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The Review of Austrian Economics, Vol 4,
1990, pp 55 - 87
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Reviewer Comment:
This is an amazing book. But it is typical libertarian theory. The author
combines theory about the origin of money, barter, gold, 'free markets', the
creation and development of banks - further expansion of central banks, ideas
about 'free banking', focus on 'the state' as the central villain in most
economic and political problems, causes of war, human 'self interest',
nationalism, internationalism, and world money and banks. He cites the major
libertarian theoreticians including Murray Rothbard. And other libertarians
cite him.
The book is worth a careful read as it reveals so much of libertarian
methodology and thinking (theorizing), all integrated into a single complex
interaction of theories with each other to reveal the disastrous failures that
have resulted from the acceptance of false theories about these issues. He
ignores ancient, medieval and non-European history, and focuses on modern
European events and conditions, but only in generalities supporting his
theories. Some of his ideas about these are valid, but it is his theories about
causation that are faulty.
But the entire edifice of combined theories is designed to support the author's
agenda for massive world-wide economic - political change. It is difficult to
choose which is more insane, Dr. Hoppe's proposed financial -=economic world or
the equally insane world of MMT. But both are theories designed to achieve
their author's peculiar social and political utopias.
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Money and Banking:
Dr. Hoppe starts out in typical libertarian theoretical mode. "In order to
explain the emergence of barter nothing more than the assumption of a narrowly
defined self-interest is required." - "The emergence of money from
barter follows from the same 'narrow self-interest".
Of course actual historical investigation of the economy of ancient societies
such as the Mesopotamian to learn real facts is not only unnecessary but to be
avoided. And deeper investigation of tribal societies, prehistoric or
contemporary today are far beyond him. Dr. Hoppe's mythology, unfortunately, is
the standard pitch of not only libertarians but many other economists who
simply follow the lead of Adam Smith without considering how Smith might have
come to his theory about barter. Interestingly, they do recognize that Smith's
theory about 'labor value' was incorrect and led to many errors. But they
simply refuse to acknowledge that archeologists and historians could know
anything about economics. Dr. Hoppe describes the barter myth in great detail,
developing from it a whole elaborate story in which 'self-interest' plays a
major part. And 'self-interest' pervades his entire book.
From his theory that exchange between individuals by barter was impossible
comes the idea that of course recourse to commodity money was the answer.
"Money has been invented by self-interested man in order to increase his
wealth by integrating himself into an ever-widening and ultimately universal
market."
Never mind that ancient peoples had no ideas about this 'universal market'.
Never mind that 'self interested' man had and has many other desires and
objectives in life that 'to increase his wealth'.
But from commodity Dr. Hoppe jumps to gold as the obvious choice for use as
money.
Never mind that money existed long before gold was even found where it was and
never was found in most places where money was used. And where gold was used -
Ancient Egypt and Mesopotamia for instance, it was NOT used as money - it was
much too valuable. And for centuries, even after gold coins had been minted it
disappeared from use as currency. Considering the entire span of human
existence and exchanging his production gold has been a rare participant in the
process.
This brings up another mistake. Dr. Hoppe equates 'money' with currency in the
form of coin used as a 'medium of exchange'. But 'money' was used in its
primary role as the 'measure of account' and the 'standard of value' for
centuries before coins were first minted. And it continued to perform those
functions throughout history during times that coins -currency - was not even
the main 'medium of exchange'.
But he insists: "The emergence of money, of increasingly better monies,
and finally of one universal money, gold, sets productive energies free that
previously remained frustrated and idle due to
double-coincidence-of-wants-restrictions in the process of exchange (such as
the existence of competing monies with freely fluctuating exchange rates).
Under barter the market for a producer's output is restricted to instances of
double want coincidence."
The statement combines several false theories. Note that he manages to bring in
already his theory (to be expanded later) that 'freely fluctuating exchange
rates' cause problems with 'productive energies'. Absurd of course. Also, gold
was not a 'universal money' except during the brief existence of the so called
'gold standard' in the 19th century and even then its 'universe' was limited to
a few nations, mostly European. It was not even A money. This theory of
'double-coindouble-concidence-of-wants-restrictionscidence-of-wants-restrictions'
is a favorite meme of those who believe in the role of barter in daily market
exchange at the same time claiming that it impossible to function. What the
theory name means is that exchange transactions in the market occur between two
individual parties each having some product to exchange but not having the
product that the counter party has, each wants to have something else, hence no
exchange can take place.
