Re: [A-List] Stiglitz: Big Lies about Central Banking

["Anyutka" <annewilliamson@xxxxxxx>]

                         Gary North's
                   THE GOLD WARS
                           Issue #8


     One of the standard arguments against a gold standard
is this: "There's not enough gold to facilitate all of the
transactions in a free market economy." This is an old
criticism. It was a lot more popular before the desktop
computer industry started cutting prices every year, while
increasing product quality. These days, people expect
falling prices in desktop computers.

     What if they expected price cuts in all other
industries?

     If you have ever wondered what would happen if a
relatively fixed supply of above-ground gold were the
primary medium of exchange, this essay may help clarify
things.

     This essay is long. It may seem boring. My view is
this: when your economic future is at stake, it's never
boring.

     Most people have no conception of what you are about
to read. They are not interested. They don't know that
their futures will depend heavily on the answers to these
questions that will be adopted by the Federal Reserve
System's policy-makers. They think, "I can't be bothered
with monetary theory." Therein lies your investment
opportunity.

     You may want to print out this issue and read it
later, with a yellow marker in hand.


       Chiché #2: "There Isn't Enough Gold"

     It would appear that the reasons commonly
     advanced as a proof that the quantity of the
     circulating medium should vary as production
     increases or decreases are entirely unfounded. It
     would appear also that the fall of prices
     proportionate to the increase in productivity,
     which necessarily follows when, the amount of
     money remaining the same, production increases,
     is not only entirely harmless, but in fact the
     only means of avoiding misdirections of
     production.

            F. A. Hayek, "Prices and Production" (1931), p.
105

     What Professor Hayek wrote in 1931 was not accepted
then, and it is not accepted today. Note: it would take
over $1,200 to match the purchasing power of $100 in 1931,
according to the inflation calculator of the U.S.
government's Bureau of Labor Statistics.

http://www.bls.gov

     If policy-makers had listened to him, we might be able
to buy for $25 what it took $100 to buy in 1931. That is
because economic growth has continued steadily since 1931.


THE GOAL OF ECONOMIC GROWTH

     Economic growth is one of the chief fetishes of modern
life. Hardly anyone would challenge the contemporary
commitment to the aggregate expansion of goods and
services. This is true of socialists, interventionists, and
free enterprise advocates; if it is a question of "more" as
opposed to "less," the demonstrated preference of the vast
bulk of humanity is in favor of the former.

     To keep the idea of growth from becoming the modern
equivalent of the holy grail, the supporter of the free
market is forced to add certain key qualifications to the
general demand for expansion.

     First, that all costs of the growth process be
     paid for by those who by virtue of their
     ownership of the means of production gain access
     to the fruits of production. This implies that
     society has the right to protect itself from
     unwanted "spill over" effects like pollution,
     i.e., that the so-called social costs be
     converted into private costs whenever possible.

     Second, that economic growth be induced by the
     voluntary activities of men cooperating on a
     private market. The state-sponsored projects of
     "growthmanship," especially growth induced
     through inflationary deficit budgets, are to be
     avoided.

     Third, that growth not be viewed as a potentially
     unlimited process over time, as if resources were
     in unlimited supply.

     In short, aggregate economic growth should be the
product of the activities of individual men and firms
acting in concert according to the impersonal dictates of a
competitive market economy. It should be the goal of
national governments only in the limited sense of policies
that favor individual initiative and the smooth operation
of the market, such as legal guarantees supporting
voluntary contracts, the prohibition of violence, and so
forth.


MONETARY POLICY

     The "and so forth" is a constant source of
intellectual as well as political conflict.

     One of the more heated areas of contention among free
market economists is the issue of monetary policy. The
majority of those calling themselves free market economists
believe that monetary policy should not be the autonomous
creation of voluntary market agreements. Instead, they
favor various governmental or quasi-governmental policies
that would oversee the creation of money and credit on a
national, centralized scale.

