Kilowatt Money: Another Zombie Fiat Money Scheme

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The conservative movement had always been filled with monetary cranks. This has been true for well over a century.

These cranks have never read a book on economics. They have never taken a class in economics. They have zero practical experience in finance.

They come before the conservative public and present crackpot schemes of monetary inflation, all in the name of conservatism.

Their victims are equally unread, equally unskilled amateurs who think, “Gee, that sounds great! Let’s do it.”

Let’s do what? These cranks never have a plan to get from here to there: the Promised Land. They are like Moses with no escape route into the Promised Land by way of the wilderness. They want to wave a magic wand and get True Money (always capitalized).

These crackpot schemes all partake of the same flaw. They want a government-appointed committee of unelected experts to set up the money and banking system at a zero interest rate. Usually, they want a central bank run by engineers and government statisticians. But all of these schemes rely on government statisticians. All of them reject a gold coin standard where owners of private property – gold coins and bank accounts – are in charge.

These crackpot schemes begin with this presupposition, which is never admitted by any of the designers: “We do not trust private property and the free market. We trust only government experts.” Their zombie followers line up. “Yes, yes, we too believe only in government-employed experts. This is because we are conservatives.” Then out into they night they march, looking for other conservatives with brains to eat. They find them. They always find them.

The bank reformers have no political support for their schemes. But they spend time describing the wonders of their system. They call on people to get behind it. Except for a few crackpot schemes, such as Social Credit or Greenbackism, no one ever joins the political movement. There is no political movement. There are only mindless zombies.

ELECTRICITY AS CURRENCY

Here is a recent example: “Electricity As Currency? 10 Reasons It Could Work.” This was subtitled: “Energy-backed currency concept”

It began with a deliberate deception.

 

Remember the good old days when gasoline only cost $1.50/gallon way back in the ancient times of 2000? Why does it cost more than double that today ($3.71)? A gallon of gas is still a gallon of gas, so it seems obvious that the dollar has lost value.

If you are going to prove currency depreciation by an appeal to statistics, use the Consumer Price Index or the Median CPI. The CPI is most common. Using the Inflation Calculator on the site of the Bureau of Labor Statistics, we learn that consumer prices since 2000 have risen by 35%. That is 2.3% per year. This is bad, but it is not anything like mass inflation.

The anonymous writer goes on:

 

This rapid devaluation of the U.S. dollar makes it an unstable medium of exchange and certainly not a good store of value – two aspects considered to be the main functions of money. This has led many to examine the flaws of the current monetary system and search for possible alternatives.

This is not rapid devaluation. This is steady-as-you-go monetary depreciation. Hardly anyone notices. Hardly anyone cares.

ANTI-GOLD COIN STANDARD

 

Some have suggested that returning to the Gold Standard (pegging the dollar to gold) will help control the fraudulent expansion of the money supply and protect the value of the currency.

This is familiar. There is both economic theory and economic history that supports this view.

 

Others say eliminating the interest attached to each dollar created will get rid of scarcity and provide abundance.

This is Greenbackism.

 

Each of these ideas has merit since they correct some of what’s broken, yet they both also have flaws which make them difficult to fully support.

Greenbackism is totally wrong. It is intellectually bankrupt. Ellen Brown is a prominent Greenbacker. For my detailed refutation of her economic theory and her historical inventions, which she has never answered, go here. (She in fact is a Leftist. She has come out in favor of Bernanke’s QE programs.)

INVOKING NON-ECONOMISTS

These schemes invariably quote engineers and scientists who never wrote a detailed theory of economics.

 

One interesting alternative that has been proposed is using an energy-backed currency. The idea is not new. Thomas Edison envisioned an “energy dollar” after seeing the value of electricity, and Henry Ford also conceptualized backing a currency by a “unit of energy” instead of gold. Motivated by the failed monetary system during the Great Depression, Ford even planned to support the idea with his own electric dams. Of course the central bankers scolded Ford’s idea because it threatened their schemes.