But in Real barter, which takes place between parties from Different societies
or tribes or nations - neither side is seeking to exchange something of his own
for something he desires to use himself from the other party. Both are
merchants who are exchanging products brought from their society as exports
knowing that there will be people in the other society that want them, and in
the exchange receiving products not for their own use but products they know
are needed by others back home. For instance, Assyrian merchants gathered
quantities of tin and textiles throughout Mesopotamia and carried them several
thousand miles into Anatolia knowing these products were in great demand there.
And in return they carried bulk silver blocks back knowing that silver was in
demand by temples and palaces. Or French merchants took metal tools and guns to
American Indians in exchange for beaver pelts (later buffalo hides) much in
demand for ostentatious wear in Europe. Or English merchants took ship loads of
products to Russia demanded there and exchange them for ship loads of Russian
production much in demand in England
He assumes the following: 'While it is in everyone's economic interest that
there be only one universal money and only one unit of account, and man in his
pursuit of wealth maximization will not stop until this goal is reached, it is
contrary to such interest that there be only one bank or one monopolistic
banking system."
Amazing. Who else claims that his idea is in 'everyone's economic interest? Who
thinks that man even has one economic interest, in wealth maximizing or any
other? Who besides libertarian economists thinks that 'economic' are even the
main or most important of man's interests? But also, there is not nor likely to
be 'only one bank or one monopolistic banking system." But such a
monopolistic system would be necessary to create a single 'universal' money.
The remainder of this section is filled with more diverse claims that the
present financial industry including its money and nature of the banking system
is dysfunctional, inefficient, and corrupt. And he briefly asserts some of his
major goals that are developed in the following sections - free banking - gold
money - 100% gold money, meaning no 'fake' or counterfeit money - universally
integrated world market - and more. He repeats his assertions over and over.
It is interesting to read that Dr. Hoppe also denounces the 'public choice'
with whom one would believe he would agree. But his theory is so narrow and
'anti' he cannot.
He expands his theories to include discussion of the many means and methods the
'state' employs in its own behalf (self-interest). If he would drop the
constant reference to this abstract concept - the "state" as the
originator of all evil and instead discuss the role of real life rulers (and
their entourages) from the earliest tribal societies he would make sense and be
able to provide actual, explicit historical example of much of the problems he
does correctly note.
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The State and the Monopolization of Money and
Banking
From these theories, then comes the myth about the 'state' as an
anthropomorphic reality that also ACTS in its own 'self-interest'. Turns out
that this 'state' is evil and responsible for much evil in history, especially
that which pervades money and banking.
Dr. Hoppe blames practically every economic and political policy, event,
condition that he does not like on the activities of the nefarious 'state'. But
most if not all of these including war, were commonplace throughout the world
and history for the thousands of years before the concept of 'state' was
developed during the Renaissance to take the place of God or gods as the
abstract entity that would confer legitimacy on rulers and justify their
actions.
He summarizes his theory: "The present economic order is characterized by
national monies instead of one universal money; by fiat money instead of a
commodity such as gold; by monopolistic central banking instead of free
banking; and by permanent bank fraud, and steadily repeated income and wealth
redistribution, permanent inflation and recurring business cycles and its
economic counter parties, rather than 100 percent reserve banking with none of
these consequences." Rulers, including tribal head men or women, do indeed
do many of the actions he deplores, in particular, distribute the collective
production of their community from its producers to themselves and their
friends and supporters. And rulers, once 'money' exists as a 'measure of
account' (long before it is a currency used as a 'medium of exchange') of
course manipulate the accounts to favor themselves and friends. A 'State' has
nothing to do with it. But instead he conjures up a theoretical sequence of
phases and events this 'state' conducts or supervises in its own
'self-interest.'
Actually, he is accomplishing exactly what the original creators of this
abstract entity 'state' desired, namely to shift responsibility for their
impositions on and exploitation of their real, living communities on to this
unseen abstraction. Recall, the term 'reasons of state'. Yes, there has been
and continues to be much 'fraud' - much 'exploitation' - much counterfeiting
that enriches financial insiders, much confiscation and redistribution of
privately produced goods and services to the non-productives. But the 'state'
didn't DO IT.
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International Politics and International
Monetary Order
In this section Dr. Hoppe expands his horizon to the world at large and uses
his theoretical concepts to accuse the 'state' acting on the international
scene of creating all the evils previously identified on this level.
"Man's economic interests, i.e.,. his interests in improving his income
and wealth by means of producing and exchanging, lead to the emergence of a
universally used commodity money -=gold - and a system of free banking".
No, they did not.
But "Man's political interests, i.e., his interests in improving his
income and wealth through exploitation - at the expense of producers and
contractors - lead to the formation of states, the destruction of the gold
standard, and the monopolization of money and banking."