     Monetary policy in this perspective is an "exogenous
factor" in the marketplace -- something that the market
must respond to rather than an internally produced,
"endogenous factor" that stems from the market itself. The
money supply is therefore supposedly indirectly related to
market processes; it is controlled by the central
governments acting through the central bank, or else it is
the automatic creation of a central bank on a fixed
percentage increase per day and therefore not subject to
"fine-tuning" operations of the political authorities.

     A smaller number of free market advocates (myself
among them) are convinced that such monopoly powers of
money creation are going to be used. Power is never
neutral; it is exercised according to the value standards
of those who possess it. Money is power, for it enables the
bearer to purchase the tools of power, whether guns or
votes.

     Governments have an almost insatiable lust for power,
or at least for the right to exercise power. If they are
granted the right to finance political expenditures through
deficits in the visible tax schedules, they are empowered
to redistribute wealth in the direction of the state
through the invisible tax of inflation.

     Money, given this fear of the political monopoly of
the state, should ideally be the creation of market forces.
Whatever scarce economic goods that men voluntarily use as
a means of facilitating market exchanges-goods that are
durable, divisible, transportable, and above all scarce -
are sufficient to allow men to cooperate in economic
production. Money came into existence this way; the state
only sanctioned an already prevalent practice. Generally,
the two goods that have functioned best as money have been
gold and silver: they both possess great historic value,
though not intrinsic value (since no commodity possesses
intrinsic value).

     Banking, of course, also provides for the creation of
new money. But as Ludwig von Mises argued, truly
competitive banking --free banking - keeps the creation of
new credit at a minimum, since bankers do not really trust
each other, and they will demand payment in gold or silver
from banks that are suspected of insolvency.

     Thus, the creation of new money on a free market would
stem primarily from the discoveries of new ore deposits or
new metallurgical techniques that would make available
greater supplies of scarce money metals than would have
been economically feasible before. It is quite possible to
imagine a free market system operating in terms of
nonpolitical money. The principle of voluntarism should not
be excluded, a priori, from the realm of monetary policy.


SOVEREIGNTY, EFFICIENCY, CATASTROPHE

     There are several crucial issues involved in the
theoretical dispute between those favoring centralized
monetary control and free market voluntarists.

     First, the question of constitutional
     sovereignty: which sphere, civil government or
     the market, is responsible for the administration
     of money?

     Second, the question of economic efficiency:
     would the plurality of market institutions
     interfere with the creation of a rational
     monetary framework?

     Third, and most important for this paper, is not
     a fundamental requirement for the growth of
     economic production the creation of a money
     supply sufficient to keep pace, proportionately,
     with aggregate productivity?

     The constitutional question, historically, is easier
to answer than the other two. The Constitution says very
little about the governing of monetary affairs. The
Congress is granted the authority to borrow money on the
credit of the United States, a factor which has
subsequently become an engine of inflation, given the
legalized position of the central bank in its activity of
money creation. The Congress also has the power "To coin
Money, regulate the Value thereof, and of foreign Coin, and
fix the Standard of Weights and Measures" (Article 11,
Section 8). Furthermore, the states are prohibited to coin
money, emit bills of credit, or "make any Thing but gold
and silver Coin a Tender in Payment of Debts" (Article II,
Section 9).


THE CONSTITUTIONAL QUESTION

     The interpretation of these passages has become
increasingly statist since the 1860's. Gerald T. Dunne
describes his book, "Monetary Decisions of the Supreme
Court," in these terms: "This work traces a series of
decisions of the Supreme Court which have raised the
monetary power of the United States government from
relative insignificance to almost unlimited authority." He
goes on to write: ". . . the Founding Fathers regarded
political control of monetary institutions with an
abhorrence born of bitter experience, and they seriously
considered writing a sharp limitation on such governmental
activity into the Constitution itself. Yet they did not,
and by "speaking in silences" gave the government they
founded the near absolute authority over currency and
coinage that has always been considered the necessary
consequence of national sovereignty."

