Saturday, June 29, 2019

Harvard Study Examines the Dangers of Early School Enrollment


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Every parent knows the difference a year makes in the development and maturity of a young child. A one-year-old is barely walking while a two-year-old gleefully sprints away from you. A four-year-old is always moving, always imagining, always asking why, while a five-year-old may start to sit and listen for longer stretches.

Children haven’t changed, but our expectations of their behavior have. In just one generation, children are going to school at younger and younger ages, and are spending more time in school than ever before. They are increasingly required to learn academic content at an early age that may be well above their developmental capability.

In 1998, 31 percent of teachers expected children to learn to read in kindergarten. In 2010, 80 percent of teachers expected this. Now, children are expected to read in kindergarten and to become proficient readers soon after, despite research showing that pushing early literacy can do more harm than good.

In their report Reading in Kindergarten: Little to Gain and Much to Lose education professor Nancy Carlsson-Paige and her colleagues warn about the hazards of early reading instruction. They write,

When children have educational experiences that are not geared to their developmental level or in tune with their learning needs and cultures, it can cause them great harm, including feelings of inadequacy, anxiety and confusion.

Instead of recognizing that schooling is the problem, we blame the kids. Today, children who are not reading by a contrived endpoint are regularly labeled with a reading delay and prescribed various interventions to help them catch up to the pack. In school, all must be the same. If they are not listening to the teacher, and are spending too much time daydreaming or squirming in their seats, young children often earn an attention-deficit/hyperactivity disorder (ADHD) label and, with striking frequency, are administered potent psychotropic medications.

The U.S. Centers for Disease Control and Prevention (CDC) reports that approximately 11 percent of children ages four to seventeen have been diagnosed with ADHD, and that number increased 42 percent from 2003-2004 to 2011-2012, with a majority of those diagnosed placed on medication. Perhaps more troubling, one-third of these diagnoses occur in children under age six.

Children who start school as the youngest in their grade have a greater likelihood of getting an ADHD diagnosis than older children in their grade.

It should be no surprise that as we place young children in artificial learning environments, separated from their family for long lengths of time, and expect them to comply with a standardized, test-driven curriculum, it will be too much for many of them.

New findings by Harvard Medical School researchers confirm that it’s not the children who are failing, it’s the schools we place them in too early. These researchers discovered that children who start school as among the youngest in their grade have a much greater likelihood of getting an ADHD diagnosis than older children in their grade. In fact, for the U.S. states studied with a September 1st enrollment cut-off date, children born in August were 30 percent more likely to be diagnosed with ADHD than their older peers.

The study’s lead researcher at Harvard, Timothy Layton, concludes: “Our findings suggest the possibility that large numbers of kids are being overdiagnosed and overtreated for ADHD because they happen to be relatively immature compared to their older classmates in the early years of elementary school.”

Parents don’t need Harvard researchers to tell them that a child who just turned five is quite different developmentally from a child who is about to turn six. Instead, parents need to be empowered to challenge government schooling motives and mandates, and to opt-out.

As universal government preschool programs gain traction, delaying schooling or opting out entirely can be increasingly difficult for parents. Iowa, for example, recently lowered its compulsory schooling age to four-year-olds enrolled in a government preschool program.

As New York City expands its universal pre-K program to all of the city’s three-year-olds, will compulsory schooling laws for preschoolers follow? On Monday, the New York City Department of Education issued a white paper detailing a “birth-to-five system of early care and education,” granting more power to government officials to direct early childhood learning and development.

As schooling becomes more rigid and consumes more of childhood, it is causing increasing harm to children. Many of them are unable to meet unrealistic academic and behavioral expectations at such a young age, and they are being labeled with and medicated for delays and disorders that often only exist within a schooled context. Parents should push back against this alarming trend by holding onto their kids longer or opting out of forced schooling altogether.

Kerry McDonald
Kerry McDonald

Kerry McDonald is a Senior Education Fellow at FEE and author of Unschooled: Raising Curious, Well-Educated Children Outside the Conventional Classroom (Chicago Review Press, 2019). Kerry has a B.A. in economics from Bowdoin College and an M.Ed. in education policy from Harvard University. She lives in Cambridge, Massachusetts with her husband and four children. Follow her on Twitter @kerry_edu. You can sign up for her weekly newsletter on parenting and education here.

This article was originally published on FEE.org. Read the original article.

