The Austrian Economic Apocalypse?

1,353 words

Back at the beginning of 2012, I stuck my neck out a bit by writing an article on economics, “Money for Nothing” (audio version here), in which I offered my take on Social Credit theory. The subsequent discussion thread, as well as private communications with Social Credit experts, convinced me that I was on the right track. So every once and a while, I am emboldened again to offer some economic heresies for discussion. Today is one of those days.

One does not have to lurk very long at Lew Rockwell’s site, or read many articles by Paul Craig Roberts, without encountering the ideas that I will dub the Austrian theory of economic apocalypse. These ideas are not confined to Austrian school economists, but they are certainly concentrated among them. The theory has the following premises.

1. “Sound” money is good. “Fiat” money is bad.
2. Sound money is currency whose value is derived not from its usefulness as a medium of exchange for all manner of goods and services. Instead, what makes money sound is its exchangeability for a hoard of goods, most often precious metals, held by a bank. The amount of sound money is limited by the amount of the hoard of goods backing it up.
3. The value of fiat money, by contrast, is not determined by its exchangeability with a fixed hoard of goods, but rather by its exchangeability with the whole world of goods and services. As long as fiat money is accepted as a means of exchange, it has value.
4. The amount of fiat money is not limited by a fixed hoard of precious commodities, but by the entire economy of goods and services. And the amount of fiat currency can be increased proportionate to the growth of the entire economy without any negative consequences.
5. Money is a commodity, which is subject to the laws of supply and demand, like any other commodity.
6. Money also has a price, which is interest.
7. When the supply of money increases while other things remain equal, the value of money will go down. This is called inflation. Inflation manifests itself in the rise of prices for goods and services, as more currency chases the same amount of goods. But not every price increase is due to inflation.
8. When the supply of money decreases while other things remain equal, the value of money will rise. This is deflation. Deflation manifests itself in falling prices, as less currency chases the same amount of goods. But not every price decrease is due to deflation. The falling prices of computing power, for example, is not due to currency deflation but to technological progress. (Propositions 5-7 are orthodox monetary theory even outside Austrian hard money circles.)
9. If a society dramatically increases the money supply while economic productivity remains the same, there will be inflation. However, while in the last decade, the supply of US dollars and Zimbabwe dollars has dramatically increased, there has been hyperinflation only in Zimbabwe, but not in the United States. This seems to be a clear empirical falsification of orthodox monetary theory.
10. To explain this discrepancy, economists appeal to the status of the US dollar as the world reserve currency. After World War II, the US was in a position to dictate that international trade be priced in dollars, which creates a demand for dollars among foreign governments and individuals. Hard money economists claim that this demand is so immense and insatiable that the United States has been able to create immense amounts of fiat currency without hyperinflation.
11. However, if the dollar is no longer the world reserve currency, then, the hard money advocates insist, the economic apocalypse will arrive, and America will be devastated by hyperinflation.
12. Those given to conspiracy theories argue that the United States resorts to wars and assassinations to prevent political leaders from dumping the dollar in favor of other currencies. Saddam Hussein and Qaddafi, it is alleged, were destroyed because they entertained the idea of pricing oil in currencies other than the dollar. Iran, it is alleged, is a target for the same reason. (Such Judenrein explanations for US foreign policy in Israel’s neighborhood should be automatic cause for suspicion.)
13. Hard money advocates are constantly looking for signs of imminent economic apocalypse. It is, for example, routinely predicted that China and Russia will abandon the dollar for the euro. It is even alleged that the Chinese are buying up vast amounts of gold to put the yuan on the gold standard. (Google it if you don’t believe me.)
14. If any of these things happens, the dollar will crash and American political and economic hegemony will be destroyed, so we are urged to protect ourselves. Sound money advocates are happy to take your soon-to-be-worthless fiat currency off your hands in exchange for precious metals — even though their own theory would seem to predict the exact opposite behavior. Am I the only one who thinks this is a blatant swindle?

This all looks rather different, however, from a Social Credit point of view.

1. Social Credit advocates the creation of a pure fiat currency that has absolutely no intrinsic value and is not backed by a fixed hoard of goods. Instead, currency’s sole value is as a medium of exchange. It is “backed” by the entire realm of economic goods and services for which it is exchangeable.
2. Social Credit seeks the complete decommodification of money. Under a Social Credit system, money would have no price, i.e., there would be no interest. And decommodified currency would not be subject to the laws of supply and demand like other commodities. That is to say, there would be no inflation or deflation of currency.
3. I wish to suggest that the reason that the US dollar has not gone the way of the Zimbabwe dollar is simply that it is functioning as if it were a decommodified pure fiat currency on the Social Credit model. Yes, the US dollar is still a commodity, because it is loaned out at interest. But the reason that it is not massively discounted like the Zimbabwe dollar is that international markets will not treat it like a commodified currency as long as it serves as a universal medium of exchange.
4. It seems exceedingly unlikely that any country or group of countries can replace the dollar as world reserve currency, even if they wanted to.
5. Logically, the dollar could only be replaced with a soft currency or a hard currency.
6. If any country tried to replace the dollar as the world medium of exchange with a soft currency of its own devising, the likely result would go the way of the Zimbabwe dollar, i.e., it would be discounted/inflated to worthlessness. Because there would be no compelling reason for the whole world to trade a known soft currency for an unknown one.
7. And if someone tried to replace the dollar with a hard currency — such as gold or euros — particularly for trading petroleum or agricultural commodities, the result would be the curse of deflation. And no sensible government would accept the reality of deflation to avoid the mere possibility of inflation. Of course some governments might still be irrational enough to follow hard money policies. But the consequences would eventually argue for their repeal.
8. If the US system does collapse, it will probably not be due to the collapse of the dollar. The US economic system might well be able to continue indefinitely producing only currency. Americans might be able to consume the bounty of the globe simply because we get to spend dollars first. White Nationalists who pin their hopes on the collapse of the US dollar might be guilty of irrational optimism. Larger social forces are still on our side — particularly the social consequences of dysgenics and race replacement — but the dollar apocalypse is not among them.

Along with writers like Kerry Bolton, Counter-Currents is doing its part to recover the rich tradition of Right-wing alternatives to capitalism, including Social Credit, Guild Socialism, Populism, and Distributism. The Right, particularly in the United States, desperately needs to break away from free market economic orthodoxy. Simply because it makes us stupid and evil.