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Nicholas
Copernicus (1473-1543) is known today as the “Earth goes
around the sun guy,” but he also advised the Royal Prussian
parliament on monetary reform over a period of several years. During
this time, he wrote an essay known as the Treatise on Money
(1526). A new
translation of Copernicus’ essay by Gerald Malsbary has
recently been released via Laissez Faire Books. The book has many
gems — things so simple and obvious that they have been forgotten by
the majority of academic economists today, with the usual bad
consequences.
“Money, or coinage, is gold or silver that has been
specially marked — in accordance with policy established by any
government or head of government — for the purpose of reckoning
the prices of things that are bought and sold. Money is therefore
a kind of common ‘measuring stick’ for the valuation of things.
Now, whatever is taken as a measure has to be stable — must keep
to a fixed limit. Otherwise, public order will necessarily be
disturbed, and the buyers and sellers of things will be cheated
many times over, just as if basic measures of length [Latin ulna,
or ell], bulk measure [Latin modius, or peck], or weight did not
have a fixed quantity.”
This is what I call the Classical
approach to money — that it should be as stable and neutral as
possible, so that it can serve as a “common measuring stick in the
valuation of things.” For thousands of years, going back literally
to the first civilization in Mesopotamia, the Sumerians of 3500 B.C.,
this goal has been achieved by using money based on gold, and its
small-denomination adjunct, silver.
In those days too, governments thought that perhaps having a stable,
reliable, unchanging measure of value was a rather boring way of
going about things. How much more fun to make some fresh money from
nothing! In those days, it meant making coins with higher
denominations or less silver. This became the common habit, and
continued for decades. Copernicus laments:
“But what had over so long a period of time become the
inveterate habit (or license) of adulterating, pilfering, and
cheapening the money, has not ceased in our day. For what it later
became and what it is today I am ashamed to say. The value has
collapsed so much that now thirty marks scarcely contain a pound
of silver!”
Today, it has been forty-two years since the United States formally
abandoned its policy of maintaining the value of the dollar at one
thirty-fifth of a troy ounce of gold — on August 15, 1971.
The dollar’s worth today is a little vague; but at $1200/oz, it
would be worth 1/34th of its Bretton Woods value. Nobody seems
particularly bothered by this, just as nobody was much bothered in
Copernicus’ day. It has just become The Way Things Are. (Copernicus
traced this pattern back over a century of Prussian history.) The
“inveterate habit of adulterating, pilfering, and cheapening the
money” has become our normal course of affairs, and I suspect the
Federal Reserve’s present money-printing efforts will ultimately
represent just another chapter in this long story.
“But perhaps someone will object, ‘A leaner money is
more advantageous to human uses: it really helps the poor, by
bringing a lower price of groceries and by supplying the other
necessities of life more easily.’”
Here we have what I have called the Mercantilist view of money,
which is that it should be manipulated by the state to produce
certain short-term policy goals. Perhaps “bringing a lower price of
groceries” doesn’t make much sense to us today, but various notions
related to “helping the poor” (lower unemployment, lower mortgage
rates, “wealth effect”) have always been popular public
justifications for Mercantilist money-jiggering.
But does it work? What are the consequences? After over a century of
pursuing this strategy, did Prussia find prosperity and abundance?
Let’s see what Copernicus said:
“But if such persons will only consider the common good
[communis utilitas], they certainly will not deny that an
excellent currency is good not only for the state but for
themselves and all classes of people, and that cheap money is
harmful. The truth of this is clear, not only for many other
reasons but especially thanks to that wise teacher, experience: we
see countries that have good money flourishing most of all, and
those with poor money declining and perishing….
[Over the past century,] the money has been cheapening more and
more every day, and our country through this pestilence and other
catastrophes has been nearly brought to ruin. It is also well
known that wherever cheap money is in use, the practice of the
better arts and human talents is neglected through laziness, lack
of interest and a kind of cowardly idleness, and there is no
abundance of anything.”
We are forty-two years into our own experiment in funny money.
During that time, even according to comically rosy government
statistics, the median
male full-time income has stagnated. Median household “real”
income has fallen seven percent since 2009, and is now
back at a level first reached in 1988.
Even that dismal figure reflects adjustment by the government’s
heavily-scrubbed CPI index, which has become particularly
fictional over the last decade or so. What would things
look like sixty years from now, when, like Copernicus, we look back
upon a century of this funny-money
self-impoverishment?
Probably a lot like they looked in 1526. Would this be surprising?
It would not be surprising.
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