100 Years Of Monetary Socialism Is Enough!

In this article, Claudio Grass looks back at 100 years US FED. He answers the question how much real added value the US central bank has been creating. With his specialism in monetary history, Claudio Grass is in a position to provide a sound fundamental view with factual answers. This article comes from the latest Global Gold Outlook Report, released earlier today. Read the full report or subscribe for future updates on Global Gold.

Exactly one hundred years ago on December 23rd 1913 the Federal Reserve Act was signed into law by President Wilson. At least in retrospect this was a truly sad day for financial liberty in the United States and indeed the whole world, due to the reserve status of the US Dollar. In this article I do not want to go into the intricacies in regard to the establishment of the FED nor the special interests behind our current monetary system (you can have a look at our previous Outlook for more on the topic). Most of the readers are familiar with the dire consequences of having a central bank, therefore I will also not repeat the obvious and tell you how much the purchasing power of the Dollar has decreased nor talk about how our current monetary system leads to artificial booms and busts or fosters malinvestment. What I will be talking about is why I believe that, regardless of the above mentioned, the existence of a central bank is wrong and why it not only resembles but is pure socialism.

According to the Webster dictionary, socialism is the following: A way of organizing a society in which major industries are owned and controlled by the government rather than by individual people and companies. So what does the government monopoly over money have to do with socialism or the definition above? Even under the assumption that the only power, the government, has is to issue money, this implies that the government has control not only over every “major industry”, but every industry and every contractual relationship in a country! How? Every contract or the vast majority of contracts oblige at least one party to pay a sum in Dollars. By having control of currency and specifically the money supply, the FED can control what the Dollar is worth. The tendency in the long run has been a depreciating value of the currency favoring the debtor (if the opposite where true, the FED would still be favoring one party). By influencing the value of the Dollar they have direct control over every contract in the country. They can actually decide if binding contracts can be retroactively adjusted to the detriment of the creditor or debtor (on an aggregate level). This power not only affects industries, but every part of our lives such as rent contracts or work contracts. Even if you have a simple deal with your neighbor’s son to mow your lawn for the whole year for a fix fee of X Dollars, this contract is influenced by the monetary policy of the FED. Isn’t that pretty much sounding like absolute control over every aspect of our lives?

After covering the aspects of control let’s continue with ownership. Although the control of a country’s currency does not automatically imply ownership of the country’s assets, it does if one takes into account a further aspect of the government: Taxes. The taxing authority in itself implies that the government has (partial) ownership of your assets or at least the return your assets generate. However, you are always taxed on nominal returns! In connection with the control of money supply this means that even when you are not earning any sort of income or even losing money in real terms the government has a “right” to receive a part of your wealth on a continuous basis. The right to tax in connection with the control over the money supply gives the government the power to determine the tax revenue they want or need to generate. So what do you really own in the true sense of the word?

I would like to sum up with a quote from Mises’ book on socialism. The quote is in the context of the impossibility of socialism, because of the lack of a market price. However it is just as applicable to the fixing of the interest rates by the FED.

“Without calculation, economic activity is impossible. Since under Socialism economic calculation is impossible, under Socialism there can be no economic activity in our sense of the word … All economic change, therefore, would involve operations the value of which could neither be predicted beforehand nor ascertained after they had taken place. Everything would be a leap in the dark. Socialism is the renunciation of rational economy.”

This article comes from the latest Global Gold Outlook Report, released earlier today. Read the full report or subscribe for future updates on Global Gold.

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