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10
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by
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M
y friend Sean Hastings has a one-sentenceformula for determining the viability of large,established systems: Would they be built this way if they were being built today?
Applied to both the Federal Reserve and to at
currencies, the clear answer is, No, they would not.Therefore, they will fail. We may not know how or when they will fail and it could still be a long time,but unless the world is somehow moved backwardin development a hundred years, they will faileventually.
At the moment, the Fed and at are held up by
mindless inertia and by force. To draw a greatanalogy from a silly source, this is like when WilleyCoyote – wildly chasing the Roadrunner – runs off a cliff. He hovers for a moment in space, waiting,hopelessly, to begin his inevitable plunge to thebottom of the canyon. This is where central banks
and at currencies nd themselves today. Only with
continuing and increasing force and by manipulatingthe minds of uninformed men can they continue tohover.
DESIGNED IN CONDITIONS OF SCARCITY
As I explained in a previous column, the Fed wascreated primarily because ignorant and semi-civilizedAmericans who were willing to follow socialisthucksters. (And, for what it’s worth, uncivilized isa characterization more properly associated with a
belief in magic than with missing renements.) But
while this caused the creation of the Fed, its formwas dictated by other conditions, and scarcity inparticular.Gold and silver have always been in a relativelylimited supply. This was a legitimate problem at thetime – not because of the limited supply itself, butbecause of people’s reaction to it.When productivity increases within the structure of limitedcurrency, prices adjust by falling. This was the problem.As prices fall, people tend to hold their money and waituntil prices drop further before they buy. This, combinedwith the basic human silliness that creates credit cycles,made for crashes. The process went something like this:
1.Credit was used proigately.
2.The mania peaks, people default and credit iswithdrawn.3.As investments fail and businesses close, peoplestop spending and wait before moving again. Withprices generally falling, people have no reason to hurryback out into the market.The result of this was a sharp, intense crash. And,as we said earlier, this led the usual complainers todemand that “something be done, since people aresuffering,” and to assurances that their pet economictheory would solve all ills forever.In this situation, a gold standard was blamed for crashes. (Rightly or wrongly didn’t much matter – itwas blamed.)
The justication for the Fed was that a variable money
supply, overseen by experts, would prevent thesedangerous crashes. The Fed was built on that model.
THE NEW REALITY: NO SCARCITY
Today’s situation is that the microprocessor and theInternet have enabled us to overcome scarcity. Withdigital currencies, we can we are able to monetizealmost anything we wish: Silver, copper, nickel, uranium(if you’re prepared to deal with that radiation thing)..any durable commodity. There is now no money supplyissue. If you need more currency, just create it. Weusually talk about digital gold because it’s the biggestand most important type of digital currency, but otherscould do just as well. There are no inherent limits.If we had today’s technologies in 1908, the sensiblething would have been to allow private money providers.
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