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The Austrian ‘Free Market for Currencies’ Hoax

by on June 11, 2012

Many people have been seduced by the Austrian Economics notion of a ‘free market for currencies’. But ‘free markets’ exist only for one second. Then they are taken.

By Anthony Migchels for Real Currencies

In the old days of Austrian Economics things were simple: one just derided fiat currency. It is unfair to be raped by interest for paper money created out of nothing, even the Austrians will admit. So, they claim, stop fiat money and replace the paper with Gold. We’ll all feel a lot better when we can slave away for our usurious tributes to the Money Masters if we can pay in Gold coins.

Gary North built a whole career on a pretty hilarious little book with that premise, called ‘Coogan’s Bluff’.

But later things became a little more complicated. People started to wonder about the Gold Standards of the past. Weren’t these just banker operations? Don’t the bankers own all the gold? Haven’t they controlled Gold throughout modern history? And how about these Government controlled Gold Standards? Can’t Government just change the fixed price and mess up everything that way? And can we really trust them to indeed have the Gold they claim they have?

The whole Gold Standard idea became untenable. So the Austrians came up with something that was closer to their world view anyway: a free market for currencies!

Of course, Austrian Economics is well known for its trust in the magical ‘freedom’ of the market. First it has Government declare a ‘free market’, then it has Government enforce the contracts in this ‘free market’ and third it has Government look away if a few monopoly capitalists take this market overnight. Of course Government should not interfere if these capitalists show such wonderful ‘human action’ and gobble up the whole thing. Surely these capitalists would not win, were they not doing something right.

And so it will be with the so called ‘free market for currencies’.

The minute Government creates this ‘free market’, it will be quickly conquered by the Money Power with its vast resources. It will have thousands of independent journalists and professors discuss the wonders of Gold as currency at its media outlets. It will pour in billions to open up thousands of ‘competing’ Gold banks, providing Gold based credit. The one at 4,9%, the next at 5,0%. Many of these outlets will actually believe they are really competing.

The Money Power will bribe politicians to only accept Gold coins in taxes.

Meanwhile, nobody will be investing one cent in Mutual Credit based facilities. Because there is nobody with the necessary resources.

So this ‘free market for currencies’ is just a silly label, not unlike ‘liberty’ itself. It means nothing, unless we have a clear idea of what will really happen.

And if there were real competition?
Of course, would there be real competition, Gold would be absolutely irrelevant in a free market.

As we explained earlier (here and here), if Ron Paul’s “”Free Competition in Currency Act” (HR 1098)” (which would end legal tender laws and end taxing metals) would ever be enacted, nothing would happen.

Everybody would continue to hoard Gold and pay with Federal Reserve notes.

It’s called Gresham’s law: bad money drives out good money. It’s no use discussing this: just check it out for yourself: would you pay with your Gold coins or with your notes?

The second issue is, that would there be Mutual Credit Facilities competing with Gold banks, they would be offering credit at 0%, while the Gold banks would want 5% for their mortgages.

Where would you go for your loan?

Is it really any use discussing this further?

The ‘free market for currencies’ is just a ruse, made possible by Austrian Economics’s standard way of ignoring market power. They only look at Government intervention, but they always ignore the elephants monopolizing the helpless ‘free market’.

Should there be a ‘free market’ for currencies, especially if the Federal Reserve Notes would be phased out, the massively funded and promoted Gold dealers would quickly gobble it up and tightly controlled specie, easily inflated and deflated and taxed with interest, would provide the Money Power with the de facto Gold Standard it wants.

Faux Economics
How the Money Power created Libertarianism and Austrian Economics
Gary North’s Bluff: the Lie he’s been sitting on for 50 years
What Gary North is not telling you about Interest
Discussing Gold and Interest with the Daily Bell

  1. I’m wondering what would stop people from borrowing money and never paying it back with the interest on loans being zero percent? I would like to try to understand what your theory is.

    The point of interest rates on loans is that money costs money. Austrian economics makes the argument that the cost of money in a free market (the cost being the interest rate set by the person making the loan and accepted willingly by the person borrowing) should be determined by the individuals making the transaction, and not by a central authority, such as a central bank.

