scotland, for example, up until legal changes in 1845. South of the River Tweed, the English system had operated under what amounted to state-controlled banking under the Bank of England, set up in 1692. In the 18th and 19th centuries, England saw a number of booms and recessions, such as the 1840s railway boom and the downturn of 1870s. One should remember that the BoE was established by the-then post-Glorious Revolution government as a way to raise money for wars without having to keep asking a fractious public for taxes, and without having to borrow at expensive rates in the money markets. N.A.M. Roger has explained this issue of financing for naval warfare brilliantly. Indeed, it reminds us that state monopoly money systems typically arose in order to finance wars, while the welfarist aspects came later.

There are also current, not just old, examples of banks that operate with unlimited liability partnership structures – Pictet, the Swiss bank, and Lombard Odier, are just two examples. There are dozens of such banks using these structures in Switzerland and by no coincidence; they have avoided the worst of the credit crunch. These banks are typically for the rich but it seems to me that there is no logical reason why such an approach could not be used more widely. So there are different ways of doing banking right now. And do not forget the humble UK mutual building society: they have their limitations, but as a business model they had a lot to recommend them.

Another objection might be that the debt-for-equity swap way of restructuring failed banks under bankruptcy protection laws would be politically unfeasible, since depositors would be hit. I understand that, but Professor Dowd is not trying to imagine what sort of reforms would appeal to David Cameron, say, but what sort of reforms would be workable. That is a rather massive difference, as I am sure readers will agree.

Another objection is that “real money”, as opposed to the state-arranged fiction that we have now, cannot work for as long as governments take such a large slice of GDP. That is probably correct. One of the reasons why so many advocates of Big Government regard “gold bugs” or free bankers as dangerous nutters is that they realise their welfare states would be unworkable under such monetary arrangements. The Ponzi schemes of most welfare states would not be able to function. Even so, as long as governments retain the ability to tax, they have the ability to raise debt in the financial markets in the knowledge that their collateral can be collected at the point of a gun. But a real-money system still hampers such activity considerably.

In the longest run, the best hope of avoiding such financial disasters in the future is to wean the public and policymakers off the seductive delusion that one can create wealth by turning on a printing press. Sooner or later, if you try to fake reality, it bites you hard in the arse. Of course, it is a mark of the kind of man Professor Dowd is that he is too polite to put it as bluntly as that.

I await comments!


It sounds all very interesting and I really wish now I had been there as the other event I was at did not afford me the opportunity I had hoped to grab my local Oxfordshire MPs and try and sell them my idea for a “Bank of Oxfordshire” using, believe it or not, partnerships and asset based scrip.

I particularly like his ideas about what to do now, practically speaking, because I guess I always focus on the “hereafter” policies of competitive currencies and so on which are probably still a bit far up the Overton window for most peoples’ comfort.

There was an interesting piece about C Hoare & Co in one of yesterday’s newspapers just so people recall that there is at least one UK based bank on an unlimited liability model.

Was any mention made of Gesell, WIR Bank and similar alternative structures that often started up in the Depression and some of which, such as WIR, are still going from strength to strength?

Posted by Jock at March 19, 2009 02:05 PM

Firstly thank you for organising an enjoyable evening and thought provoking talk.

One additional area that will be critical to moving in the direction of free banking is reform of the insolvency laws and procedures. However desirable it may be to put a bank into an enforced reconstruction the law, particularly in England, makes it impossible to complete in a realistic time scale. The timescale for advertising ceditor claims, the lack of sufficient powers of an administrator to cut a deal amongst creditors and make it stick without protracted legal action, and the absence of any legal recognition (in statute or precedence) of priority for the counterparties of many of the new financial instruments mean that any administration process under current law would take months or probably years to resolve. A bank will go under if the uncertainty lasts more than a few days.

Sorting out the legislation and enforcing the current competiton rule to break up the major banks into more managable units will be preconditions of Prof Dowd’s approach.

A further and slightly off topic thought. The Sarbanes-Oxley laws in the US require CEO’s and CFO’s of companies, including banks and other financial institutions, to sign declarations that their organisation has fully effective internal controls, the records are complete and accurate, and that the financial statements can be relied upon. Clearly these representation for AIG, Citibank and other were patently false. Why are there no CEOs and CFOs in handcuffs awaiting trial??

Posted by RobertD at March 19, 2009 02:16 PM

It certainly appears to have been an excellent talk; I look forward to seeing a video of it.

Johnathan’s summary mentions two points which I think could be implemented fairly quickly and do much to improve on the current system: repeal of “legal tender” laws and elimination of deposit insurance. The former is fairly straightforward and explained in the article. The second bears more discussion.