Saturday, June 22, 2019

How Joe Biden Became the Architect of the Government's Asset Forfeiture Program

In 1991, Maui police officers showed up at the home of Frances and Joseph Lopes. One officer showed his badge and said, “Let’s go into the house, and we will explain things to you.” Once he was inside, the explanation was simple: “We’re taking the house.”

The Lopeses were far from wealthy. They worked on a sugar plantation for nearly fifty years, living in camp housing, to save up enough money to buy a modest, middle-class home.

But in 1987, their son Thomas was caught with marijuana. He was twenty-eight, and he suffered from mental health issues. He grew the marijuana in the backyard of his parents’ home, but every time they tried to cut it down, Thomas threatened suicide.

That statute of limitations for civil asset forfeiture was five years. It had only been four.

When he was arrested, he pled guilty, was given probation since it was his first offense, and he was ordered to see a psychologist once a week. Frances and Joseph were elated. Their son got better, he stopped smoking marijuana, and the episode was behind them.

But when the police showed up and told them that their house was being seized, they learned that the episode was not behind them. That statute of limitations for civil asset forfeiture was five years. It had only been four. Legally, the police could seize any property connected to the marijuana plant from 1987. They had resurrected the Lopes case during a department-wide search through old cases looking for property they could legally confiscate.

The roots of the law that allowed the police to take their home ran all the way back to 1970. Prior forfeiture laws only applied to goods that could be considered a danger to society—illegal alcohol, weapons, etc. But with the birth of the modern War on Drugs, lawmakers wanted something with more teeth. Prosecutor Robert Blakey, having worked under Attorney General Robert Kennedy and various Congressmen, provided the teeth. He helped draft a bill for a new legal concept, “criminal forfeiture,” which would allow police to seize the illegally acquired profits of a convicted criminal.

In 1970, the targets were wealthy crime bosses, but the assets that could be seized consisted of anything that was funded with money connected to criminal activity. To appease those worried about abuses of power, Blakely assured them that prosecutors would have to prove beyond a reasonable doubt that the criminal was guilty of a crime before the assets could be seized. There was nothing to worry about; only legitimate bad guys would suffer.

The new policy was passed as part of the Racketeering Influence and Corrupt Organizations (RICO) Act. Blakely was a fan of the 1931 movie Little Caesar, and the acronym was crafted to honor Blakely’s favorite character from the movie: the gangster Rico Bandello.

The RICO act wasn’t actually designed as part of the War on Drugs; it was just meant to target criminals. But when Richard Nixon took office, the RICO Act was one of a number of new tools that the members of his newly created Bureau of Narcotics and Dangerous Drugs (precursor to the Drug Enforcement Administration) could use to fight his Drug War. Combined with other legal innovations, such as no-knock raids and mandatory minimum sentences, Nixon and his administration would cure America of the drug menace.

At Bourne’s urging, Congress modified the RICO Act to allow the DEA to confiscate assets without a conviction.

Still, the pesky “conviction” requirement stood in the way of law enforcement’s ability to seize criminal assets. In 1978, Jimmy Carter’s Director of the Office of Drug Abuse (the title “Drug Czar” is often retroactively applied), Peter Bourne, decided that the law needed to be changed. Bourne learned of an incident in which a suitcase at the Miami International Airport had been left on the baggage carousel for three hours before police picked it up and found $3 million inside. If Drug Kingpins could afford to abandon so much money, they must be flush with enough cash to hardly worry about criminal forfeiture laws.

So, at Bourne’s urging, Congress modified the RICO Act to allow the DEA to confiscate assets without a conviction. The burden of proof wasn’t entirely gone (yet), but the government only needed an indictment, rather than a full conviction, to justify asset seizure. After all, the government knew who a lot of these Kingpins were, but the criminals continued to get rich while the DEA struggled to build cases against them.

Even here, though, real estate was off limits. Asset forfeiture had evolved from the seizure of dangerous items to criminal profit following a conviction to criminal profit (and its “derivative proceeds”) without the conviction requirement. But real estate—like the Lopes house—still couldn’t be touched.

But through the 1970s, the RICO Act was still largely ignored by prosecutors. Blakely was holding seminars out of Cornell University, which were attended by federal law enforcement agents and prosecutors, to urge them to take advantage of the RICO Act in the War on Drugs. He made few inroads. The law was unwieldy, and prosecutors were overworked. More often than not, it wasn’t worth their time. While Blakely was proselytizing the virtues of his law to little effect, he was unwittingly gaining an ally in Congress: Senator Joe Biden.

