Radio Free Market

By Mark Thornton

_{Birmingham Button Makers of the 19th Century meeting the Market’s Demand for Private Coinage}

Today we stand at a point in time that is the beginning of the end of an economic era when the US dollar dominated the global economy. The dollar still dominates world financial markets and many currencies around the world are still linked with the dollar, including China. However, the dollar has now ceased to gain additional influence in the world economy and it now has two new competitors, the Euro and the Chinese Yuan.

Gold has now exceeded $1,000 per ounce and our trading partners are growing worried, both about the inflation we are exporting to them, as well as the value of their own central bank holdings of US government securities.

As we enter the era of decline for the dollar all sorts of reforms will be used to address this decline and the economic instability it causes. However, reforms designed on Wall Street or in Washington will not work and will amount to nothing more than rear guard action by the moneyed interests that control the government.

The only true path to reform is monetary freedom. We have gone from a situation where money was entirely free from government intervention to one that is completely dominated by government. Instead of privately minted coins made from precious metals we now have a system of government-printed paper fiat currency. We have gone from a system of private banking that provided bank notes and checks for demand deposits to one where banks are completely regulated by the central bank and a host of other regulatory bodies. The idea that our current financial mess resulted from a lack of regulation is truly laughable. Of course this process has taken centuries to complete. By giving up our monetary freedom—particularly over the last one hundred years—we have given government the ability to grow in size and scope and to achieve unthinkable levels of power. Every step forward towards government control of money has resulted in social chaos and economic destruction. The real economy only grows in the interludes when monetary mischief is at a minimum.

We are now at a point in time when the US government is bankrupt. It cannot pay its bills, it cannot pay off its debt, and it has future unfunded liabilities with a current value in excess of $60 trillion dollars—and that was before all the current bailout packages!

Given that the political parties have done nothing to solve the government’s financial mess or to even reduce its magnitude, and given that everything they have done including the prescription drug benefit, the war in Iraq, and the bailouts of Wall Street only makes the problem worse, I can only conclude one of two things. Either they “plan” to resort to hyperinflation to pay for this mess, or they are collectively dumb as a sack of horse manure. Remember, hyperinflation is not just very high prices; it is social chaos and the breakdown of social order. At a basic level our lives are built on a structure of prices that we ourselves co-determine, but in a hyperinflation there is no solid basis for prices and therefore our lives are thrown into chaos. Society becomes more violent and criminal. Government, too, becomes more violent and criminal towards its own citizens.

Given all this, monetary reform is of the utmost importance and knowing the proper path of reform is more important than ever. I will begin by noting

1. we should be moving in the direction of monetary freedom and away from government control and intervention;
2. we want to get back as quickly as possible to a situation where government has no control over money and banking; and
3. we want privately minted precious metal coins as the basis of money and banking and then let free market competition regulate and innovate from there.

There are some reforms that we obviously do not want and that will not work. For example, we don’t want the supply-sider solution of the Federal Reserve targeting the price of gold—that would be very dangerous. We clearly do not want a “new Bretton Woods System,” whatever that would amount to; it would surely leave government with too much power. The old Bretton Woods System did not work and was doomed to failure as predicted by Mises, Hazlitt and Rothbard.

We also do not want to return to a gold-exchange standard where governments are in charge of most of the gold and emit paper notes for people to use. This approach is unnecessary and inevitably harmful when too many notes are issued not matched with a corresponding amount of gold.

We actually do not even want to return to a gold standard system which still leaves government too much room for manipulation. In fact, we want no standard at all. “Standards” in money imply government regulation. Such a regulatory role resulted in the problems of bimetallism where government establishes a fixed ratio of gold to silver. As soon as reality deviates from the plans of government bureaucrats, either gold or silver money virtually disappears from circulation.

When Britain overvalued silver vs. gold, all but the most worn silver coins left the market and the British people were left without money for everyday exchanges and payments. This was the beginning of the gold standard, pretty good compared to today’s “standard,” but still the unnatural result of government control. I urge you to read George Selgin’s brand new book which gives the history of how the market came to the rescue and prevented the derailing of the industrial revolution in England by producing the much needed coin money privately.

The list of things we do not want in our monetary system is short. First, we do not want the Federal Reserve—the central bank—in any form, including Federal Reserve notes. Any legitimate roles it now plays, such as serving as a clearinghouse for checks, can be and in many cases already is handled by the private sector. We do not want government control—in any form—over money, banking, interest rates and the money supply.

