Money under the existing central banks

In economies in nations like Iran, Turkey, Argentina and Nigeria high inflation is the standard, not the shock. As an economics student I´ve always been interested in money and its history. Like any other student I search for answers about questions stuck in my head. Since my first classes of economics, one of the basic assumptions has always been the right to private ownership as a fundamental start of development, regularization and growth. One question that always appears in front of me is the existence of central banks the and lack of a private market for money and currency. I´m also curious about money and ownership.

Here, I would like to share some of those vast answers I have gotten for the necessity of a private money system, from a classic liberal and Austrian school of economics perspective. As Hayek once wrote in 1919 “It was impossible to think about a world of which non-religious men rule, in the 1600s. So, I don’t mind if people see it impossible to have a free market for money without any central intervention”. I am writing this essay 106 years after Hayek’s words. Today we are witnessing the establishment of different types of decentralized currencies, called cryptocurrency, as challengers to money issued by the central banks. My question is “How did the central banks impact the three liberal principles of life, individualism, liberty and equal rights, until today?”

I want to explain, from my understanding and knowledge as a master’s student of economics, how the current monetary system in the existing nation-states can neglect the principles of classical liberalism. One could argue the modern monetary system is a form of monopoly. Central banks, which can issue fiat money and manipulate its value, to, as they claim, stabilize inflation. However, as Mises once said “inflation is not a disease but a policy that governments uses as a tool to print more money”. In my opinion this is an exact point where both Keynes , Mises, and Fredrich Hayek agreed. Inflation is a type of policy, not a natural phenomenon like gravity.

We return to the three principles of liberalism, the right of life, private property, and equality of opportunity, it becomes evident that the existing system of money is a total neglect of these principles. Many governments, through their flawed monetary policies, have led their nations to high levels of poverty and hunger. As hard it is to belive for us Norwegians, low and stable inflation is the odd case in this world. Around the world people are dying or homeless as a consequence of the governments that rule them. The international monetary system, can easily annihilate a state’s currency through methods such as sanctions. Again and again we see this happen when nations are in wars and conflicts.All this ties back to the monetary system, which has made states excessively powerful, both individually and globally. The right to life is not merely the act of breathing in and out but to live as a free human being, unenslaved or undirected by external forces against one’s will, as Locke mentioned.

Considering the second principle, private property, we should understand that we possess either land or accumulated capital in the form of money as our private property. Locke says that we cannot be free if we cannot make our own decisions about the things we own. The existing monetary system is parasitic to private property in the form of money. Changing interest rates is like a killing bullet to this principle, as it devalues or inflates the worth of people’s money without their control. Locke ties the right to private property to the ability to make free decisions, but devaluing or inflating a nation’s currency by an institution is a direct destruction of this principle. For instance, if an Iranian average teacher in his 70s has saved 1,000,000,000 Iranian rials, that amount was worth $100,000 twenty years ago. Today, however, its value is only $10,000. The monetary system is so fragile that even conflicts between states first and foremost affect people’s property.

Another violation of the second principle is the restriction on people’s ability to choose freely how to save their wealth. If we exclude cryptocurrencies as a new phenomenon, people have no choice but to rely on monopolized money issued by the state to save their wealth in the form of issued currency. This leaves people vulnerable to manipulation and forces them to use a fragile currency that constantly changes in value due to the mistakes of policymakers. There might not be a coincidence that the gold prices are soaring. As a consequence, people cannot make free decisions about their own money, as free owners should be able too. Based on this assumptions, Hayek was a firm believer of introducing a private market of money. It seems like the introduction and development of decentralized currencies like Bitcoin might be this private marked. Most institutions have called for its collapse, but the currency now stands stronger than ever.

Could bitcoin actually be a good alternative to the existing system?