Could We Have a Free Market in Money?


by Peter Schiff, Schiff Gold:

We’ve written extensively about the government intentionally devaluing our money. As one economist put it, the intentionally inflationary policies of central banks and governments are “daylight robbery.” But what’s the solution to this problem?

Economist Thorsten Polleit argues we need a free market in money. But is this possible? Wouldn’t this create monetary chaos?

Polleit argues that it would not. He thinks that if people could choose freely, it may not take long for a good to emerge that will be used as money not only nationally but internationally—as a universally recognized medium of exchange.

In fact, we have had what in effect was a free market in money in the past and gold and silver came out the winner. And Polleit says no matter what comes out of the current monetary mess, people should hold gold. Gold’s purchasing power cannot be debased by central banks running the electronic printing presses. In addition, gold does not carry a credit or default risk as bank deposits do.


The following article by Thorsten Polleit was originally published at the Mises Wire. The opinions expressed are for your consideration and do not necessarily reflect those of Peter Schiff or Schiff Gold.

What is fiat money and what does it do?

This is essential to understand since today’s worldwide unbacked paper, or “fiat,” money regime is an economically and socially destructive scheme—with far-reaching and seriously harmful consequences. There is an answer, though, and this lies in ending the money production monopoly of states.

The Problem of Fiat Money

The US dollar, the Chinese renminbi, the euro, the Japanese yen, the British pound, and the Swiss franc represent fiat money.

Fiat money has three characteristics:

  1. Fiat money is money monopolized by the state’s central bank. It is created by central banks and commercial banks licensed by the state.
  2. Fiat money is mostly produced through bank credit expansion; it is created out of thin air.
  3. Fiat money is dematerialized money, consisting of colorful paper tickets and bits and bytes on computer hard drives.

Fiat money is by no means “harmless.”

Fiat money is inflationary. Its buying power dwindles over time, and history has shown that this entropy is almost as irreversible as gravity. Fiat money makes a select few rich at the expense of many others. The first to get new money benefit to the detriment of those on the bottom rung.

What’s more, fiat money fosters speculative bubbles and capital misallocation, which culminate in crises. This is why economies go through boom and bust cycles. Fiat money lures states, banks, consumers, and firms into the trap of excessive debt. Sooner or later, borrowers find themselves in a deep hole with no way out.

Fiat money is easy to come by, so the government can finance its adventures and misadventures. Easy money; easy come, easy go. And the government keeps growing as it keeps spending. As the state expands and grows like weeds in an untended garden, this excessive growth strangles the free market economy, causing production and employment to suffer.

The Economic Effects

After decades of credit and money creation out of thin air, central banks have built up a colossal debt pyramid. The International Institute for Finance (IIF) estimates that global debt amounted to 331 percent of global GDP in the first quarter of 2020. The coronavirus crisis, in particular the politically dictated lockdown crisis, has laid bare the instability of the world’s debt-ridden fiat money regime.

Without economic growth, investors must fear that borrowers will no longer be able to service their debt, so they rush to exit the credit market. As the credit supply dries up, many borrowers are not in a position to repay maturing loans, nor are they able they obtain new funds.

To prevent the fiat money regime from collapsing in the lockdown crisis, central banks have stepped in, suppressing market interest rates and printing new money to prevent financially overstretched states, banks, and firms from defaulting on their payments. Central banks monetize national debt on a grand scale, hitherto seen only in times of war.

The Political Effects

To sit back and think, “Well, monetary authorities have successfully bailed out the system, everything will be fine,” would be a grave mistake. More than ever, central banks are doing severe damage to what little is left of the free market economic system.

Artificially low interest rates and massive amounts of newly created money lead to malinvestment on a grand scale, and under current circumstances, they help make government even bigger, feeding the growth of the “deep state.” The uncomfortable truth is that the fiat money system and all political efforts to fend off its collapse lead to the planned economy or even outright socialism. And from an economic and historical perspective, we know that any form of socialism does not bode well. It makes people poorer, brings chaos, oppression, and violence.

Furthermore, what should worry all of us is that the fiat money regime is instrumental for those political forces that wish to transform, to reshape, the world economy. The political establishment, the “Davos elite,” for instance, undoubtedly favors fiat money and the erosion of the free market system it brings—for they increase the possibilities for the state to interfere in people’s lives. In fact, the so-called new world order that progressives envision—replacing the free market system with a politically planned economic system—if put into practice poses a serious threat to the freedom and prosperity of billions of people around the globe.

Read More @