Deposit insurance (in the US, anyway) is an artifact of the Great Depression, installed to prevent catastrophic “runs” on banks, sometimes sparked by mere rumor. It was (and is) a legitimate concern, and while the problem is exacerbated by a fractional reserve system (as I’m sure Paul will interject here at some point), it would also be a problem even without fractional reserve lending. The US’s solution was to create a new federal agency (the FDIC) to run the insurance fund, and (not coincidentally) directly regulate most banks. Therein lies the flaw.

The FDIC is staffed by government bureaucrats with no personal economic stake in the game. They are, by and large, decent and well-meaning people, but they aren’t the “best and brightest” (such people don’t work for bureaucracies) and they are hampered by hidebound rules and a lumbering, ineffecient and inflexible system. Insurance “premiums” are not established on any actuarial basis, but are essentially identical for all banks, however well or badly managed [1], and setting the rate is quite politicized. The proper response should be to use private deposit insurance.

With private deposit insurance, banks could shop around for insurance companies with the best rates and service. The insurance companies themselves would more accurately and carefully assess “risk” than it would ever be possible for the government to do, and would price accordingly. They would set capital levels which make sense given the specific nature of the bank’s business (rather than one-size-fits-all rules), assess the true value of its assets and liabilities (including, where appropriate, off-balance-sheet contingent liabilities), and in general do a better job of assessing the because it is their (and their shareholders’) money which is at risk. If the FDIC misprices, the insurance fund gets depleted and they go to the government for more money. If a private insurance company misprices, its capital gets depleted and shareholders replace the management. Competition among insurance companies would keep any from becoming unduly risk-averse in their regulations or expensive in their pricing. It’s a true free-market solution, and would work.

[1] There has been a move in recent years to incorporate some sort of “risk-adjusted” element to the premiums, but if this has actually been implemented (I’m not sure about that) the differential was essentially nominal.

Posted by Laird at March 19, 2009 04:28 PM

RobertD, you make a good point about the speed of administration process under existing English law. Prof. Dowd made the point that the debt-for-equity swap and recapitalisation of a bank would have to be done very fast, over a weekend. A long delay would be a disaster, in particular, because of the need for businesses etc to make payments and handle invoices, etc.

Laird, thanks for the detail on the insurance angle.

Posted by Johnathan Pearce at March 19, 2009 05:01 PM

I am delighted to see articles like this posted on Samizdata Jonathan – excellent, more in this vein as and when you can please.

Posted by mike at March 19, 2009 05:19 PM

This is the problem I see with insurance: How can an actuarial table be constructed?

Do bank failures follow a known statistical pattern? Clearly not.

I wouldn’t believe any private agency offering deposit insurance. Gold reserves are all that can be believed. At least until an actuarial table can be constructed.

Posted by Current at March 19, 2009 05:23 PM

Two questions:

1. As Laird pointed out above, the bank guarantees were specifically made to avoid panics, wouldn’t the removal of these guarantees necessarily cause panics? With the advent of instantaneous communication available to even the stupidest among us, wouldn’t ‘runs on the bank’ become a regular event?

2. Fiat money v. asset backed currency –
With fiat money there is a good deal of leverage that is not possible with the asset backed. This seems to imply that under a asset backed regime the economy would be significantly less dynamic one, and growth could be curtailed. Yes, a blessing in the possible smoother booms and busts, but it would seem a curse in reducing growth, productivity.

Looking at the historical rates of inflation / deflation it really appears that prior to the 1930’s, this cycle was much more dynamic than after: (UK) Consumer Price Inflation Since 1750(Link)
I realize this study is a reconstruction and I have no way of evaluating the methodologies but it seems relevant.

Posted by Will Anjin at March 19, 2009 07:26 PM

This isn’t life insurance; there are no “actuarial tables”. That doesn’t mean that the risks can’t be rationally assessed. How do you think an insurance company insures any one-time event? Lloyd’s has known how to do this for centuries (even if they’ve fallen off course a bit lately). [I need help here from someone with better knowledge than mine about probability; is this a Bayesian analysis?]

Moreover, the real point isn’t whether there is going to be deposit insurance; that’s a given, after the experiences of the Great Depression. The only question is who provides it, and at what cost? I submit that government is the least qualified entity to do so, for a variety of reasons (some noted in my previous post). In a truly free market each bank would decide whether to offer it or not and the market would reward or punish that decision, but even in a regulated environment the government could simply mandate that banks carry some minimal level of deposit insurance as a condition to maintaining their charter. Banks could choose to carry more than the minimum amount, and again the market would determine whether or not that was a wise decision, but it’s still a market solution. (Probably a market would develop for banks with different insurance levels: minimal for those with relatively small balances wanting cheap banking services, higher for those with more money who are willing to pay a bit more for peace of mind. Let the market sort it out.)

Posted by Laird at March 19, 2009 07:36 PM

Obama Dollar Sterling money banking crisis credit crunch: Kevin Dowd gives Chris Tame memorial lecture 17th Mar 09: Libertarian View of the Financial Collapse

Sean Gabb

This is the Second Chris R. Tame  Memorial Lecture. It was given at the National Liberal Club in London on the 17th March 2009, and sets out a libertarian response to the financial crises of the past year. A full text of the speech will be published in the next week or so. In the meantime, here is the video. A better quality video file on DVD is available  on request from Sean Gabb <sean@libertarian.co.uk>for £5.

