Sound money is the cornerstone of a free society

The institution of money is usually taken for granted, including by economists. Alas, because money was broken in 1971 and it is now breaking society. Gold and Bitcoin are our route to progress.

During my 20s, serving as an engineer officer in the Royal Air Force, I took the institution of money for granted. Having left for the opportunity of the Dot-Com boom, I was reading for an MSc in Computation (computer science) at Oxford in 1999-2000, when the Dot-Com bubble burst.

A friend handed me Mises' Causes of the Economic Crisis and I discovered the monetary theory of the trade cycle and the many problems which follow from using money whose supply is not relatively fixed: that is, paper or fiat money, the system we have had since 1971.

Once I began studying monetary economics of the Austrian School, there was no looking back: the root causes of many of our problems came into sharp relief.

The appalling truth is that the modern state needs an easy money supply to make possible the chronic borrowing which arises when tax cannot cover the spending promises which have been made. That easy money system dis-coordinates the economy and disrupts social processes, manufacturing injustice and resentment, hopelessness and envy.

Sound money ensures the economy is founded on the exchange of value for value. If one side of the transaction is devalued, the justice of the market process is undermined and people are right to question it.

This is why today’s monetary system is a social disaster, not least because it is so poorly understood.

History and apotheosis

Long run trends in inflation are shown by the following composite price index from 1750 to 2003. It was produced by the Office for National Statistics and the House of Commons Library and it is taken from my paper for Axiom:

Inflation since 1750, ONS plus House of Commons Library, from my Axiom paper

Money held its value throughout the Industrial Revolution¹. Through the two World Wars, there was a blip then a surge in prices. The inflection point is 1971, when Nixon severed the last link to gold, ending the Bretton Woods currency system. Since then, we have all lived with the value of money collapsing, notably through house prices soaring as new money is loaned into existence as mortgages.

That alone vividly illustrates the injustice manufactured by unsound money: my parents’ generation had their houses paid for by inflation. Mine made fortunes if they rode the wave. The next generation struggle terribly to get on the first rung of the property ladder, still less buy a decent family home.