     The most detailed study of the changing views of the
Supreme Court is the 1,600-page book by Edwin Viera,
"Pieces of Eight."  He is a Harvard-trained lawyer and a
first-rate monetary theorist. He shows how the original
dollar was based on a free market currency, the Spanish
"piece of eight," which was silver.

     The great push toward centralization came,
understandably, with the Civil War, the first truly modern
total war, with its need of new taxes and new power. From
that point on, there has been a continual war of the
Federal government against the limitations imposed by a
full gold coin standard of money. It is all too clearly an
issue of sovereignty: the sovereignty of the political
sphere against that of individuals operating in terms of
voluntary economic transactions.


THE MATTER OF EFFICIENCY

     The second question is more difficult to answer. Would
the plurality of monetary sovereignties within the over-all
sovereignty of a competitive market necessarily be less
efficient than a money system created by central political
sovereignty? As a corollary, are the time, capital, and
energy expended in gold and silver mining worse spent than
if they had gone into the production of consumer goods?

     In the short run and in certain localized areas,
plural monetary sovereignties might not be competitive. A
local bank could conceivably flood a local region with
unbacked fiat currency. But these so-called wildcat banking
operations, unless legally sanctioned by state fractional
reserve licenses (deceptively called limitations), do not
last very long. People discount the value of these flat
bills, or else make a run on the bank's vaults. The bank is
not shielded by political sovereignty against the demands
of its creditors. In the long run it must stay competitive,
earning its income from services rather than the creation
of fiat money. With the development of modern
communications that are almost instantaneous in nature,
frauds of this kind become more difficult.

     The free market is astoundingly efficient in
communicating knowledge, The activity of the stock market,
for example, in response to new information about a
government policy or a new discovery, indicates the speed
of the transfer of knowledge, as prices are rapidly raised
or lowered in terms of the discounted value that is
expected to accrue because of the new conditions. The very
flexibility of prices allows new information to be
assimilated in an economically efficient manner. Why, then,
are changes affecting the value of the various monetary
units assumed to be less efficiently transmitted by the
free market's mechanism than by the political sovereign?
Why is the enforced stability of fixed monetary ratios so
very efficient and the enforced stability of fixed prices
on any other market so embarrassingly inefficient? Why is
the market incapable of arbitrating the value of gold and
silver coins (domestic vs. domestic, domestic vs. foreign),
when it is thought to be so efficient at arbitrating the
value of gold and silver jewelry? Why is the market
incapable of registering efficiently the value of gold in
comparison to a currency supposedly fixed in relation to
gold?


THE FREE MARKET'S WAY

     The answer should be obvious: it is because the market
is so efficient at registering subtle shifts in values
between scarce economic goods that the political sovereigns
ban the establishment of plural monetary sovereignties. It
is because any disparity economically between the value of
fiat currency supposedly linked to gold and the market
value of gold exposes the ludicrous nature of the
hypothetical legal connection, which in fact is a legal
fiction, that the political sovereignty assumes for itself
a monopoly of money creation.

     It is not the inefficiency of the market in
registering the value of money but rather its incomparable
efficiency that has led to its position of imposed
isolation in monetary affairs. Legal fictions are far more
difficult to impose on men if the absurdity of that fiction
is exposed, hour by hour, by an autonomous free market
mechanism.

     Would there not be a chaos of competing coins,
weights, and fineness of monies? Perhaps, for brief periods
of time and in local, semi-isolated regions. But the market
has been able to produce light bulbs that fit into sockets
throughout America, and plugs that fit into wall sockets,
and railroad tracks that match many companies' engines and
cars. To state, a priori, that the market is incapable of
regulating coins equally well is, at best, a dangerous
statement that is protected from critical examination only
by the empirical fact of our contemporary political
affairs.
     Changes in the stock of gold and silver are generally
slow. Changes in the "velocity of money" -- the number of
exchanges within a given time period-are also slow, unless
the public expects some drastic change, like a devaluation
of the monetary unit by the political authority. These
changes can be predicted within calculable limits; in
short, the economic impact of such changes can be
discounted. They are relatively fixed in magnitude in
comparison to the flexibility provided by a government
printing press or a central bank's brand new IBM computer.
The limits imposed by the costs of mining provide a
continuity to economic affairs compared to which the
"rational planning" of central political authorities is
laughable.