Biden, a young Senator from Delaware, had to do something to show that despite his “liberal” reputation, he could be just as tough on crime as his Republican colleagues. He took notice of the RICO law, and he realized that law enforcement agencies were not taking advantage of it, particularly in regards to the Drug War. He turned to the General Accounting Office and asked them to produce a study on the potential uses of RICO for drug enforcement.

Reagan brought the FBI into the Drug War. Drug cartels must be rendered unprofitable.

The report showed that the RICO Act granted enormous powers to police to confiscate drug-related assets, but these powers were not being taken advantage of: “The government has simply not exercised the kind of leadership and management necessary to make asset forfeiture a widely used law enforcement technique,” the report stated. By the time the report came in, Ronald Reagan was settling into office and getting ready to wage a renewed War on Drugs.

Reagan brought the FBI into the Drug War, and he gave the director, William Webster, a mission. His agents would use the RICO Act powers to find drug rings and take away their assets. Drug cartels must be rendered unprofitable.

As the 1980s progressed, the War on Drugs would be the country’s biggest political issue. Politicians from both parties would work to show that they could out-Drug-Warrior their opponents. One Democratic Representative from Florida, Earl Hutto, said, “In the war on narcotics, we have met the enemy, and he is the U.S. Code.” Biden brought the RICO law to the attention of the Federal Government, Reagan enlisted the FBI to use it against drug traffickers, and now both parties would work to dismantle any legal limitations the law might still impose.

The Drug War became a contest of political one-upmanship. Reagan’s Justice Department fought for all kinds of new powers. Attorney General Edwin Meese and his Assistant Attorney General William Weld (yes, that Bill Weld) railed against the limitations on their legal prerogative. Weld went so far as to argue in favor of the legality of using the Air Force to shoot suspected drug-smuggling planes out of the sky, a policy that even his boss was unwilling to endorse.

With this law, federal agents had nearly unlimited powers to seize assets from private citizens.

But Meese, Weld, and everyone else seemed to agree that forfeiture laws didn’t go nearly far enough. By requiring an indictment, the government still had to meet some standard of reasonable guilt before seizing property, which allowed far too many criminals that law enforcement knew to be guilty (but couldn’t build a case against) to keep their ill-gotten gains.

To take things further, the Justice Department argued that law enforcement should be allowed to take “substitute” property; they knew they wouldn’t be able to take everything that was paid for with drug money, so it stood to reason that they should be able to take legally acquired assets of equal value (however that was determined). And finally, with real estate off limits, the government was unable to seize marijuana farms, drug warehouses, and criminal homes.

The Comprehensive Forfeiture Act fixed all of these problems. The new bill was introduced by Senator Joe Biden in 1983 and it was signed into law the next year. With this law, federal agents had nearly unlimited powers to seize assets from private citizens. Now the government only needed to find a way to let local and state police join the party.

This came with the 1984 Comprehensive Crime Control Act. In addition to a slew of new powers for prosecutors, the burden of proof for asset seizure was lowered once again (agents had to only believe that what they were seizing was equal in value to money believed to have been purchased from drug sales). More significantly, the bill started the “equitable sharing” program that allowed local and state law enforcement to retain up to 80 percent of the assets seized.

The Lopes story merely illustrates that criminals are hardly the only people falling victim to this policy.

The law took effect in 1986, the year before Thomas Lopes pled guilty to charges of growing a marijuana plant in his parents’ backyard. In 1987, when Thomas faced the judge, the government had just made it so that his local police had an enormous incentive and unchecked authority to seize property from private citizens, as long as they could show any flimsy connection to drugs. By 1991, the Maui police were running out of easily-seized property, so they started combing through case files within the five-year limit to find new ways to enrich their precinct from the expanded RICO powers. One such file brought the Lopes home to their attention.

But the Lopeses are only one example out of millions. In the year their home was confiscated by police for a minor, four-year-old drug charge, $644 million in assets were seized. In 2018 alone, the Treasury Department’s Forfeiture Fund saw nearly $1.4 billion in deposits. The Lopes story merely illustrates that criminals (regardless of how one might feel about drug laws) are hardly the only people falling victim to this policy.

