The Way We Were, and Can Be Again

“An economy does not become richer by creating more and more money.  First, there has to be savings, and then capital and consumer goods can be manufactured.  This is the only way a society can become richer.” – Blind Robbery!

In Matthew 5:14, during his Sermon on the Mount, Jesus tells his disciples that they are the light of the world.  Describing them as a city on a hill, visible for all to see, he reminds them that they are to serve as a beacon of hope in a spiritually dark world.  As a result, others will see their good works and be inspired to imitate them, creating a ripple effect across society.  Their honest and moral behavior will then foster the trust necessary for a thriving society. 

In Andreas Marquart and Philipp Bagus’s 2016 book, “Blind Robbery”, the authors recount the nature and role of money in market exchanges and how state actors have intervened to ruin the economy through expansionist monetary policy.  To clarify the distinction between Austrian monetary theory and the current situation, a return to a once-mythical city reminds us how life looked without the scheming presence of a Leviathan government. 

In the beginning, money emerged spontaneously.  Bartering gave rise to trade, while more complex transactions prompted coins of gold and silver.  These easily transferable coins led to an abundance of goods and services, which expanded the economy and created immense wealth.  Focused on the individual, the spontaneous actions of sovereign economic actors led to the creation of sound money.

By using commodities like gold and silver, the money supply grew slowly as precious metals were mined at a rate of about 2 percent each year.  When the money supply grows slowly, it allows the purchasing power of money to rise since the production of goods is always increasing, leading to real wealth.  Thus, a competitive private system provides good, natural, and trustworthy money.

Likewise, full reserve banking led to a strong and secure supply of money, as savings were achieved first, before capital goods could be produced.  As such, loans are first secured by foregone consumption until money is accumulated, and then only with the approval of the bank’s depositors.  In a sound money system, there is little need for borrowing due to falling prices.  Therefore, debt is small and used primarily for emergencies.   

As the economy grew, division of labor, a system based on specialization, replaced autarky, where everything is produced independently.  Consequently, prices declined naturally due to greater efficiency in meeting consumer demand for products, without shortages or surpluses. Resources were used to their highest value.  Since citizens participate voluntarily in the market, winners and losers are selected by the consumers themselves. 

In the city on a hill, there is no need for a welfare system, as marriage and families supported one another.  Thrift was employed to avoid debt, while coins were saved for retirement.  Since there was no need for a two-income family, children were raised by their parents. 

It was only when the Federal Reserve and central banking were established in 1913 that our most serious problems began.  As the lender of last resort, banks could employ risky loans without consequences, leading to fractional reserve banking.  Since the government was in control of the money supply, it found ways to grow its power, leading to the end of the gold standard in 1971.   Money creation and inflation led to the growth in the size and scope of government, with plenty of money for war, welfare, and redistribution.  Dependency on government replaced marriage, family, and self-reliance.

Today, the city on a hill has been replaced with a Leviathan government.  The United States currently sits on a mountain of debt totaling nearly 40 trillion, with more than 2 trillion added each year, and growing.

For that reason alone, we are no longer a shining example for others to imitate.