overview

Advanced

The Ethics of Money Production - '..the care of souls.' - 'The point is to return to a universal respect for property rights.'

Posted by ProjectC 
'The monetary institutions of our time are in dire need of reform for many reasons. Present-day discussion of monetary reform, insofar as it takes place at all, however, suffers from an amazing intellectual narrowness. It is of course impossible to provide the antidote in a short study, but our exposition might nevertheless be useful in pointing out the directions where alternatives might be found. One such alternative is the natural production of money, even though it presently plays no practical role. It is a significant fact that one cannot get around the natural order even in theory, because it alone provides a solid starting point for any serious analysis of monetary institutions..

..

The point is to return to a universal respect for property rights.'


- Jörg Guido Hülsmann, The Ethics of Money Production, 2008


The Ethics of Money Production, Jörg Guido Hülsmann

'The affinity between Austrian School economics and the scholastic tradition is fairly well known among experts. The modern Austrian School distinguishes itself by a quest for realism that pervades both its arguments and the problems it deals with. Much more so than any other present-day paradigm in economic science, its cognitive approach and its practical conclusions are in harmony with the scholastic tradition. One historian of economic thought characterized the scholastic approach to the analysis of economic phenomena in the following words:

they did not examine an economic problem as an autonomous phenomenon, consisting of measurable variables, but only as an adjunct of the social and spiritual order and in the context of the cura animarum, the care of souls.

Austrians share the scholastic belief that there is no such thing as an economic science dealing with autonomous variables. Economic problems are aspects of larger social phenomena; and it is most expedient to deal with them as such, rather than to analyze them in some twisted separation.' (page(s) 12 & 13)



'Now we must turn to deal with the vitally important phenomenon of inflation. We can define it as an extension of the nominal quantity of any medium of exchange beyond the quantity that would have been produced on the free market. This definition corresponds by and large to the way inflation had been understood until World War II. Yet it differs from the way the word “inflation” is used in contemporary economics textbooks and in the financial press. Most present-day writers mean by inflation a lasting increase of the price level or, what is the same thing, a lasting reduction of the purchasing power of money. Let us hasten to point out that, as far as mere vocabulary is concerned, both meanings of the word are perfectly fine, if only they are used consistently.' (page(s) 85 & 86)



'..Our definition of inflation singles out the phenomenon of an “increase of nominal quantity of any medium of exchange beyond the quantity that would have been produced on the free market” for the simple reason that this phenomenon is causally related to a large number of other phenomena that are relevant from an economic and moral point of view. As we shall see, inflation in our sense is the cause of unnatural income differentials, business cycles, debt explosion, moderate and exponential increases of the price level, and many other phenomena.' (page 86)



'..the expression “free market” is shorthand for the somewhat long-winded “social cooperation conditioned by the respect of private property rights,” the meaning of inflation is that it extends the nominal money supply through a violation of property rights..' (page 86)



'Economists are usually reluctant to dwell on the moral dimensions of social facts, and rightly so, because moral questions are outside their customary purview. But one does not need to be a moral philosopher to know that certain incomes are illegitimate; that they derive from a violation of the fundamental rule of civil society—respect for private property. And it would be irresponsible, even for an economist, not to point out that such illegitimate incomes can be obtained, and have been obtained very often, through an inflation of the money supply. Clearly, such incomes offend any notions of natural justice.' (page 87)



'Inflation is one of the subjects on which economists have spilled much of their ink. But virtually all of these economic analyses suffer from a much too narrow, materialistic definition of inflation. Neither the price level, nor any money aggregate gives us the key for a proper understanding of inflation. Rather, the most useful approach is to focus on the legal rules of money production. Are the market participants free to use and produce money as they see fit? Or are they prevented from doing this? These are the relevant questions. They lead straight to the moral-institutional definition of inflation that we have espoused above. Inflation is that part of the money supply that comes into being because of the invasion of private property rights.' (page 88)



'The emergence of our present-day institutions in this field—central banks, paper money, and so on—must be seen in the context of government finance. Governments at nearly all times and places have been the main beneficiaries of inflation. Rather than protecting society from it, therefore, all of them have sooner or later given in to the temptation of using inflation for their own purposes. First they stopped combating it. Then they facilitated it, encouraged it, and finally promoted it with all their powers. They have obstructed and suppressed the production of money on the free market, set up institutions that were designed for perennial inflation, and constantly remodeled these institutions to increase their inflationary potential.' (page 103)



'The difference between our time and the age of Oresme is that present-day governments have received absolution from the scientific authorities of our day. Many princes blushed when they were caught debasing the currency of the country. But modern presidents, prime ministers, and chancellors can keep a straight face and justify inflation with the alleged need to stabilize the price level and to finance growth. All the recognized experts say so.3 And it betrays a lack of courtesy to point out that “recognition” of an expert means that he is on the government’s payroll.'

