mM article the other day about the road to serfdom and the ratchets of inflation and political power providing perverse incentives laid out the problem:

politicians who gain power by wrecking financial and social fabrics and gain revenues by wrecking currencies will run awful playbooks to maximize their perverse incentives and the worse they do, the more they get, which, in turn, makes things worse.

It’s a positive feedback loop and those only end in starvation or explosion.

So what is the solution? The Road to Serfdom: T... F. A. Hayek, Bruce Cal... Best Price: $3.06 Buy New $1.99 (as of 03:40 UTC - Details)

The solution is to take money, commerce, savings, and investment away from not only state control but from state view. in the end, the truly operative phrase is “you cannot tax what you cannot see.”

It’s quite literally the only way to get a durable fix.

Even outright rebellion and mass movements and “putting new governments in charge with better rules etc” is not a long term solution. best case, you just reset or move back on the tytler cycle. but the cycle will remain as inexorable as the seasons and you’ll be fighting the same wars over and over, probably at higher rates of speed. it’s a lot better than nothing and still a worthwhile undertaking, but i think we can do better. i think we can go our own way.

Since time immemorial, governments have controlled currencies and done an awful job of it. we still call money printing “debasement” in reference to rulers mixing other metals into the gold or silver when striking coins. it’s just the classical version of “money printer go BRRRR.”

Governments are lousy stewards of currency. always have been. always will be. they debase, devalue, and steal. let them run the banks as well and you are well and truly trapped. this is not some accident of financial evolution, it was done by design: rulers have always sought to control currencies because control of currencies is power and wealth.

You come into gatostan and i make you restrike your gold into “gatitos” the currency of the realm. maybe i mix some lead in when i do. or maybe i just take some of your gold as “seigniorage” and the coins you get back weigh 5% less than the ones you gave me to melt. this basically worked like early sales tax (but at least it only applied to coins once, not every time they were spent). of course “recoinages” were common so this could be repeated.

Governments love banking because banks keep records and are easy to co-opt or bully. you bribe or threaten your way into getting them to:

1. let you see what everyone does
2. let you grab whatever anyone has without having to go rooting through the back yard trying to discern where they buried the silver

That second one is REALLY important so let’s delve a bit deeper.

In the age of metallic/physical money, you as an owner of such faced a choice: you could keep it yourself and hide/protect it or you could deposit it with a trusted counterparty. each has risks and costs and the danger of having (and being known or even suspected to have) large amounts of cash on hand are no joke. it attracts brigands and sneak thieves and this is, for most, unreasonable, impossible, or intolerable. very few people are willing/able to keep their life savings under the floorboards.

So you need a bank-like entity to get this money monkey off your back.

We’ve had a number of private currencies that have worked well from private US bank scrip to birmingham buttons. private issuers, especially if they must compete and clear with other private issuers and grant one another audit rights can and have provided systems for very sound money. it’s a market solution that works to create good, useful currencies.

But it’s not government proof.

No currency however sound is safe if leviathan can see it. The Constitution of Li... F. A. Hayek Best Price: $9.95 Buy New $13.46 (as of 02:00 UTC - Details)

No bank that requires licensure from the state to operate or even whose executives and bookkeepers are known to and subject to arrest or intimidation by state actors can truly be trusted and if the IRS or DEA or FBI says “gimmie dat” the bank locks your accounts and your assets are seized faster than you can say:

Civil asset forfeiture, liens, garnishments, there must be 50 ways to lose your lucre. (apologies to paul simon who did nothing to deserve that)

At least in the case of the US, this reach is increasingly near perfectly global and even the gaps are not terribly useful as you cannot get that money back into any banking system where it would be useful to you and simply being known to hold or trade assets in “forbidden zones” gets you on a list and KYC (know your customer) rules get more draconian every 5 minutes.

So you’re always, in effect, choosing between forms of thieves to which you’ll be vulnerable. the whole thing is a hobson’s choice.

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