All the claims made by EU grandees, ECB leaders and mainstream economists about the nature of the current inflationary crisis have been proven wrong: no talk of one “temporary phenomenon” and from one “short duration” the inflation wave. Price inflation is here to stay. When the massively increased wholesale prices are passed on to consumers in the near future, things will really get down to business.
As Ludwig Erhard, the architect of the “German Economic Miracle”, has already established Inflation is never a natural phenomenon, rather it is man-made – it is politics. However, inflation is only possible if the currency can be created out of nothing in any quantity. Commodity money is not immune to inflation – for example through coin deterioration – but it is much less susceptible to this than a fiat currency.
Thorsten Polleit, chief economist at the gold trading company Degussa and honorary professor at the University of Bayreuth, gave a lecture on the subject of “Fiat money” at an event organized by precious metals expert Thomas Bachheimer and Gold Vorsorge Wien. At the outset, he stated the enormous power of the central bank councils, which no longer only decide the weal and woe of governments, but also whether people keep or lose their savings and who gets cheap loans and who doesn’t. The ECB is thus pursuing economic policy, which does not correspond to its mandate, which is limited solely to maintaining purchasing power stability.
The fact that the demand for a central bank monopoly with state capital was first raised in 1848 by Messrs. Karl Marx and Friedrich Engels in the Manifesto of the Communist Party should only be mentioned in passing. In any case, a central bank is a foreign body in a liberal market economy.
As early as 1912, the economist Ludwig Mises had stated in his habilitation thesis that fiat money was destroying the market economy. In the 1970s, FA Hayek, winner of the Nobel Prize in Economics, stated: “There is less reason than ever to hope that states will become more trustworthy as long as the people have no choice but to use whatever money the state puts at their disposal.” Polleit concludes: “The state (I’ll add: as we know it today) is destroying the free market economy and thus free society with its fiat money. And in doing so, it ultimately destroys the productive and peaceful coexistence of people, both nationally and internationally.”
It is empirically proven: All fiat money is inflationary, since its production knows no natural limit and its quantity is constantly increased due to political considerations (Monetary development in the euro area). It favors the few at the expense of the many and leads to a bottom-up material redistribution (Cantillon effect). It is a well-documented fact that the politically motivated expansion of the money supply is always responsible for an artificially stimulated economy, which is regularly followed by a recession (boom-bust cycles).
The interest rates artificially lowered by the increase in money lead to careless debt. As a result, debt is growing faster than income growth. At the end of 2021, global debt was $303 trillion – 351 percent of world gross product. It is no exaggeration to speak of global over-indebtedness.
It has also been empirically proven that the state fattens itself up with fiat money and drives its growth. The higher the state quota, the tighter the state regulations and the more rigid the interventions in the private lives of the citizens. Every growth of the state leads to the reduction of civil liberties.
That fiat money also influences people’s moral concepts and values - in the direction of an increased time preference (“I want everything – and I want it now”) – and leads to the neglect of individual future provision is obvious.
It is clear that no government will ever voluntarily give up such a powerful instrument as its monetary monopoly. So this most dangerous of all monopolies must be wrested from it. Blockchain technology could be an effective tool for this. Private means of payment and stores of value based on this, such as Bitcoin, offer protection against corrupt state monetary policy. The hysterical polemics of the political and central bank nomenklatura against non-state cryptocurrencies are motivated precisely by this. Of course, traditional stores of value (precious metals) also offer protection against the erosion of purchasing power of fiat money.
A free money market in which different currencies compete with each other for public favor is the solution, proposed by FA Hayek as early as the 1960s.
But how is such a change supposed to come about if the money monopolists don’t give way voluntarily? Thorsten Polleit advises optimism: “Just because we can’t see the solution doesn’t mean it won’t be there. Don’t underestimate the power of ideas. Societal development is ultimately driven by ideas. Good ideas (such as liberty, property, free markets) can replace bad ideas (such as coercion, interventionism, fiat money, and socialism)—if they are voiced, mediated, disseminated, and repeated over and over again. Changing ideas is possible.”