Ron Paul Liberty Report
  • Home
  • Archives
  • About

Sound Money and Fiscal Policy

4/18/2016

 
Picture
By Paul-Martin Foss

The week before last marked my first time attending the Austrian Economics Research Conference, an annual meeting of economists of the Austrian school hosted by the Ludwig von Mises Institute in Auburn, AL. While many of the presentations were interesting, one that I found particularly helpful was that by Patrick Barron of the University of Iowa.

What was especially useful was how he tied together monetary and fiscal policy. The connection between the two might seem self-evident to many Austrians, but it wouldn’t seem self-evident to the man on the street. Yet by tying the two together it should be possible to bring more people to support sound money.


Wasteful government spending is something that is apparent to millions of Americans. It makes them angry to see their tax dollars misspent and wasted on costly boondoggles. It is relatively easy, therefore, to get people to support efforts to cut government spending. Yet no matter how much effort is expended in the effort to rein in government spending, it continues to grow out of control. What if you could do one thing that would do more than anything to cut government spending? Imagine how much support you could get for that. That is where Prof. Barron comes in.

Sound money, to Dr. Barron, is the most important check on government spending. If money is sound, meaning that the government cannot inflate the money supply at will, then government spending will be limited. Remember that governments can fund their operations through three methods: 1.) Taxation; 2.) Bonds, or borrowing; 3.) Inflation.

Taxation is self-limiting because at higher tax rates there will be massive tax avoidance and tax revenues will fall, or the government might be voted out or overthrown if people are angry enough. Bonds have to be repaid, which comes from future taxation, so we are back to the self-limiting aspect of tax funding. Bonds also require interest payments, and if a government isn’t creditworthy then the interest payments may make borrowing money prohibitively expensive.

This leads us to the third and preferred method, inflation. By creating more money, the government decreases the value of each monetary unit. But it normally does so in a slow enough manner as to be barely perceptible to the average person. And where does this newly-created money go? Why, to the government’s coffers, of course. There it gets spent on wars, welfare, and other boondoggles. In the meantime, the newly-created money causes the prices of goods to increase, driving up the cost of living for the average person. In this way, inflation is a stealth tax. Its effects are just as insidious as direct taxation in that it takes money from citizens and deposits it into government coffers, but it does so in such an imperceptible way that very few people realize that they are being fleeced. That allows governments to spend far more money than they otherwise would be able to by relying on taxes and borrowing alone, which is why governments prefer it.

But in order for inflation to work effectively as a government policy, governments have to exercise control over the monetary system. They have to have the ability to debase money, devaluing each unit of currency. If people can use money that is outside the government’s control then the government’s schemes are thwarted. That is why governments throughout history have tried to monopolize the issuance of money. Reining in government spending will require breaking up that monopoly, eliminating the government’s control over the monetary system, and ensuring that people have sound money and alternative currencies to use when the government tries to use inflation as a policy tool. Inflation and increased government spending are two sides of the same coin. If people are really serious about reining in government spending, they need to jump on the sound money bandwagon.

This article was originally published at The Mises Institute.
Picture

Comments are closed.

    RSS Feed

    Archives

    May 2025
    April 2025
    March 2025
    February 2025
    January 2025
    December 2024
    November 2024
    October 2024
    September 2024
    August 2024
    July 2024
    June 2024
    May 2024
    April 2024
    March 2024
    February 2024
    January 2024
    December 2023
    November 2023
    October 2023
    September 2023
    August 2023
    July 2023
    June 2023
    May 2023
    April 2023
    March 2023
    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016
    November 2016
    October 2016
    September 2016
    August 2016
    July 2016
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015



  • Home
  • Archives
  • About