The decades-long abuse of this policy has reached such extreme proportions that people on all sides of the political aisle have been turning against it. As I am writing this (February 20th, 2019), the Supreme Court has unanimously voted in favor of Tyson Timbs, whose $42,000 Land Rover was seized in 2015 following a conviction for selling $400 in heroin. The Court is asserting that asset forfeiture constitutes a fine, and the Eighth Amendment—which protects citizens from excessive fines—applies to both state and local governments. The consequences of the ruling remain to be seen, but it seems nearly certain that the unanimous decision was motivated by the increasing outrage against the Civil Asset Forfeiture policies.

References:

Baum, Dan. Smoke and Mirrors: The War On Drugs and the Politics of Failure. Boston: Little, Brown, 1996.

This article was reprinted from the Mises Institute.

Chris Calton
Chris Calton

Chris Calton is a graduate student of history at Marshall University.

This article was originally published on FEE.org. Read the original article.

Saturday, June 15, 2019

Good Money, Bad Money -- And How Bitcoin Fits In


Let us start with talking about bad money, by which I mean the US dollar, the euro, the Japanese yen, the Chinese renminbi, the British pound, the Swiss franc, and basically all official currencies.

They all represent fiat money. The term fiat is derived from the Latin word fiat and means “so be it.” Fiat money is “coercive money,” or “money forced upon the people.”

There are three major characteristics of fiat money:

  1. The state (or its agent, the central bank) has a monopoly on money production.
  2. Fiat money is produced through bank credit expansion; it is literally created out of thin air.
  3. Fiat money is intrinsically valueless. It is just brightly colored paper and intangible bits and bytes that can be produced at any time and in any amount deemed politically expedient.

Just in passing, I would like to let you know that fiat money has not come into this world naturally. States have worked long and hard to replace commodity money in the form of gold and silver with their own fiat money.

The final blow to commodity money came on August 15, 1971: US President Richard Nixon announced that the US dollar would no longer be convertible into gold. This very decision (which I like to call the greatest monetary expropriation in modern history) effectively put the world on a fiat money regime.

Against this backdrop, it may not come as a surprise that fiat money suffers from economic and ethical deficiencies.

First, fiat money is inflationary. Its buying power dwindles over time, and history has shown that this entropy is almost as irreversible as gravity.

Second, fiat money enriches a chosen few at the expense of many others. The first receivers to get a hold of the new money benefit to the detriment of latecomers.

As the state expands and sprouts like weeds in an untended garden, fiat money strangles—even destroys—individual freedom and liberty.

Third, fiat money fosters speculative bubbles and capital misallocations that culminate in crises. This is why economies boom and bust.

Fourth, fiat money lures states, banks, consumers, and firms into the pitfall trap of excessive debt. Sooner or later, borrowers find themselves in a deep hole with no way out.

Fifth, fiat money feeds big government. And as the state expands and sprouts like weeds in an untended garden, this outgrowth strangles—even destroys—individual freedom and liberty.

I have spoken enough about bad money. Let us talk about good money.

What is good money? To answer this question, we just have to think about how a free market in money works.

Here, people are free to decide which kind of money they would like to use, and they also have the freedom to cater to the needs of fellow people seeking good money. Money has emerged from a commodity and spontaneously from the free the market: no state or no central bank was needed in the process.

The outcome of a free market in money will be good money simply because people will demand, out of self-interest, good money—not bad money. This is actually what sound monetary theory would tell us. Money has emerged from a commodity and spontaneously from the free the market: no state or no central bank was needed in the process.

To qualify as good money, the “thing” or good in question must have specific properties. It must be scarce, homogeneous, divisible, durable, transportable, mintable, etc. Gold and silver meet these requirements par excellence, and this is why they were chosen as the universally accepted means of payment whenever people were free to choose.

How does Bitcoin fit in?

I would argue that from a monetary theory point of view, Bitcoin qualifies as a good money candidate. It has emerged from the free market through the voluntary actions of all participants involved, respecting individual freedom and private property rights.

I would also argue that Bitcoin complies with the regression theorem and thus provides the crypto unit with a necessary requirement to potentially become money. The key question, therefore, is whether Bitcoin will stand a chance in challenging and outcompeting official fiat currencies or gold money. Let us think about this in further detail.

One exciting feature of Bitcoin is that its quantity is limited to 21 million units. This hard cap means that at some point, the quantity of Bitcoin will not grow any further. If the quantity of money is constant and the economy expands, prices for goods and services will fall.

Would that be a problem for money users or the economy? No, it would not. Firms can still be successful if prices decline. Their profits result from the spread between revenues and costs. If goods prices fall (in nominal terms), firms just have to make sure that revenues keep exceeding costs.

