A Defense of “Neutral” Money
Part II of Money as a Reflection of Political Values, Virtues, and Human Order
Part II of Money as a Reflection of Political Values, Virtues, and Human Order
Previous Parts
It is important to highlight that right-wing libertarian thought around “neutral” money is anchored on the premise provided by David Hume and Adam Smith, and later by Friedrich Hayek, that human institutions and organization were not centrally organized and planned but rather grew into what they are by a system of trial and error and spontaneity. Given that human order emerged by spontaneous factors, intervening in the natural order and having a central authority making planned decisions distorts the natural order and only results in harm. This view is primarily focused on markets and applies to the monetary system as well. So, for example, recessions are a natural phenomenon in markets that we must stomach without any central intervention to avoid or ease recessions. Based on that premise, the values of individual liberty, sovereignty, and freedom emerge. In the natural order of things, people should be free to look out for their individual interests and compete. The successful survive, while the unsuccessful cease to exist. There is no responsibility for society to lookout for the underprivileged as a group, and morality is ultimately based on individual decisions as opposed to group or communal decisions. For example, an individual who wants to distribute her income to an underprivileged individual is free to do so, but a group or community having such distributive rules in a constitution would be unjust since morality is an individualistic choice. Having an authority intervening in the name of equality and distributive justice is thus unjust as it distorts nature and takes away the natural rights of individuals.
Moreover, it is argued that by individuals looking out for their own self-interest, a spillover effect occurs in the community which benefits all. Since the public good is achieved by individuals seeking their own interest in the community, there is no need for a body that has oversight of the public and the common good, and no need for a central authority to interfere in economic matters. The less interference the better. More political interference results in distortion in the market and society, and will only breach individual rights and thus cause more harm than good. Given the natural, emergent order of things, “neutral” money proponents argue that money appeared spontaneously as a reflection of commodities found in nature that were used for trade. The invention of money, according to this line of thought, is based on the commodity theory of money (see Philosophy of Money and Finance). Money was a solution for the primitive barter system. Therefore, money should be part of the laws of nature and should have a fixed supply, as a representation of a commodity, detached from the manipulation of a central authority. Such a money, it is claimed, maintains stability and predictability. Since the money supply is fixed, inflation should not occur, and the purchasing power and the value of money will be maintained. Any discretionary decisions by a central authority around money are thus unjust because it interferes with the natural laws of money.
The Gold Standard, which pegged the value of money to gold, is the most prominent example of a sound monetary system. What gave money its true value is the physical precious metal it was pegged to. Given the peg and the fixed supply, monetary discipline was established, and central authorities were limited in their money printing capabilities and thus were not able to manipulate money. While the government was still responsible for monetary matters, the austere rules of the gold standard are what maintained stability and established trust in the money being used and saved by citizens, and what also established trust and stability in the international monetary system. This monetary design maintained the purchasing power and value of money.
Breaking away from the gold standard and having fiat money – money that is not pegged to any real commodity but is solely based on faith and trust in the government – allows for central authorities to easily manipulate the currency for their own ends and other purposes. Such a monetary design results in an inflationary landscape that reduces the purchasing power and the value of money held by individuals and households. Not only does it allow for the manipulation of the money supply but is also vulnerable to a downturn in trust in the money being used, which results in instability.
For example, to deal with the 2008 financial crisis and the COVID pandemic in 2020, central authorities resorted to expanding the money supply and lowering interest rates to stimulate the economy and assist households and businesses that were facing troubles. Moreover, during the 2008 financial crisis, governments ended up bailing out troubled banks by using public resources and tax money. The consequences of such monetary intervention resulted in an increase in inequality, an inflationary environment that reduced the purchasing power and store of value of money, and a severe decline in trust in governing and financial institutions.
From a right-wing libertarian perspective, fiat money that is controlled by the state or a central body is authoritative in nature. It infringes on people’s basic rights of freedom and sovereignty and reduces people’s financial security. Since individual liberty, sovereignty, and freedom are the ideals of right-wing libertarians, fiat money is unjust as it impedes individual liberty, sovereignty, and freedom by its vulnerability to centralized, politically dominant decision making. Neutral money is a solution that acts as a guard against the state having a monopoly over the money supply, and thus acts as a guard against inflation. It is important to highlight that Hayek and his right-wing libertarian followers came to recognize that it will be difficult to return to the gold standard, and so the only way to garner an apolitical money was by allowing for competing private currencies rooted in market dynamics (McIntosh, 2024). This may include a private organization offering a currency pegged to gold, and it would be up to the market to decide if this is the most suitable currency based on their demand for the currency.
In sum, individual liberty, sovereignty, and freedom are the most important moral and political values upheld by right-wing libertarians. A neutral money rooted in market dynamics is the best reflection of those values and is a monetary system that allows for those values to be sustained and nourished. Thus, “neutral” money is a just money.
Prior to moving forward with a critique of “neutral” money, part III of this essay series will set the stage as to why what we value as individuals and society should be in line with the common good, and why upholding certain virtues and values benefit individuals as well as the common good – Part III - Values and Virtues
References
- https://plato.stanford.edu/entries/money-finance/#Meta
- McIntosh, W. (2024). FA Hayek, Libertarianism, and the Denationalization of Money. Modern American History, 1-20.