Again, not true. First, man's 'interests' are NOT limited to the economic
sphere of life so loved by economists. Obtaining wealth, actually all economic
activity, is only MEANS, it is not the ENDS that man seeks. But non-productive
rulers for sure did and do exploit producers and contractors for much more than
only economic purposes. And they did so for thousands of year prior to anyone
conceiving of such an abstract concept as a 'state'. And there was NO gold
standard to destroy. And only in some circumstances and historical conditions
were they able to monopolize money and banking.
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Professor Hoppe focuses his attention at the
international level in order to discuss the problems that the existence of
independent 'states' each striving in its own 'self-interest' confront by the
competition between them. And this is his 'cause' for war.
He writes, "War and state are inextricably connected" Well, no doubt,
but wars have been a major activity of clans, tribes, communities, cities,
empires, kingdoms found even in the remains of pre-historic ruins. He theory
attempting to link war with his demons - fractional banking, central banks,
lack of gold as money, and the rest simply is not tenable. BTW he discounts war
conducted by private enterprise, ignoring the Dutch, British and French East
India Companies and other similar enterprises.
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He expands his concept: "With/ the
backdrop of these theoretical considerations about the nature of the state and
international politics, much of history falls into place."
This again is the economists' disdain for real research into actual history,
why do it when an internally consistent set of theories will explain
everything? He continues by asserting that the 'most liberal' socially and
politically 'states' are the bound to have advantages in becoming the most
imperial.
Next he waxes indignant: "Finally, history also provides the most vivid
illustration of the direct link between a state's internal powers of
counterfeiting and its policy of external aggression, as well as the banking
and business elite's conspiracy with the state in its expansionist
desires."
He focuses on the creation of the Federal Reserve in 1913 and identifies The
Rockefeller, Morgan, and Kuhn Loeb banking interests as its real creators and
beneficiaries. This is not a theory and is correct. But there was more to the
U.S. participation in World War I that what he claims
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The author continues to expand his theories.
"There is only one important element still missing from a complete
reconstruction of the present international order; money. It is in a state's
natural inerest to expand its territory militarily; and hence, one should
expect a tendency toward a relative concentration of states." On the basis
of this claim he builds an edifice of successive steps in which the 'state'
seeks wider fields in which it can 'counterfeit' its money. It enters into
cartels with other 'states' and develops and 'international 'money'. This will
be resisted by the general public. But the 'state' has powerful organs of
propaganda. It creates a world bank that can issue world money - he terms this
'monetary imperialism'.
"The imperialist nature of this dollar standard takes effect in particular
through such instruments as the International Monetary Fund (IMF), the
International Bank for Reconstruction and Development (IBRD), and the Bank for
International Settlement (BIS). He elaborates on the imperialist process and
its results.
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Next comes the author's attack on the
Trilateral Commission and the Council on Foreign Relations, the Association for
the Monetary Union of Europe, The Banking Federation of the European Community,
The ECU Banking Association, The Basel Committee and the Wilton Park Group. The
European Union, the Euro, and the European Central Bank had not been created at
the date Dr. Hoppe published this article.
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Some references
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Fischer, David Hackett - The Great Wave:
Price Revolutions and the Rhythm of History
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Davies, Glyn - History of Money: From
Ancient Times to the Present Day
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Graeber, David - Debt: The First 5,000
Years
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Admati, Anat & Martin Hellwig - The
Bankers' New Clothes: What's Wrong with Banking and What to Do about It
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Calomiris, Charles W. & Stephen H. Haber
-Fragile by Design: The Political Origins of Banking Crises & Scarce
Credit
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White, Lawrence H. - The Clash of Economic
Ideas
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Rothbard, Murray N. - What has Government
Done to our Money?
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Rothbard, Murray N. - The Mystery of
Banking
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Rothbard, Murray N. - Man, Economy, and
State + Power and Market
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Mises, Ludwig von - The Theory of Money
and Credit
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Coogan, Philip - Paper Promises; Debt,
Money and The new World Order
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Selgin, George - The Theory of Free
Banking: Money Supply under Competitive Note Issue
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Selgin, George - Fractional Reserve
Banking
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Selgin, George - Money Free and Unfree
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Hudson, Michael - ...and forgive them
their debts
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Landes, David, Joel Mokyr & William
Baumol, eds. - The Invention of Enterprise: Entrepreneurship from Ancient
Mesopotamia to Modern Times
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Podany, Amanda - Mesopotamia
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History of Mesopotamia
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Facts and Details -
Mesopotamian Economics and Money
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Kay, John - Other People's Money
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Kaufman, Henry - Tectonic Shifts in
Financial Markets
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Selgin, George - Floored
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Booth, Danielle Dimartino - FED UP
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Salerno, Joseph - Fractional Reserves and
the Fed
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