Consumers would be pleased to see the prices of goods fall. Their money becomes more valuable. They can reduce their cash balances and increase spending.

But wait: would consumers not refrain from buying goods if and when prices can be expected to fall over time? Imagine a car costs $50,000 today and only $40,000 in a year. If I need the car right now (because my old one has broken down), I would have to buy a new one right away, I would not and could not wait.

The general answer is this: People make their decision to buy now or later based on discounted marginal utility. The marginal utility of buying the car for $50,000 ranks lower on people’s value scale than paying only $40,000. But the car available forThere is no reason to fear that the economy will come to a standstill if and when the prices of goods decline over time.

$40,000 is not for sale now but in a year. When it comes to decision-making, people will, therefore, discount the marginal utility of purchasing the good for $40,000 in a year using their individual time preference rate.

They will then compare the result with the marginal utility of buying the good now for $50,000. If the discounted marginal utility of buying the car for $40,000 in a year is lower than the marginal utility of buying at $50,000 now, people buy now. If it is higher, they will postpone their purchase.

The important point is: There is no reason to fear that the economy will come to a standstill if and when the prices of goods decline over time. Money that has a limited quantity, such as Bitcoin, would work just fine!

Let me stress something fundamentally important here: The quantity of money in an economy does not have to grow to make increases in production and employment possible. The sole function of money is exchange, and so a rise in its quantity does not make an economy richer; it does not bring about any social benefit.

All an increase in the quantity of money does is lower the purchasing power of one money unit compared to a situation in which the quantity of money has not been increased.

We just heard that in a Bitcoin money regime, we would have to expect price deflation. What would that do to the credit market? As the prices of goods fall, holding money becomes more profitable.

If, for instance, prices fall by three percent per year, the purchasing power of money increases by three percent. In this case, I would not exchange my money for a T-Bill that yields only, say, two percent per year.

In an economy where there is a constant quantity of money, the credit market will remain relatively small. 

To make me part with my money, a borrower would have to offer me a return on the investment that is higher than the increase in the purchasing power of money. Borrowers would be careful taking up debt because they know that in times of stress, they will not be bailed out by an inflationary monetary policy.

Therefore, it is likely that in an economy where there is a constant quantity of money, the credit market will remain relatively small—especially compared to the debt pyramid that comes with today’s fiat money regime.

At the same time, firms retaining earnings and issuing equity for funding would be much more commonplace. People would invest their life savings in company stock rather than debt (be it issued by banks, governments, or corporations).

What about the market interest rate in a world in which price deflation occurs? We know that in a free market, the nominal interest rate cannot drop below zero. This is easy to understand: if I lend $100 to you for one year at, say, minus 5 percent per annum, you would have to return $95 in one year.

Of course, any lender (who is not out of his mind) would politely reject this kind of deal. They would be better off just holding on to cash and would not lend at a negative interest rate. I cannot go into detail here but will simply say that in a free money market, the market clearing interest rate is determined by people’s time preference. Time preference is always and everywhere positive, and so is its manifestation, the originary interest rate. In other words: the interest rate would not and cannot fall to zero, let alone into negative territory.

So far, I have argued that the limited quantity of Bitcoin does not stand in the way of the crypto unit becoming money. However, some aspects appear to be disadvantageous for Bitcoin's aspirations to become money.

From the current state of technical capabilities, distributed ledger technology is unlikely to be put to widespread use in retail and large value payments. Currently, there are around 360.000 Bitcoin transactions per day, and given its current configuration, the Bitcoin network is presumably running at full capacity. This is not enough. For instance, in Germany alone there is an average of around 75 million transactions per business day!

Where to store your private cryptographic keys?  Offline, secure, and immune to electromagnetic fields.

What is more, Bitcoin transaction costs vary widely. For instance, in July 2016, it cost around $.08 for a transaction mined on the block (data recorded in files) in the next 10 minutes. In December 2017, it cost more than $37. Currently, the price is around $4. High and volatile transaction costs might discourage the use of Bitcoin from the viewpoint of many people and institutions.

Another aspect is finality. Financial transactions require a point in time from which they can be taken as valid. However, not all DLT (distributed ledger transaction) consensus mechanisms offer this. The “proof of work” protocol, for instance, merely provides a probabilistic finality (due to the creation of forks).

What about safety? Progress has been made in Bitcoin safekeeping (think of, for instance, cold storage wallets). However, vulnerabilities remain, as scams and thefts at even the largest and most sophisticated crypto exchanges prove.