Second, we do not want Federal deposit insurance. This creates a moral hazard that puts the taxpayers at risk for the bad decisions of bankers. Deposit insurance is a natural moral hazard and therefore bank deposits are not an insurable risk. Banks and depositors can overcome this problem simply by being certified as holding 100% reserves against all their demand deposits. In a market economy, depositors pay fees to have their money deposited in banks and to write checks on those deposits.

The list of things that we do want in our monetary system is also short. First, we know that money emerged on the market and was produced by the market. After the world had achieved substantial integration, gold, silver, and copper emerged as money. Their most useful form as money was coins and the dominant form of money was silver coins. The most obvious thing we want is a return to silver coin money denominated by weight. This is the money that the world used as a basis of economic prosperity and higher standards of living because it enhanced trade and economic calculation. Checks, debit and credit cards, and everything else can be adapted to gold and silver. We need the freedom to hold our money in both gold and silver forms with no fixed government ratio between.

What do “we” need now?

The first step is to repeal legal tender laws which would begin to eliminate the monopoly that government and the Federal Reserve has on the money we use. This would give us back our right to decide what money we will offer in transactions and what money we would be willing to accept in transactions.

Second, we must begin to allow other monies to compete with Federal Reserve notes, such as privately minted gold and silver coins, by taking away any hindrance to the use of gold and silver as money, such as the application of the capital gains tax on gold profits.

These two moves would go a long way to reducing the Fed’s ability to inflate the money supply and manipulate the economy. Any inflation by the Fed would eventually result in higher dollar prices of goods, lower gold prices of goods, and more people switching their accounts from paper to gold.

Ultimately we need to send the Federal Reserve into a receivership process whereby Federal Reserve assets including the US gold hoard at Fort Knox and all other depositories, as well as the Fed’s real estate portfolio should be used to satisfy the holders of Federal Reserve notes. This process would be conducted by accountants and lawyers just like they do in any bankruptcy process with Austrian economists serving as consultants as to what exactly woul
d be redeemed. Rothbard offers a specific plan in his Mystery of Banking. The dollar would henceforth just be a name of a monetary unit that represented a very small amount of gold.

The restoration of monetary freedom would also force a sharp reduction in the size and power of government. The Federal government would immediately have a hard time borrowing money and would be forced to cut expenditures. Just as government control of money allowed government to expand, monetary freedom would force government to contract. New spending would have to be paid for by new taxes because borrowing and the inflation tax would not be an option. Balanced budgets would force Congress to start making tough decisions. For example, the invasion of Iraq would have never been contemplated; neither would the prescription drug benefit legislation and a whole host of other spending programs. Budget cutting would be put on an even keel with spending, if not at an advantage, and politicians would become more open to shutting down entire programs and selling government assets.

What do we need to do as individuals?

Mises wrote that the era of inflation will come to an end once people realize that the process of inflation is ongoing with no end in sight. At that point people will stop holding dollars and dollar-denominated assets. Individuals who understand inflation should be in a process where they convert their dollars and dollar-denominated assets into non-dollar assets. For example, you can effectively put yourself onto your own personal gold standard by holding gold and silver as your savings, rather than dollars.

In conclusion: What we need is monetary freedom and we must tear down and destroy its opposite, the Federal Reserve. To celebrate the return of monetary freedom in the US, a giant bonfire should be used to destroy all existing Federal Reserve Notes.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the Book Review Editor for the Quarterly Journal of Austrian Economics. He is coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War and editor of The Quotable Mises and The Bastiat Collection

1. Saudi’s Drop West Texas Oil As Benchmark for Pricing.
MM Comment: This is a step in the direction of dropping the US Dollar as their unit of Settlement.
Read More Here

2. Turkey to use national currencies in trade with Iran, China.
MM Comment: Another move away from the US Dollar.
Read More Here

3. UK Official’s call to eat less meat.
MM Comment: This Nanny trend will continue until Common Sense Speaks Up and says ‘Enough!’.
Read More Here

All,
Richard Maybury has in the following two Youtube videos given a formula on how to use Humor and Ridicule effectively to turn the rising tide of Socialism and Fascism in America. While he is not a great Stand Up Comedian by any stretch he is bringing out a brilliant idea that could have real, positive effects if enough of us started popularizing and making more obvious to others how dangerously stupid and insane our current Monetary and Fiscal course is.

Part One (8:54):  http://www.youtube.com/user/RichardMaybury#p/u/1/F6Gyq-NFq3I

Part Two (9:10): http://www.youtube.com/user/RichardMaybury#p/u/0/YlLWHACzOb0

He is right about one thing: Humor is an Easy Way for us to remember and to transmit Knowledge to others. His practical recommendations in Part Two are excellent.