     What the costs of mining produce for society is a
restrained state. We expend time and capital and energy in
order to dig metals out of the ground. Some of these metals
can be used for ornament, or electronic circuits, or for
exchange purposes; the market tells men what each use is
worth to his fellows, and the seller can respond
accordingly. The existence of a free coinage restrains the
capabilities of political authorities to redistribute
wealth, through fiat money creation, in the direction of
the state. That such a restraint might be available for the
few millions spent in mining gold and silver out of the
ground represents the greatest potential economic and
political bargain in the history of man. To paraphrase
another patriot: "Millions for mining, but not one cent in
tribute."

POSSIBILITIES OF PREDICTION

     By reducing the parameters of the money supply by
limiting money to those scarce economic goods accepted
voluntarily in exchange, prediction becomes a real
possibility. Prices are the free market's greatest
achievement in reducing the irrationality of human affairs.
They enable us to predict the future.

     Profits reward the successful predictors, while losses
greet the inefficient forecasters, thus reducing the extent
of their influence. The subtle day-to-day shifts in the
value of the various monies would, like the equally subtle
day-to-day shifts in value of all other goods and services,
be reflected in the various prices of monies, vis-a-vis
each other.

     Professional speculators (predictors) could act as
arbitrators between monies. The price of buying pounds
sterling or silver dollars with my gold dollar would be
available on request, probably published daily in the
newspaper. Since any price today reflects the supply and
demand of the two goods to be exchanged, and since this in
turn reflects the expectations of all participants of the
value of the items in the future, discounted to the
present, free pricing brings thousands and even millions of
forecasters into the market.

     Every price reflects the composite of all predictors'
expectations. What better means could men devise to unlock
the secrets of the future? Yet monetary centralists would
have us believe that in monetary affairs, the state's
experts are the best source of economic continuity, and
that they are more efficient in setting the value of
currencies as they relate to each other than the market
could be.

     What we find in the price-fixing of currencies is
exactly what we find in the price-fixing of all other
commodities: Periods of inflexible, politically imposed
"stability" interspersed with great economic
discontinuities. The old price shifts to some wholly new,
wholly unpredictable, politically imposed price, for which
few men have been able to take precautions. It is a rigid
stability broken by radical shifts to some new rigidity. It
has nothing to do with the fluid continuity of flexible
market pricing. Discontinuous "stability" is the plaque of
politically imposed prices, as devaluations come in
response to some disastrous political necessity, often
internationally centered, involving the prestige of many
national governments. It brings the rule of law into
disrepute, both domestically and internationally. Sooner or
later domestic inflation comes into conflict with the
requirements of international solvency.

     For those who prefer tidal waves to the splashing of
the surf, for those who prefer earthquakes to slowly
shifting earth movements, the rationale of the political
monopoly of money may appear sane. It is strange that
anyone else believes in it. Instead of the localized
discontinuities associated with private counterfeiting, the
state's planners substitute complete, centralized
discontinuities, the predictable market losses of fraud
(which can be insured against for a fee) are regarded as
intolerable, yet periodic national monetary catastrophes
like inflation, depression, and devaluation are accepted as
the "inevitable" costs of creative capitalism. it is a
peculiar ideology.


FLEXIBLE VS. INFLEXIBLE PRICES

     The third problem seems to baffle many well-meaning
free market supporters. How can a privately established
monetary system linked to gold and silver expand rapidly
enough to facilitate business in a modern economy? How can
new gold and silver enter the market rapidly enough to
"keep pace," proportionately, with an expanding number of
free market transactions?

