honest money and social progress

The importance of a social safety net which works is obvious. The consequences of one which is chronically unaffordable should now be heaving into view. The importance of sound money to a just and equitable market economy deserves further elaboration.

In the Economic Consequences of the Peace, Keynes wrote,

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.

While the attribution to Lenin is dubious at best, Keynes at least understood the arcane power of debauching the currency. Alas that today it is roundly ignored.

The concept of sound money is not just an economic ideal but a fundamental requirement for the justice of voluntary exchange in free markets. A currency which retains a stable value over time provides a reliable medium of exchange, a stable unit of account, and a secure store of value. These aspects of money are essential to the functioning of free markets: the exchange of value for value preserves the integrity of economic transactions, respects property rights and encourages voluntary exchange.

Justice in economic transactions hinges on the idea that participants have access to fair information and operate under consistent rules. When the value of money is manipulated – whether through inflationary monetary policies, artificial interest rates, or unbacked credit expansion – economic calculations are distorted. Prices no longer reflect the true state of supply and demand, leading to misallocation of resources and unjust exchanges. 

The distortions caused by inflationary money create economic inequality in a way that violates the principles of justice. When the money supply is expanded, the initial recipients of new money – typically banks, large corporations, and government entities – benefit at the expense of ordinary people. This process, known as the Cantillon Effect, leads to an arbitrary redistribution of wealth. Those with early access to new money can purchase assets before prices rise, while wage earners and savers, whose incomes adjust slowly, suffer from reduced purchasing power. Such hidden redistribution is a form of covert taxation that undermines the justice of market processes and erodes trust in the economic system. 

Sound money is also crucial for protecting property rights, which are a cornerstone of a just market order. When the currency is debased, the value of people's savings and investments is confiscated without their consent, seizing part of the value they created for others for which they were justly rewarded. In contrast, a system of sound money – such as one based on a commodity standard like gold or in due course a synthetic commodity money like Bitcoin – ensures that individuals retain control over the value they create and the wealth they accumulate.

The justice of market processes also depends on enabling accurate economic calculation. In a free market, prices are signals that coordinate the actions of countless individuals. These prices reflect underlying realities such as consumer preferences, resource availability, and production costs. When money is unsound, prices lose their usefulness as information: they are distorted by artificial credit conditions and QE. This undermines the ability of businesses and consumers to make well-informed decisions about production, investment, and consumption. 

Monetary stability fosters intergenerational justice by preserving the long-term value of savings and investments. Unsound monetary policies will result in intergenerational wealth transfer, where the costs of today’s fiscal and monetary irresponsibility are borne by future generations. When governments accumulate debt and finance deficits through inflation, they impose a burden on future taxpayers who will have to bear the cost of repayment, with interest. This violates a principle of intergenerational justice: each generation should bear the costs of its own consumption and not pass them on to the next.

Furthermore, sound money supports social cohesion by reducing the likelihood of economic crises that can foster social unrest. Historically, periods of monetary instability have been accompanied by social turmoil and political radicalism, as citizens lose faith in the social and economic system and the institutions that govern them. A stable money helps to maintain the trust that underpins social and economic cooperation, thereby contributing to a more equitable and harmonious society.

The principles of sound money are inseparable from the justice of market processes and the ethics of voluntary exchange. By ensuring stable value, protecting property rights, enabling accurate economic calculation, and supporting intergenerational equity, sound money fosters a fair and prosperous economic order. As we face an era of unprecedented debt and monetary challenges, embracing sound money is not just an economic necessity but a moral imperative.