    Without getting hung up on the evils of usury, please explain clearly how you would deal with the cost of money in lending.


    • Usury is not the reason repay loans, of course. Contract and personal conscience are the reasons we repay.

      Credit nowadays is just bookkeeping. Banks create the money they lend us. This can be done to enslave (5% per year results in us paying 150% of principal in usury over a thirty year mortgage) Or at cost price, with the idea of serving the community. A mortgage would then cost about 10% of principle.

  2. faithkills permalink

    In addition to being profoundly economically illiterate, this article begs a huge question. The author merely wants to replace one state with another.

    All of history shows that if state power exists, it will be controlled by embedded capital. You want the power that systemically creates corruption to exist, on the absurd assumption that it will not corrupt, because somehow it will be you, or people who think like you in charge, (possible) and they will not be corrupt. (impossible)

    You, like the left ‘anarchists’, see the gun of state/corporate power is pointed at you, and your solution is.. a bigger gun.

    That is not the solution. The solution is to limit the available coercive power monopoly for embedded capital to buy. The framers of the US Constitution understood this. Their solution was a novel experiment in liberty and the rule of law.

    Sadly, people of the authors mindset, that a bigger available gun to ‘nudge’ citizens (ie mercantilism/fascism/corporatism) eventually held sway and we became the fascist states of america now.

    The solution isn’t a bigger gun and better men behind it. The better men are never behind the biggest gun, they are working, learning, creating, educating, trading, and yes even saving and lending. The bigger the gun, ie the extent of arbitrary power available to the state, the worst the men behind the gun. The solution is the rule of law, not of men, and a government that obeys it’s Constitution, strictly. The solution is the smallest gun possible in the hand of the state, and as many guns as possible in the hands of the people.

    “Let no more be said about the confidence of men, but bind them down from mischief with the chains of the Constitution”.
    — Thomas Jefferson

    • It’s annoying to always be put down as some ‘statist’ by libertarians every time I expose the holes in the ideas of their leaders.

      I’m no friend of big government. I’m in the process of implementing a free market currency myself in the Netherlands.

      the article analyzes what would happen would Ron Paul and his buddies get his way.

      The really strange thing is, that Libertarians are always denouncing ‘statists’, while they are trying to get their man into the White House to make them ‘free’.

      Oh……the irony………….

      • faithkills permalink

        Trying to elect Dr Paul because he’s the best option. In any country, I might add, not just the US.

        You think it is irony for a slave to prefer a master that seems sincere in his belief of freeing you, or giving you more freedom? So your solution is to do nothing?

        If you are not a statist, your logic should be superior to that of a statist. If you are not a statist your grasp of economics should be superior as well. Only statists HAVE to have convoluted and deceptive ‘logic’, to support their paradoxical positions, you then have no excuse.

        Specifically you don’t seem to understand Gresham’s law. Gresham’s law will not magically support a bad currency in the face of a bad one. It merely means people will try to ditch less worthy currency first if they can. It doesn’t _ensure_ they can. If a shop owner expects he can use some bad currency he may accept it on a discounted basis vs superior currency. This is what historically happens. He might also simply refuse to accept it, then others will. To get people to accept illusory money on an ongoing basis you need force of guns, Gresham’s law only goes so far.

        This is why free currency is, in fact, the answer. Not gold per se. If you need guns to force someone to take your currency you are engaged in extortion.

        If your solution does not require forcing people to accept some currency, then I have no problem with it. Without force, your currency will have to prove itself to users or they won’t use it. If they choose to use it, that is their choice.

        But in fact we do not need ‘money’ at all in the information age. You could have in your bank account 5000 shares of Apple, 3000 barrels of oil futures, and 10 ounces of gold. When you purchase something ownership would be transferred to the seller at the market spot. The seller might have shares of Exxon, and Greek government debt;) The transfers would happen at electronic speed, Their might be dollars or euros as a term of art, but they would just be a metric. Currency per se need not exist in the sense that it is value taken our of perpetual use.

        Currency is merely the bronze age technology of transporting and exchanging value. We don’t need it anymore, But we do need it so long as governments force people to use some specific currency.

        • Natasha permalink

          faithkills: “Their might be dollars or euros as a term of art, but they would just be a metric” Yes its like supposing we ran out of feet and inches to build a new hospital!