     The answer seems too obvious: the expansion of a
specie-founded currency system cannot possibly grow as fast
as business has grown in the last century. Since the answer
is so obvious, something must be wrong with the question.
There is something wrong; it has to do with the invariable
underlying assumption of the question: today's prices are
downwardly inflexible.

     It is a fact that many prices are inflexible in a
downward direction, or at least very, very "sticky." For
example, wages in industries covered by minimum wage
legislation are as downwardly inflexible as the
legislatures that have set them. Furthermore, wages in
industries covered by the labor union provisions of the
Wagner Act of 1935 are downwardly inflexible, for such
unions are legally permitted to exclude competing laborers
who would work for lower wages. Products that come under
laws establishing "fair trade" prices, or products
undergirded by price floors established by law, are not
responsive to economic conditions requiring a downward
revision of prices. The common feature of the majority of
downwardly inflexible prices is the intervention of the
political sovereignty.

     The logic of economic expansion should be clear
enough: if it takes place within a relatively fixed
monetary structure, either the velocity of money will
increase (and there are limits here) or else prices in the
aggregate will have to fall. If prices are not permitted to
fall, then many factors of production will be found to be
uneconomic and therefore unemployable. The evidence in
favor of this law of economics is found every time a
depression comes around (and they come around just as
regularly as the government-sponsored monetary expansions
that invariably precede them). Few people interpret the
evidence intelligently.

     Labor union leaders do not like unemployed members.
They do not care very much about unemployed nonmembers,
since these men are unemployed in order to permit the
higher wages of those within the union. Business owners and
managers do not like to see unemployed capital, but they
want high rates of return on their capital investments even
if it should mean bankruptcy for competitors. So, when
falling prices appear necessary for a marginal firm to stay
competitive, but when it is not efficient enough to compete
in terms of the new lower prices for its products, the
appeal goes out to the state for "protection." Protection
is needed from nasty customers who are going to spend their
hard-earned cash or credit elsewhere.

     Each group resists lower returns on its investment -
labor or financial -- even in the face of the biggest risk
of all: total unemployment. And if the state intervenes to
protect these vested interests, it is forced to take steps
to insure the continued operation of the firms.

     It does so through the means of an expansion of the
money supply. It steps in to set up price and wage floors;
for example, the work of the NRA (National Recovery
Administration) in the early years of the Roosevelt
administration. Then the inflation of the money supply
raises aggregate prices (or at least keeps them from
falling), lowers the real income from the fixed money
returns, and therefore "saves" business and labor. This was
the "genius" of the Keynesian recovery, only it took the
psychological inducement of total war to allow the
governments to inflate the currencies sufficiently to
reduce real wages sufficiently to keep all employed, while
simultaneously creating an atmosphere favoring the
imposition of price and wage controls in order to "repress"
the visible signs of the inflation, i.e., even higher money
prices. So prices no longer allocated efficiently; ration
stamps, priority slips ' and other "hunting licenses" took
the place of an integrated market pricing system. So did
the black market.


REPRESSED DEPRESSION

     Postwar inflationary pressures have prevented us from
falling into reality. Citizens will not face the
possibility that the depression of the 1930's is being
repressed through the expansion of the money supply, an
expansion which is now threatening to become exponential.
No, we seem to prefer the blight of inflation to the
necessity of an orderly, generally predictable downward
drift of aggregate prices.
Most people resist change. That, in spite of the hopes and
footnoted articles by liberal sociologists who enjoy the
security of tenure.

     Those people who do welcome change have in mind
familiar change, potentially controllable change, change
that does not rush in with destruction. Stability, law,
order: these are the catchwords even in our own culture, a
culture that has thrived on change so extensive that
nothing in the history of man can compare with it. It
should not be surprising that the siren's slogan of "a
stable price level" should have lured so many into the
rocks of economic inflexibility and monetary inflation.