Henry Ford knew nothing about economic theory. Neither did his friend Edison. They were engineers. They wrote no treatises defending their positions.

 

In more recent times the idea of using electricity as a currency has gained some traction. An online ebook Energy Backed Money was published in 2009 supporting the concept of backing the dollar with electricity. Kilowatt Cards were introduced as gift cards for electric power meant to be a transferable means of currency. And former NASA scientist, Michael Rivero, proposed the Lectro, a universal electricity based currency whose supply is controlled by production and use of electric power.

Again, these are engineers with no economic theory to support their views.

ANTI-FRACTIONAL RESERVE BANKING

These critics have discovered a central flaw in the modern economy: government-licensed fractional reserve banking. But they never identify the source: government licenses to commit fraud of money creation. They offer no theory of free banking or 100% reserve banking. They never alert their readers to the central fact: these institutions are created by government intervention. There is a reason for this. They always call for a “nrew, improved” government-created, government-managed monopoly over fiat money creation. Here is their unstated but always-present assumption: “You can trust the government.” You can, but you shouldn’t.

First, the attack on fractional reserves.

 

Currently, Federal Reserve Notes (dollars) are not backed by anything valuable and their value is determined primarily by how much supply is in circulation. The supply of money under our current system is lent into existence as fast or as slow as the bankers or the government determines, leaving a lot of room for manipulation.

Here is the problem: there is lots of room for manipulation. This is the problem with every system of money that is not a commodity-based money system that is governed by the free market.

 

Significantly, all money is lent into existence with interest owed to central bankers.

This is always the creation of national governments. There is a simple solution: revoke the legislation. Nothing else? Nothing else. This was how Andrew Jackson got rid of the Second Bank of the United States in 1836. When it lost its government license, it went bankrupt.

Second, an attack on the existence of interest rates, which in fact are an inescapable aspect of human action – a discount applied to expected future income – as Ludwig von Mises taught.

 

But this interest is money yet to be created in the system so there are never enough dollars in the system to pay off the debt accrued from the creation of the dollars themselves. This creates a false scarcity and the perpetual need to expand the money supply, which then breeds inflation. This simultaneous scarcity and inflation have a tremendously negative impact on the economy, especially for the poor. Ultimately, it’s this interest on every dollar created that inherently enslaves us all to the central bankers who hadn’t produced anything of value to demand our servitude.

This is crackpottery. It says that there should be no interest rate. There is always a discount for time. The surest mark of a crackpot is the call for a rate of interest of zero. There are no exceptions to this rule. Whenever you see a call for zero interest, you are seeing the equivalent of a call for a perpetual motion machine.

 

The only way to solve the inefficiencies of the current system is to use a currency that has real value, whose supply is tied to an accurate economic indicator, and doesn’t need interest attached just for the sake of creating it.

This attack on interest denies a fundamental category of human action: “now, not later.” This was refuted by Austrian School economists in the late 19th century. Read Chapter XIX of Mises’s book, Human Action.

Fourth, the call for a non-market standard of economic value.

 

Electricity has measurable value in our society and since everything in our modern world runs on power, it may be the most accurate gauge of economic activity we have.

No, it doesn’t. Nothing in this world has a measurable value. There is no yardstick of economic value. Value is subjective. It is constantly changing, because individuals keep changing their scale of values as conditions change, including their tastes.

 

An electricity-backed currency would not be nearly as complicated as our fractional reserve system. It could work something like this: electric producers could issue certificates (money) as kilowatts are produced and they would be removed from circulation once the electric bill is paid (redeeming their receipts), thus always maintaining a consistent and stable supply.

Kilowatts are not measures of economic value. They are a measure of physical flow. The measurement of this flow is in no way the measure of value. The free market establishes economic value.

In good times, these units of electricity keep getting cheaper. The price of a kilowatt in 1910 was a lot higher than it is today. So, there is fixed economic value. Electricity is always getting cheaper. When money gets cheaper, prices rise. This is price inflation.

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