Fiat Money and Fiat Freedom

Recently by Gary North: FDR’s 1932 Pittsburgh Speech: A Masterful Deception


And I don’t give a damn about a greenback dollar. Spend it as fast as I can. ~ Hoyt Axton

That is where Hoyt and I part company. I care about greenback dollars, both in theory and practice. So should you.

Whenever government is in control of money – which is always – this means that free men are not in control over their lives. Their decisions as buyers and sellers are allowed only within the confines of the national government, the central bank, and commercial banks. They possess a legal monopoly (really, an oligopoly) over money.

Politicians like fiat money because it lets them buy votes and tenure. Bankers like fiat money because it lets them buy goods, services, tenure, and power.

This government-business arrangement is universally praised in every college-level textbook on economics. They praise the economics of the bankers’ cartel. The government is the enforcer of this cartel. The textbooks do not mention rival views.

There are two schools of economic opinion that oppose this cartel. The Austrian School does. It recommends the elimination of all government intervention into the money market, other than the enforcement of contracts. The Greenbackers also oppose it. They want a 100% monopoly of civil government over money. All banks will be government-owned.

So, citizens must make a choice between these rival views: trust the free market or trust the state.

Austrians argue that it is not safe to trust the state. The state is there to expand its power over all those under its authority. Control over money is vital in the state’s program to expansion its power. Therefore, if you recommend fiat money, you necessarily recommend fiat freedom. They oppose the Greenbackers’ solution to the government-bankers alliance, namely, a government monopoly over money.

Recently, Greenbackers received support from an unlikely source: an article published by the International Monetary Fund (IMF), an organization that asserts power over Western banking. It uses loan guarantees forced on voters to bail out bankrupt governments and banks. The article praised a proposal first made in academia during the Great Depression, but which had been promoted by the political Left in the United States since the 1880s: Greenbackism.

In Great Britain, a journalist has become the promoter of this solution, sort of. He says he does not understand it, but he thinks it is worth of consideration.

It is not worth of consideration, except as an example of really bad economic theory and even worse monetary history.


Ambrose Evans-Pritchard has outdone himself in stringing together a series of unsubstantiated historical facts connected by a truly crackpot monetary theory.

His article begins with a headline that announces utter nonsense: IMF’s epic plan to conjure away debt and dethrone bankers. It refers to an article published by the IMF. At the beginning of that article, we read this:

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

In short, his headline is fraudulent. It deceives readers.

He then begins:

So there is a magic wand after all. A revolutionary paper by the International Monetary Fund claims that one could eliminate the net public debt of the US at a stroke, and by implication do the same for Britain, Germany, Italy, or Japan.

In short, it begins with a denial of the fundamental fact of economic theory and practice: TANSTAAFL. There ain’t no such thing as a free lunch.

The article goes downhill from here.


Here is his summary of the IMF essay’s claim:

One could slash private debt by 100pc of GDP, boost growth, stabilize prices, and dethrone bankers all at the same time. It could be done cleanly and painlessly, by legislative command, far more quickly than anybody imagined.

This is the equivalent of the perpetual motion machine. This is Rumpelstiltskin with a printing press.

The conjuring trick is to replace our system of private bank-created money – roughly 97pc of the money supply – with state-created money.

This is Greenbackism by another name. I have dealt with this before.

He goes on:

We return to the historical norm, before Charles II placed control of the money supply in private hands with the English Free Coinage Act of 1666.

To the extent that there is an historical norm of successful currency, it is the gold coinage of the Byzantine empire, which remained unchanged from about 325 until around 1000. That is the only known example in human history of a monetary system achieving stability for over 500 years.

Specifically, it means an assault on “fractional reserve banking”. If lenders are forced to put up 100pc reserve backing for deposits, they lose the exorbitant privilege of creating money out of thin air.


The question then arises: Which institutional arrangement can achieve this? The free market or national civil government? He defends his theory by an appeal to the sovereign state. Gold or silver? Perish the thought. Yet Murray Rothbard wrote The Case for a 100% Gold Dollar in 1962. It called for the abolition of fractional reserve banking.

The nation regains sovereign control over the money supply. There are no more banks runs, and fewer boom-bust credit cycles. Accounting legerdemain will do the rest. That at least is the argument.

How is it that we can now trust the modern state with authority over money? How is it that it will promote and enforce 100% reserve banking? It never has in the past. This is the historical norm.


He cites a paper written by two unknown economists, Jaromir Benes and Michael Kumhof. He says it is acquiring “a cult following around the world. I am not well-informed on cult followings within, but with respect to Mr. Evans-Pritchard’s summary of it, I think the adjective “cult” is appropriate.

Entitled “The Chicago Plan Revisited”, it revives the scheme first put forward by professors Henry Simons and Irving Fisher in 1936 during the ferment of creative thinking in the late Depression.

Ah, yes: Irving Fisher. The man who said there would be no decline in the stock market in September 1929, and who then lost his personal fortune and his sister-in-law’s, too. A real expert, you see. He spent the remainder of his career defending two things: pure fiat money and eugenics.

Ludwig von Mises devoted a section of his Theory of Money and Credit (1912) to a refutation of Fisher’s views. These are old arguments. They were exposed as untenable a century ago. Fisher’s system of index numbers is the basis of the manipulated currency, and this enhances the power of the state. Mises wrote:

It is a serious error to fall into to imagine that the methods suggested by monetary theorists and currency statisticians can yield unequivocal results that will render the determination of the value of money independent of the political decisions of the governing parties. A monetary system in which variations in the value of money and commodity prices are controlled by the figure calculated from price statistics is not in the slightest degree less dependent upon government influences than any other sort of monetary system in which the government is able to exert an influence on values (p. 407).

Evans-Pritchard continues.

Irving Fisher thought credit cycles led to an unhealthy concentration of wealth. He saw it with his own eyes in the early 1930s as creditors foreclosed on destitute farmers, seizing their land or buying it for a pittance at the bottom of the cycle.

He saw that? Maybe so. He also saw the stock market make him a pauper. Yale University gave him free rent, so destitute was he.

The farmers found a way of defending themselves in the end. They muscled together at “one dollar auctions”, buying each other’s property back for almost nothing. Any carpet-bagger who tried to bid higher was beaten to a pulp.

I see. Pitchfork justice. None of that contract stuff. Private coercion works so much better.


Benes and Kumhof argue that credit-cycle trauma – caused by private money creation – dates deep into history and lies at the root of debt jubilees in the ancient religions of Mesopotian [sic] and the Middle East.

It took state coercion to end it, he tells us that they say.

What are their sources? The favorite Greenbacker monetary historian, Alexander del Mar. Who else? The Greenbacker Stephen Zarlinga. And then, the capper: three volumes by the chemist-turned-monetary-crank, Frederick Soddy – even a self-published one I had not heard of. I have been one-upped. I do not get one-upped often in the bibliography of monetary cranks. I have been collecting this literature for 50 years. You can read their paper here.

The Athenian leader Solon implemented the first known Chicago Plan/New Deal in 599 BC to relieve farmers in hock to oligarchs enjoying private coinage. He cancelled debts, restituted lands seized by creditors, set floor-prices for commodities (much like Franklin Roosevelt), and consciously flooded the money supply with state-issued “debt-free” coinage.

In short, he violated contract. He debased the coinage. He was just like FDR, we are told.

Quite correct. He was.

Read the rest of the article

October 24, 2012

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 31-volume series, An Economic Commentary on the Bible.

Copyright © 2012 Gary North