     Yet a stable price level requires, logically, stable
conditions: static tastes, static technology, static
resources, static population. In short, stable prices
demand the end of history. The same people who demand
stable prices, whether socialist, interventionist, or
monetarist, simultaneously call for increased economic
production. What they want is the fulfillment of that
vision restricted to the drunken of the Old Testament: ".
. tomorrow shall be as this day, and much more abundant"
(Isaiah 56:12). The fantasy is still fantasy; tomorrow will
not be as today, and neither will tomorrow's price
structure.

     Fantasy in economic affairs can lead to present
euphoria and ultimate miscalculation. Prices change. Tastes
change. Productivity changes. To interfere with those
changes is to reduce the efficiency of the market; only if
your goal is to reduce market efficiency would the
imposition of controls be rational. To argue that upward
prices, downward prices, or stable prices should be the
proper arrangement for any industry over time is to argue
nonsense. An official price can be imposed for a time, of
course, but the result is the misallocation of scarce
resources, a misallocation that is mitigated only by the
creation of a black market.


STABLE PRICES

     There is one sense in which the concept of stable
prices has validity. Prices on a free market ought to
change in a stable, generally predictable, continuous
manner. Price (or quality) changes should be continual
(since economic conditions change) and hopefully continuous
(as distinguished from discontinuous, radical) in nature.
Only if some exogenous catastrophe strikes the society
should the market display radical shifts in pricing,
Monetary policy, ideally, should contribute no
discontinuities of its own -no disastrous, aggregate
unpredictabilities. This is the only social stability worth
preserving in life: the stability of reasonably predictable
change.

     The free market, by decentralizing the decision-making
process, by rewarding the successful predictors and
eliminating (or at least restricting the economic power of)
the inefficient forecasters, and by providing a whole
complex of markets, including specialized markets of
valuable information of many kinds, is perhaps the greatest
engine of economic continuity ever developed by men. That
continuity is its genius. It is a continuity based,
ultimately, on its flexibility in pricing its scarce
economic resources. To destroy that flexibility is to
invite disaster.

     The myth of the stable price level has captured the
minds of the inflationists, who seek to impose price and
wage controls in order to reduce the visibility of the
effects of monetary expansion. On the other hand, stable
prices have appeared as economic nirvana to conservatives
who have thought it important to oppose price inflation.
They have mistaken a tactical slogan-stable prices-for the
strategic goal. They have lost sight of the true
requirement of a free market, namely, flexible prices. They
have joined forces with Keynesians and neo-Keynesians; they
all want to enforce stability on the "bad" increasing
prices (labor costs if you're a conservative, consumer
prices if you're a liberal), and they want few restraints
on the "good" upward prices (welfare benefits if you're a
liberal, the Dow Jones average if you're a conservative).
Everyone is willing to call in the assistance of the
state's authorities in order to guarantee these effects.
The authorities respond.

     What we see is the "ratchet effect." A wage or price
once attained for any length of time sufficient to convince
the beneficiaries that such a return is "normal" cannot, by
agreed definition, be lowered again. The price cannot slip
back. It must be defended. It must be supported. It becomes
an ethical imperative. Then it becomes the object of a
political campaign. At that point the market is threatened.



CONCLUSION

     The defense of the free market must be in terms of its
capacity to expand the range of choices open to freemen. It
is an ethical defense. Economic growth that does not expand
the range of men's choices is a false hope. The goal is not
simply the expansion of the aggregate number of goods and
services. It is no doubt true that the free market is the
best means of expanding output and increasing efficiency,
but it is change that is constant in human life, not
expansion or linear development. There are limits on
secular expansion.

     Still, it is reasonable to expect that the growth in
the number of goods and services in a free market will
exceed the number of new gold and silver discoveries. If
so, then it is equally reasonable to expect to see prices
in the aggregate in a slow decline. In fact, by calling for
increased production, we are calling for lower prices, if
the market is to clear itself of all goods and services
offered for sale. Falling prices are no less desirable in
the aggregate than increasing aggregate productivity. They
are economic complements.