  3. Let the gold-ites have their way; let’s have government issue gold coins – and I mean LOTS of gold coins.

    Congress should immediately begin repaying the national debt with gold coins. Coins may be minted without INCURRING ANY DEBT as congress holds the constitutional authority, under Article 1, Section 8;

    “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;”

    The metallic content of a quarter is worth around six cents which was arbitrarily deemed sufficient by congress. Equally, congress could issue special half ounce gold coins that have a metallic content worth around $750, stamped with a legal tender value of $1 billion.

    1) One thousand newly minted $1 billion coins ($1 trillion) would have a metallic value of around $750,000 and would weigh around 31 pounds.

    2) $15 trillion (entire national debt) = Fifteen thousand newly minted $1 billion coins would have a metallic value of around $11.25 million and would weigh around 465 pounds.

    The elimination of the national debt would act as a stimulus package since costly and unproductive income tax could be eliminated to help fuel the productive economy. Of course, the coins do not have to be minted from gold as any material deemed suitable could be used.

    Would repaying the national debt cause inflation?

    The event would be inflation/deflation neutral since one form of money (bonds) would simply be transferred to another form (coins).

    One special creditor; the privately owned and operated Federal Reserve, holds around $1.6 trillion of the national debt. The debt re-payed to them would destroy an equal amount of “reserves.” The money would simply vanish upon repayment but the principal would remain in circulation making it inflation/deflation neutral.

    • Natasha permalink

      Why not just do it digitally and stop messing about ? That’s how QE was created. It should have been spent directly on infrastructure, health, education and only when that’s satisfied, finally paying back the public debt – or better still just default or declare debt jubilee – all inflation / deflation neutral (save a little dole for the newly unemployed and jailed banksters).

  4. This was a good article, Anthony. It is usury that distorts the whole economy. Usury has to be abandoned, then the economy could operate properly. Any system, whether it is fiat or a gold standard will fail if it uses usury. Usury is the evil; not the money. People should be allowed to trade with whatever they want as long as it doesn’t involve usury.

    • Brian Hughes permalink

      “People should be allowed to trade with whatever they want as long as it doesn’t involve usury”. You’re exactly right, Al. Whether we’re talking about straight barter with no medium of exchange or when that medium is without usurious implications.

      I’m probably nitpicking when I take issue over your use of the words “people should be allowed”, but I just want to re-phrase that by saying “people should allow THEMSELVES….”

      When we take back control of mediums of exchange and recognize that there is no need for ANY “arbitrary body” to “regulate” then you’ve rendered the money power irrelevant. The methods of trade become virtually self-regulating when the mediums truly reflect the trading activity of providing goods and services;

      And as we all know, those who comprise the Money Power have a pathological (anal) need to be control freaks and couldn’t grow a turnip to save their miserable lives.

      • @Brian,

        I stand corrected. “Should be allowed” assumes the authority of the people who should have none.
        Usury is the money scheme of Satan. This is one of the main reasons nothing good works in an economy. The problem is that not to many people understand this. My thinking is that if usury is put back into the cesspool from which it came, there would be an immediate improvement.

        • Brian Hughes permalink

          I knew that’s what you meant. It just prompted me to put my 2-cents in.

      • Natasha permalink

        According to David Graeber’s ‘5000 years of debt’ barter is a fairy tale popularised by Adam Smith to falsely explain how coins came into use. The historical record suggests that credit systems emerged first followed by tokens several much later, and so the modern credit card is as old a written history itself – except in Sumeria and Mesopotania they had regular debt jubilees to fix the usury problem. A society or group of humans using barter has never been discovered, except in highly ritualistic violent ceremonies between STRANGERS !

    • Natasha permalink

      I think the problem is narrower than vanilla usury; its only usury on the original creation of the money supply that’s the root problem. Once the money is created interest free and without a debt owing (i.e. as a public utility, and kept true and accurate like kilograms are, the quantity adjusted to maintain 0% inflation) then perhaps its okay to charge rent on it …

      • This is heard quite often, but I think it’s a moot point, since with mutual credit we could create all the credit we would need and there would be no market for interest bearing loans.

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