3 Contemporary textbooks and research articles of a non-Austrian inspiration argue that monetary policy (according to our definition: inflation) is beneficial or at least can be beneficial if properly handled. The arguments brought forth in these works are in most cases variants of the theories that we discussed in chapter 4. See for example Frederic S. Mishkin, The Economics of Money, Banking, and Financial Markets, 7th ed. (New York: Addison Wesley, 2003); Manfred Borchert, Geld und Kredit (Munich: Oldenbourg, 2001); Christian Ottavj, Monnaie et financement de l’économie, 2nd ed. (Paris: Hachette, 1999). For Austrian critiques of the idea that inflation can be beneficial, see the works by Mises, Rothbard, Sennholz, Reisman, Salin, and Huerta de Soto that we quoted in the introduction. (page 105)



'..The resulting damage has been immense, not only in terms of material wealth, but also in terms of the moral and spiritual development of the western world. We will therefore analyze the inflation that springs from government fiat in some detail.' (page 106)



'The characteristic feature of fiat inflation is that it is done openly and legally. As we shall see, however, official approval does not diminish the pernicious effects of inflation; and it is far from removing its ethical offensiveness.' (page 107)



'Legal-tender laws therefore tend to reduce social cooperation and to impoverish society.' (page 132)



'Legal-tender laws eliminate all technical obstacles to an infinite debasement of coins.' (page 134)



'It follows that fiat inflation makes business more dependent on banks than they otherwise would be. It creates greater hierarchy and central decision-making power than would exist on the free market.' (page 180)



'Because credit springing from fiat inflation provides an easy financial edge, they have the tendency to encourage reckless behavior of the chief executives. This is especially the case with managers of large corporations who have easy access to the capital markets. Their recklessness is often confused with innovativeness.

..

As a general rule, any new product and any thoroughgoing innovation in business organization is a threat for banks, because they are already more or less heavily invested in established companies, which produce the old products and use the old forms of organization. They have therefore every incentive to either prevent the innovation by declining to finance it, or to communicate the new ideas to their existing partners in the business world. Thus, fractional-reserve banking makes business more conservative than it otherwise would be. It benefits the established firms at the expense of innovative newcomers. Innovation is much more likely to come from independent businessmen, especially if income taxation is low.' (page(s) 181 & 182)



'It is not an exaggeration to say that, through their monetary policy, Western governments have pushed their citizens into a state of financial dependency unknown to any previous generation.' (page 184)



'The spiritual dimension of these inflation-induced habits seems obvious. Money and financial questions come to play an exaggerated role in the life of man. Inflation makes society materialistic. More and more people strive for money income at the expense of other things important for personal happiness..' (page 187)



'By the early 1880s, the countries of the West and their colonies all over the world had adopted the British model. This created the great illusion of some profound economic unity of the western world, whereas in fact the movement merely homogenized the national monetary systems. The homogeneity lasted until 1914, when the central banks suspended their payments and prepared to finance World War I by the printing press.' (page 211)


'We have to stress these facts because many advocates of the free market believe the classical gold standard was something like the paradise of monetary systems. This reputation is undeserved. The classical gold standard differed only in degree, not in essence, from its successors, all of which have been widely and deservedly criticized in the literature on our subject.' (page 213)



'The monetary institutions of our time are in dire need of reform for many reasons. Present-day discussion of monetary reform, insofar as it takes place at all, however, suffers from an amazing intellectual narrowness. It is of course impossible to provide the antidote in a short study, but our exposition might nevertheless be useful in pointing out the directions where alternatives might be found. One such alternative is the natural production of money, even though it presently plays no practical role. It is a significant fact that one cannot get around the natural order even in theory, because it alone provides a solid starting point for any serious analysis of monetary institutions..' (page(s) 240 & 241)



'The point is to return to a universal respect for property rights.' (page 241)


Context

'..ethics in particular .. absolute principle of ethics..' - '..deze fundamentele ethiek..'

Overview Project C, page 22, Phase 1 - '..transition toward the only world financial order..' (Banking Reform)

'..fiat inflation is a powerhouse of social, economic, cultural, and spiritual destruction.' - Jörg Guido Hülsmann


(Management innovation) - The End of Management and the Rise of Organizational Democracy

(Monetary) bureaucracy - '..our organizations are .. hostages to an ideology that is, in a real sense, inhuman.'

((Hapto)praxeology) - '..Mises’s warning to the world .. not to suppress the market rate of interest in the name of creating prosperity.'