     Businessmen are frequently heard to say that their
employees are incapable of understanding that money wages
are not the important thing, but real income is. Yet these
same employers seem incapable of comprehending that profits
are not dependent upon an increasing aggregate price level.


     It does not matter for aggregate profits whether the
price level is falling, rising, or stable. What does matter
is the entrepreneur's ability to forecast future economic
conditions, including the direction of prices relevant to
his business.

     Every price today includes a component based on the
forecast of buyer and seller concerning the state of
conditions in the future. If a man on a fixed income wants
to buy a product, and he expects the price to rise
tomorrow, he logically should buy today; if he expects the
price to fall, he should wait. Thus, the key to economic
success is the accuracy of one's discounting, for every
price reflects in part the future price, discounted to the
present. The aggregate level of prices is irrelevant; what
is relevant is one's ability to forecast particular prices.


     It is quite likely that a falling price level (due to
increased production of non-monetary goods and services)
would require more monetary units of a smaller
denomination. But this is not the same as an increase of
the aggregate money supply. It is not monetary inflation.
Four quarters can be added to the money supply without
inflation, just as long as paper one dollar bill is
destroyed. The effects are not the same as a simple
addition of the four quarters to the money supply.

     The first example conveys no increase of purchasing
power to anyone; the second does. In the first example, no
one on a fixed income has to face an increased price level
or an empty space on a store's shelf due to someone else's
purchase. The second example forces a redistribution of
wealth, from the man who did not have access to the four
new quarters into the possession of the man who did, The
first example does not set up a boom-bust cycle; the second
does.

     Prices in the aggregate can fall to zero only if
scarcity is entirely eliminated from the world, i.e, if all
demand can be met for all goods and services at zero price.
That is not our world. Thus, we can safely assume that
prices will not fall to zero. We can also assume that there
are limits on production. The same set of facts assures
both results: scarcity guarantees a limit on falling prices
and a limit on aggregate production. But there is nothing
incompatible between economic growth and falling prices.
Far from being incompatible, they are complementary. There
should be no need to call for an expansion of the money
supply "at a rate proportional to increasing productivity."


     It is a good thing that such an expansion is not
necessary, since it would be impossible to measure such
proportional rates. It would require whole armies of
government-paid statisticians to construct an infinite
number of price indexes. If this were possible, then
socialism would be as efficient as the free market.
Infinite knowledge is not given to men, not even to
government statistical boards. Even Arthur Ross, the
Department of Labor's commissioner of labor statistics, and
a man who thinks the index number is a usable device, has
to admit that it is an inexact science at best. Government
statistical indexes are used, in the last analysis, to
expand the government's control of economic affairs. That
is why the government needs so many statistics.

     The quest for the neutral monetary system, the
commodity dollar, price index money, and all other
variations on this theme has been as fruitless a quest as
socialists, Keynesians, social credit advocates, and
government statisticians have ever embarked on. It
presupposes a sovereign political state with a monopoly of
money creation. It presupposes an omniscience on the part
of the state and its functionaries that is utopian. It has
awarded to the state, by default, the right to control the
central mechanism of all modern market transactions, the
money supply. It has led to the nightmare of inflation that
has plagued the modern world, just as this same sovereignty
plagued Rome in its declining years.

     In the case of ancient Rome, it was a reasonable
claim, given the theological presupposition of the ancient
world (excluding the Hebrews and the Christians) that the
state is divine, either in and of itself or as a function
of the divinity of the ruler. Rulers were theoretically
omniscient in those days. Even with their supposed
omniscience, their monetary systems were subject to ruinous
collapse.

     Odd that men today would expect a better showing from
an officially secular state that recognizes no divinity
over it or under it. Then again, perhaps a state like this
assumes the function of the older, theocratic state. It
recognizes no sovereignty apart from itself. And like the
ancient kingdoms, the sign of sovereignty is exhibited in
the monopoly over money.

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