Monetary Competition: The Best Alternative to Razing Central Banks to the Ground
September 30, 2021
[Editor’s note: Two interviews from August 1992, given by Murray Rothbard to the Swedish student publication Svensk Linje (continuously published since 1942) were recently discovered in the Rothbard Archives and translated by Sven Thommesen for the first time. In this interview, Anton Wahlman, an economist from Georgetown University School of Foreign Service, interviewed Rothbard about Sweden and European integration with the rise of the ECU (euro). The interview took place in August 1992.
For readers: EMS = the European Monetary System and ECU = the European Currency Unit = the euro]
An alternative to the EMS and the ECU
Anton Wahlman: You are known all over the world as one of the most forceful defenders of free markets. Should Sweden wish to throw off the burden of social democracy, is the European Currency Unit (ECU, euro) and the European Monetary System (EMS) the only direction to go?
Murray Rothbard: No, no! Quite the opposite! The goal for all the (mostly socialist) technocrats and bureaucrats who roost and breed in Brussels is NOT to get rid of customs duties and quotas against the rest of the world, but to “equalize” (level) them; NOT to radically lower taxes, but to increase them; NOT to eliminate the welfare state, but to spread it to all countries. In short: the European Union (EU) is a nightmare for those who would like to see a free market economy in Sweden in the future!
AW: But don’t we need some kind of cooperative organization that can make sure that agricultural subsidies and other nastiness disappear from the European scene?
MR: Any country that wishes to get rid of customs duties, taxes, and subsidies can do these things themselves! There is no need for a bureaucracy in Brussels to do this for them. For example, Sweden has on its own decided to get rid of agricultural subsidies—great! If Sweden had been dependent on the interest group politics in Brussels then the country would have been stuck in the subsidy swamp for a good while longer!
AW: When Jacques Delors talks about a “level playing field” for competition in Europe, is this then in reality more a case of playing on the wrong field?
MR: From a free market point of view, Yes! The “level playing field” promoted by Jacques Delors consists of raising tax rates in countries that have low taxes, and introducing additional regulations in countries that lack such regulations today. For example, some European countries have no taxes on capital, or extensive privileges for unions. With the EU as the creator of a “level playing field” they will soon have to say goodbye to such luxuries!
AW: What should Sweden do then?
MR: Introduce capitalism yourselves! There is no excuse for not throwing overboard the bankrupt heritage of the welfare state. To use the EU and Brussels as an excuse is cowardly—and it merely highlights the absurd belief that the EU somehow is in favor of free markets. The only path to a market economy worth discussing is the one where Sweden immediately gets rid of all customs duties and other impediments to trade. Then every Swede would be free to purchase whatever they want from anywhere in the world, without politicians and bureaucrats getting in the way of the free choices of individuals. And note well: Sweden can do this immediately, without negotiating with the EU, or with anyone else for that matter.
AW: You are perhaps the foremost authority in the world to treat monetary theory as part of general economic equilibrium. Are EMS and the ECU an answer to the problem of inflation?
MR: For God’s sake: No! Monetary theory is in reality something simple, which over the centuries has been deliberately made difficult by interventionist state authorities and their leading cadres of quasi-intellectual technocrats. It has gone so far that these days not even doctoral candidates in economics understand any more what money really is.
AW: So what you are saying is that in order to have a sensible discussion about the EMS and the ECU we must first really understand the true nature of money?
MR: Absolutely. Money evolved in the market place as just another good, no different from shoes, bread, or automobiles. One “pound sterling” was from the beginning just what the name says: one pound of sterling silver. One “dollar” was from the beginning a so-called “thaler”—a silver coin weighing 28 grams, minted by a Bohemian count named Schlick at the end of the sixteenth century.
AW: How did the state enter the picture?
MR: The state monopolized the monetary system, and re-named the monetary units in order to confuse people. When the monetary units were no longer defined as a certain weight of gold or silver, the door was opened for the state to print worthless rectangular pieces of paper and call them “money.” In every country, the government central bank is the greatest counterfeiter of currency!
AW: What do the EMS and the ECU have to do with all that?
MR: Democratically elected regimes often have at least one small counterbalancing factor against printing too many pieces of paper without backing (that is to say, currency or coins which are not receipts for gold or silver), and this factor is that they are afraid that the exchange rate for their monetary unit will fall. But of course an “exchange rate” presumes that there is something else to exchange your money into! Within the EMS, Europe will in principle have only a single currency, whether the ECU formally replaces the various national currencies or not, since the EMS system means there will be fixed exchange rates.
AW: But there will still be dollars, yen, and other currencies which we can escape to when the EMS results in high inflation?
MR: When the ECU has completely replaced the various European currencies, the road is open for the European central bank to coordinate its monetary policy (that is, the speed with which it debauches its money) with that of the US, Japan, and the rest of the world. And then the game is up for all involved! Then there will be nothing—absolutely nothing—to prevent politicians from imposing the hidden inflation tax on the population, and to run deficit budgets up to levels which will make Germany 1923 look like a child’s game.
AW: So the key point of your position is competition?
MR: On the one hand, no. On the other hand, yes. My preference would be that all state central banks would be shut down and razed to the ground, so that true money again could be produced by private firms. If not, at least the competition between national currencies should be as great as possible. Switzerland, for example, has long been a refuge for those who have been harmed by an irresponsible central bank in their own countries. But if Switzerland joins the EU and the EMS then this possibility disappears! On the other hand, if Sweden says a firm NO! to the monetary monopoly socialism of the EMS, then the Swedish people can save themselves as well as being able to have Sweden serve as a refuge for those who wish to flee from the EMS. Swedish money would become the hardest of hard currency!
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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