Please take the small amount of time required to watch these two short videos which total 18 minutes together.

They will get you thinking in a whole other direction and will be very worth your time – and just maybe YOU could become Rich and Famous because of it.

Some may think that this approach is far too light – and they could be right. Nevertheless, it could have a very positive effect. It is worth it for those with this talent to give it the time and effort to see.

It is one more thing that we can do.
In Liberty,
MM

Mises Daily by Thomas J. DiLorenzo | Posted on Friday, October 23, 2009

Some time ago I invented the phrase "fascialism" to describe the American system of political economy. Fascialism means an economy is part fascist, part socialist. Economic fascism has nothing to do with dictatorship, militarism, or bizarre racial theories. Fascism is a brand of socialism that was the economic system of Germany and Italy in the early 20th century. It was characterized by private enterprise, but private enterprise that was comprehensively regulated and regimented by the state, ostensibly "in the public interest" (as arbitrarily defined by the state).

Socialism started out meaning government ownership of the means of production, but it came to mean egalitarianism promoted by "progressive" taxation and the institutions of the welfare state, as F.A. Hayek stated in the preface to the 1976 edition of The Road to Serfdom. The problems of the American healthcare system are caused entirely by the fact that the government subjects the system to massive interventions, some of which are fascist in nature, while others are socialist.

In 1992, the Hoover Institution published an essay by Milton Friedman titled "Input and Output in Medical Care," in which Friedman documented how, at the beginning of the 20th century, about 90% of all American hospitals were private, for-profit enterprises. State and local governments then began taking over the hospital industry. So, by the early 1990s only about 10% of all American hospitals were private, for-profit enterprises. Socialism characterizes at least 90% of all hospitals. Many other hospitals have received government subsidies, and with the subsidies come reams of regulation, making them fascist by definition.

"The problems caused entirely by the fact that the government subjects the system to massive interventions, some of which are fascist in nature while others are socialist."

The effect of this vast government takeover of the hospital industry, Friedman documented, is what any student of the economics of bureaucracy should expect: the more that is spent on hospital care, the worse the quality and quantity of care become, thanks to the effects of governmental bureaucratization. According to Friedman, as governments took over an ever-larger share of the hospital industry (being exempt from antitrust laws), hospital personnel per occupied hospital bed quintupled, as cost per bed rose tenfold.

Friedman concluded that "Gammon’s Law," named after British physician Max Gammon, "has been in full operation for U.S. hospitals since the end of World War II." Gammon’s Law states that "In a bureaucratic system, increases in expenditure will be matched by a fall in production.… Such systems will act rather like ‘black holes’ in the economic universe, simultaneously sucking in resources, and shrinking in terms of … production." Dr. Gammon surely knew what he was talking about, having spent his career in the British National Health Service.

"The U.S. medical system, in large part, has become a socialist enterprise," Friedman ended. Friedman also once suggested a syllogism to explain the bizarre spectacle on display today of responding to problems caused by healthcare socialism with even more healthcare socialism.

The syllogism goes as follows:

1. Socialism has been a failure everywhere it has been tried;
2. Everyone knows this; and
3. Therefore, we need more socialism.

Layers of regulation plague every aspect of medical care and health insurance in America. In the health-insurance industry, for instance, each state imposes dozens of regulatory mandates on health insurers, requiring them to include coverage of everything from massage therapy to hair implants. The reason for mandates is that the message-therapy and hair-implant industries (and many others) hire lobbyists to bribe state legislators to require insurers to cover their particular practice if they want to sell insurance within a state. Among the states with the largest number of mandates as of 2009 are Rhode Island (70), Minnesota (68), Maryland (66), New Mexico (57), and Maine (55). Idaho has the fewest mandates (13), followed by Alabama (21), Utah (23), and Hawaii (24).

Each mandate increases the cost of health insurance and probably increases the typical health-insurance policy by hundreds, or thousands, of dollars yearly. This is a good example of healthcare fascism.

Government policy in the health-insurance industry applies both the brakes and the gas at the same time. While imposing onerous and cost-increasing regulations, government also limits legal liability in some cases where an insurer refuses to pay for a particular procedure or treatment that costs a patient his life. The state also creates state-wide cartels with laws prohibiting the portability of some aspects of health insurance. (For example, my employer-provided health insurance covers pharmaceuticals in Maryland, where I reside, but not in other states.)

Getting back to pure socialism, Medicare, Medicaid, and the Veterans Administration hospitals socialize a very large portion of healthcare in America, with the same predictable results as the socialization of hospitals: runaway costs for decade after decade, coupled with massive fraud, as is often the case when politicians are enabled to spend other people’s money. Even the federal government admits that there is currently about $60 billion in Medicare fraud. Since government always understates the cost of everything it does, it is likely that the real number is at least two or three times that amount.