Return to Gold … Do the Right Thing. Libertarian Alliance calls on British Government to restore the Gold Standard

Sean Gabb

In Association with the Libertarian International

Release Date: Friday 4th April 2008
Release Time: Immediate

Contact Details:
Dr Sean Gabb on 07956 472 199 or via sean@libertarian.co.uk

For other contact and link details, see the foot of this message
Release url: http://www.libertarian.co.uk/news/nr065.htm

Statement by the Libertarian Alliance on the Financial Crisis: Time to Return to Gold

The Libertarian Alliance, the radical free market and civil liberties policy institute, today issues the following statement on the present run of crises in the financial markets. This statement is prompted by the various calls made for closer regulation of the financial sector.

Libertarian Alliance Director, Dr Sean Gabb, says:

“The world may or may not be on the edge of financial collapse. But the present run of banking crises is only the latest consequence of the ending of the gold standard. Since 1914, and more particularly since 1971, the ability of governments to create unlimited amounts of fiat money has led to bubble after bubble, each one larger than before. Financial markets have become little more than casinos. Immense resources have been diverted into the promotion and management of speculation. All other economic activity has been subordinated to and therefore distorted by such speculation.

“The latest set of problems, brought on by foolish lending on property in America, is not a failure of the free market system. It is ultimately the effect of government monetary policies. The answer does not lie in some new set of regulations, which may prevent the next speculative frenzy. The true answer lies in the return to a more sensible and more honest set of monetary arrangements.

“We mean by this the return to a fully convertible gold standard.

“The Libertarian Alliance calls on the British Government to do the following:

* To order the conversion of all foreign currency reserves held by in the Bank of England into gold;
* To sell every reasonably marketable asset of the British State, to convert the proceeds into gold, and to lodge these at the Bank of England;
* To revalue the Pound, so that all claims on the Bank of England were equal to the gold reserve of the Bank of England:
* To impose on the Bank of England a legal obligation to pay all claims on it in gold, on demand and without limit:
* To impose on the Bank of England an obligation to do all within its ability, and nothing other than this, to maintain the new parity between the Pound and gold:
* To impose on all deposit receivers operating in the United Kingdom (unless explicitly exempted by contract) to pay all claims on them in gold, on demand and without limit;
* To make the directors or, if they are without the jurisdiction, the most senior management of all deposit receivers in the United Kingdom personally responsible for any failure to make such payments:
* To impress on any foreign government or central bank that might choose to fix a parity against the Pound that no assistance whatever would be given to maintain such a parity.

“We note that these measures would bring about first a severe devaluation of the Pound, and then a credit squeeze that deflated the value of real and financial assets. But this is what we seem already to be facing. A return to the gold standard would provide us with a stable financial system, and would tend to protect us against future bubbles, and would abolish the need for intrusive financial regulation.

“We also note that a fully convertible gold standard would make all money laundering laws unenforceable, and would severely limit the ability of the British State to finance its activities by the unlimited sale of bonds to the banking system. We would unreservedly welcome both these effects.

“We look forward to a Britain, and preferably a world, in which fiat money has become as unusual as state ownership of telephone networks, and in which paper and electronic money is a rare substitute for gold and silver and copper coins.”


Note(s) to Editors

Dr Sean Gabb is the Director of the Libertarian Alliance. His latest book, Cultural Revolution, Culture War: How Conservatives Lost England, and How to Get It Back, may be downloaded for free from http://tinyurl.com/34e2o3. It may also be bought. His other books are available from Hampden Press at http://www.hampdenpress.co.uk.

He can be contacted for further comment on 07956 472 199 or by email at sean@libertarian.co.uk

Extended Contact Details:

The Libertarian Alliance is Britain’s most radical free market and civil liberties policy institute. It has published over 700 articles, pamphlets and books in support of freedom and against statism in all its forms. These are freely available at http://www.libertarian.co.uk

Our postal address is

The Libertarian Alliance
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Tel: 07956 472 199

Associated Organisations

The Libertarian International – http://www.libertarian.to – is a sister organisation to the Libertarian Alliance. Its mission is to coordinate various initiatives in the defence of individual liberty throughout the world.

Sean Gabb’s personal website – http://www.seangabb.co.uk – contains about a million words of writings on themes interesting to libertarians and conservatives.

Hampden Press – http://www.hampdenpress.co.uk.– the publishing house of the Libertarian Alliance.

Liberalia – http://www.liberalia.com – maintained by by LA Executive member Christian Michel, Liberalia publishes in-depth papers in French and English on libertarianism and free enterprise. It is a prime source of documentation on these issues for students and scholars.