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« Silver Prices under President Obama | Main | The Invisible Experiment With Money And Gold »
Sunday
Nov112012

The Tragedy Of The Euro! What About Germany?

 This article is written by Brecht Arnaert who is the editor of www.safecapital.eu, an in-depth newsletter for preservation of capital, with the support from Global Gold.

brecht arnaert gold silver insights 2012 has been a year of great turmoil for the euro. But our economy is not the only thing that is in crisis. Our economic theory is too, and even more so: for decades macro-economic policy has been conducted within a Keynesian framework, and while no Keynesian economist has predicted this crisis, or even is able to explain it’s causes, we are still listening to them today to get out of the mess they brought us into. I would say that this is a problem of legitimacy.

I am telling this not only as an economist. I am a defender of liberty too. What is happening in Europe right now should not only worry economists, but every freedom-loving citizen. As we speak, measures are being taken to take away our liberties in a way that Hayek described so well in his “Road to serfdom”: each government intervention requires more government intervention, until no freedom is left anymore. Step by step our property rights are being eroded, and, not too far from here, in Brussels, a giant Moloch called the European Commission is centralizing powers with a speed that would have been unimaginable before the Treaty of Lisbon.

Let us start with some theory about how value is created, what the origins of money are, and how the euro is the right answer to the wrong question.

Economics

Economics is the study of value creation. It does not consider itself with the question what values men should pursue, nor how value should be shared in a community. These are questions for respectively moral and political scientists. Economists take the valuations of individuals as the given and goes from there. A value is something one wants to gain or keep, and economics studies the means people use to achieve these ends. About the desirability of those ends, it has nothing to say.

Mainstream economists largely ignore this definition of economics, and even turn it around. They regard their valuations as the thing to be achieved, and the valuations of individuals as the means to it. Instead of analyzing how individuals create value, they devise policies to make them conform to their one chief value: stability. Macro-economic policy has only one purpose: an economy “in equilibrium”. The use of government intervention is their way to push individual valuations towards this one pre-set value.

It is tempting to judge these policies form a moral angle, but that is why this lecture has two parts. As an economist, the only question I have to answer is: “What policy creates the most value?” If it would turn out that mainstream economics is right, then I have no story. But if it can be proven that macro-economic policy actually destroys value, then the best macro-economic policy might be that we have none. This is actually the thesis I will be defending tonight.

Euronomics

If I can prove the claim that macro-economic policy destroys value, then the discussion about monetary policy is only a subset of this more general thesis. We will see that the euro is indeed a problem of forced valuation, and more specifically the imposition of a centrally planned quantity of money onto the public. It is the European Monetary System that determines what the quantity of money is, and therefore, in part, its value. What the euro is worth does not arise bottom up out of the interaction between individuals, but is decided top down by a few policy-makers, imposing their valuations on the rest of society.

This cannot work, for reasons we will discuss in a minute. Apart from the problem of the impossibility of central planning, the euro is confronted with yet another problem, of a more political nature. Without judging the specific political reasons for setting up, not a European Central Bank, but a European Monetary System with now seventeen members, it can easily be observed that the euro is a system with ill-defined property rights. While every member of the Eurozone can print its own money, nobody is responsible for the purchasing power of the currency.

It is this essential feat of the political architecture behind the euro, which is mainly causing its problems: if property rights are ill-defined, every body tries to externalize his costs. This is commonly known as “the tragedy of the commons”, as described by Garett Hardin, back in 1968. Meadows that are owned by nobody, but can be grazed by anybody’s cows, will be exhausted in no time. Currencies that are owned by nobody, but can be printed by anybody, face the same dynamics. The euro is a monetary tragedy of the commons.

Why central planning cannot work

Let’s start with the proof that central planning cannot work.

 

Please click here to read this article in full.

 

Have a good one.

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