Having taken over most of the hospital industry, government-run or government-subsidized hospitals have created regional monopoly power for themselves with so-called "certificate-of-need" (CON) regulation. How this regulatory scam works is that an existing hospital in an area will give itself the legal "right" to decide whether there is a legitimate "need" for more hospitals. They have given themselves, in other words, the right to veto new competition in the hospital industry. It is as if the Microsoft Corporation had a legal right to veto new competition in the computer industry.

"FDA bureaucrats are extremely risk ave
rse."

Not surprisingly, research has shown that CON regulation has increased hospital costs. CON regulation is also used to block competition in various healthcare professions as well, from nursing to home healthcare. (I was once asked to assist several nurses in obtaining a CON license from the Fairfax County, Virginia government so that they could start up their own home healthcare business. The county government was already in the business itself, and vetoed their application, naturally.)

Physicians have long enjoyed a degree of monopoly power derived from state legislatures that delegate to the American Medical Association (the doctors’ union) the "right" to limit entry into medical schools through accreditation. Only graduates of accredited (by the AMA) medical schools are licensed to practice medicine. The AMA has used these state-granted privileges to limit both the number of medical schools and the number of medical-school graduates. The reduced supply of doctors drives up the price of medical care and the income of AMA members. Hundreds of other health professions limit entry with the help of occupational licensing regulation, the primary effect of which is to create monopoly profits, not to ensure quality of care.

Government regulation of pharmaceuticals and medical devices, primarily by the Food and Drug Administration (FDA), increases healthcare costs, denies the benefits of myriad helpful drugs and devices, and creates monopoly power. It has literally been responsible for the premature death of thousands of Americans who have been deprived of drugs that were long available to people in other countries.

FDA bureaucrats are extremely risk averse: On the one hand, it costs them nothing personally to delay a life-saving drug for years, if not decades, by demanding test after test. On the other hand, if they permit a drug to enter the marketplace that turns out to be dangerous, it is a public-relations disaster for the agency, which it does not want to be associated with. Consequently, the entrance of new drugs and medical devices onto the market is often delayed by years, costing many lives and inflicting much needless pain on those already suffering, while driving up prices.

The FDA also makes the market for pharmaceuticals less competitive by restricting what advertising may say for myriad drugs — even aspirin. New drugs do consumers no good if they do not know about them. Advertising restrictions imposed by the FDA, therefore, prop up the profits of incumbent drug marketers at the expense of newcomers in the industry and of consumers.

The government’s legal system is also responsible for what used to be called "the liability crisis." The genesis of this crisis began in the 1960s. The government courts began accepting the Chicago School Law and Economics argument that assigning all liability in product-liability cases to manufacturers would be a good way to minimize the "social costs" of accidents. Manufacturers know more about products such as medical devices than anyone else, the argument went, so contract law and shared responsibility for accidents with the users of the products were thrown out the window.

So, when accidents occur, slick trial lawyers have had an easy time convincing dumbed-down juries to award millions, or hundreds of millions, of dollars in liability lawsuits. These lawsuits have bankrupted the manufacturers of many medical devices, while convincing others that the devices are too risky to make. The effect on the healthcare consumer is poorer healthcare and higher prices.

There are thousands of other government regulations and controls on all aspects of healthcare, even (or especially) the nursing-home industry. Like most regulation, it has little or no beneficial effect for the public. More often than not, it is part of a cartel arrangement by some group of medical practitioners who are in cahoots with federal, state, or local politicians who are always more than willing to sell their "constituents" down the river for a generous campaign "contribution."

The only sensible approach to healthcare "reform" would be massive privatization of America’s socialized hospitals, combined with deregulation of the medical professions to introduce more competition, and deregulation of the health-insurance industry. Free-market competition would produce medical "miracles" the likes of which have never been seen, while dramatically lowering the cost of healthcare, just as it has done in every other industry where it is allowed to exist to any large degree.

This is not likely to happen in the United States, which at the moment seems hell-bent on descending into the abyss of socialism. Once some states begin seceding from the new American fascialistic state, however, there will be opportunities to restore healthcare freedom within them.

Thomas DiLorenzo is professor of economics at Loyola University Maryland and a member of the senior faculty of the Mises Institute. He is the author of The Real Lincoln, Lincoln Unmasked, How Capitalism Saved America, and, more recently, Hamilton’s Curse. Send him mail. See Thomas J. DiLorenzo’s article archives. Comment on the blog.