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Obscuring Money with Politics

February 17, 2023 By Richard C. Young

By Steve Heap @ Shutterstock.com

Former Ron Paul staffer and current president of the Mises Institute, Jeff Deist reminds readers that the idea of money is market based, not political. But, Deist explains, “political (fiat) money” is “radically different from commodity money and can be understood only in the context of the perverse incentives afforded to the political class in a supposed democracy.” He explains at Mises.org:

Today, however, the concept of money is overwhelmed and completely obscured by politics. Modern money is political (fiat) money, which is to say it is a tool of government and an instrument of political power. Political money is radically different from commodity money and can be understood only in the context of the perverse incentives afforded to the political class in a supposed democracy. The US dollar is untethered from redemption in gold, unbacked by real assets; politicians are unhinged from any market discipline. When money creation and debt issuance appear almost unlimited, the tendency is always to secure votes by printing or borrowing now. Austerity is for the future. Maybe. And central bankers, certainly those at the highest levels, like Jerome Powell and Christine Lagarde, are inarguably political figures.

The Fed is not some magical institution that transcends politics. Anything led by political appointees is inherently political. pic.twitter.com/3pihfminag

— Connor O’Keeffe (@ConnorMOKeeffe) February 15, 2023


Political money converts an asset into a liability. Physical gold, which carries no counterparty risk when held properly, is an asset with no risk of default. The only risk is economic: What goods and services can be exchanged for it? US dollars, by contrast, are forever subject to political forces favoring devaluation as a policy. Most Americans lack the wealth to truly diversify their holdings across currencies, and thus are left holding dollars as creditors to Uncle Sam. As Keith Weiner makes clear, dollar holders have only three unholy choices: hold physical cash as a creditor to the Federal Reserve, hold dollars in a commercial account as a creditor to the bank, or hold US bond debt as a creditor to the Treasury.

Thanks to political money, confusion reigns. We hear money described as “energy” zooming around in a closed system and thus subject to the laws of thermodynamics (talk about physics envy!) We hear money described as “information,” which confuses its origins with its uses. We read a description of money as an “agreement about value,” which is partially true but understandable only with reference to Mises’s aforementioned theorem. And mostly we hear confusion between wealth and money, rooted in the politicized, zero-sum nature of monetary policy. More money and credit do not magically create more goods and services, more capital investment, or a more productive economy. Prosperity cannot be legislated by politicians or engineered by central bankers.

What to do? The best approach in a confused world is a return to fundamentals. Mises’s The Theory of Money and Credit is a great place to start, as is Rothbard’s What Has Government Done to Our Money?and Robert Murphy’s Understanding Money Mechanics. For most lay readers, any of these books would be sufficient to puncture today’s money mythology. Circulate them among friends and family to help build the future cadre of monetary policy deniers. What the world needs today is champions of commodity money, sound money, hard money with a high stock-to-flow ratio, all of which is to say money that retains or increases purchasing power even when held in a simple savings account. This will require all of us—Austrians, gold bugs, bitcoiners, capitalists, businesspeople, investors, and anyone worried about the future of money—to push for a great awakening.

Money is simple, but opposing the political tool of monetary “policy” is not.

Read more here.

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Richard C. Young
Richard C. Young
Richard C. Young is the editor of Young's World Money Forecast, and a contributing editor to both Richardcyoung.com and Youngresearch.com.
Richard C. Young
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