A central issue in this context is where to store your private cryptographic keys. They need to be stored offline (so they cannot be hacked), and the place of storage must the secured (to prevent theft) and immune to electromagnetic fields (otherwise the stored codes could be destroyed).

For professional investors, this is a challenge. They might need a bunker storage solution, but this could turn out to be quite inconvenient. How does one get access to private keys quickly and at low costs?

Bitcoin was developed for peer-to-peer (P2P) exchange without any intermediation. But would people really want a monetary and financial system without any middleman? For some payments, you may not need intermediation (e.g. to buy a book).

For others, you may wish to involve an intermediary. Imagine you mistakenly send 100 Bitcoins instead of just one. How would you get it back? Who is going to help you out in a P2P world without any intermediation? The answer is nobody, and nobody would help you if your wallet got hacked.

To support economic progress and a sophisticated monetary sphere, a currency must be compatible with some form of financial intermediation.

What about more sophisticated financial transactions like borrowing and lending? It is hard to imagine that this can be done in an anonymous and trustless regime as envisaged by the Bitcoin protocol. Interestingly enough, many Bitcoin owners seem to keep their coins on crypto exchanges, which control the private keys of the Bitcoins. Obviously, people trust some intermediaries in the Bitcoin space, actively demanding the services supplied by these “middlemen.”

This observation points us toward a rather important but unfortunately often neglected issue: To support economic progress and a sophisticated monetary sphere, a currency must be compatible with some form of financial intermediation. Otherwise, it will be difficult to compete effectively with existing fiat currencies, which offer money users many convenient intermediary services.

How would an intermediation structure look in a free market of money? For the sake of illustration, let us review the workings of a digitalized gold money system.

Let us say Mr. Miller owns one ounce of gold (31,1034 … grams). It is recorded on the asset side of his private balance sheet.

For greater convenience, he deposits 10 grams of gold with a money warehouse, which offers security, storage, and settlement services.

The 10 grams of gold are credited on Mr. Miller’s account with the money warehouse, and the accounting unit is gold gram.

In return, Mr. Miller gets a digital gold gram certificate (which may be called a money certificate) documenting that he owns 10 grams of gold deposited with the money warehouse.

In a free market of money, you would not only have money warehouses but also institutions specialized in credit, hedging, pooling risks, insurance, etc.

The digital gold gram certificate serves as a means of payment, and it can be redeemed into gold at any time at par with the money warehouse.

Now there is a steel company that wants to raise money by issuing a bond. Mr. Miller wishes to earn some return, so he decides to exchange his digital gold gram certificate against the bond. In Mr. Miller's balance sheet, the digital money certificate is replaced by the bond. The steel company records the digital gold gram certificate as an asset on the left side of its balance sheet and a liability on the right side of its balance sheet. Now the steel company can spend the money on input factors, salaries, rents, etc.

In addition to this “direct credit transaction,” a digitalized gold money also facilitates all sorts of “indirect credit transactions,” as well as all kinds of transactions in stock and bond markets, derivative and commodity markets, M&A markets, and so on.

In fact, in a free market of money, you would not only have money warehouses (offering safekeeping and settlement services for money proper) but also institutions specialized in credit, hedging, pooling risks, insurance, etc.

Of course, we could imagine Bitcoin, rather than gold, being "base money," and digital Bitcoin certificates, rather than digital gold certificates, being used as a means of payment. Either way, intermediation would work just fine, and unhampered competition would effectively prevent the practice of money warehouses operating on fractional reserves.

However, with the need for an intermediation structure, it is hard to see how the monetary system—whether Bitcoin or gold serves as “base money”—could escape the repression of the state. Under intermediation, it is no longer possible to have transfers of any kind confined to the purely virtual realm; States might no longer be in a position to stamp out cryptocurrencies, but they will increase the hurdles preventing money candidates.

transfers would have a point of reference in the real world where the state has become overwhelmingly powerful.

While states might no longer be in a position to stamp out cryptocurrencies, they can and actually will do everything in their power to increase the hurdles preventing money candidates—be they cryptocurrencies or precious metals—from replacing fiat currencies.

For instance, states impose VAT and capital gains taxes and restrictive regulations on potential money candidates, and they bestow the privilege of legal tender status on their own fiat currency. All of these are hostile to the idea of good money.

The emergence of cryptocurrencies has given great impetus to the search for better money. As paradoxical as it sounds, it is the state that is one of the greatest allies of Bitcoin in particular or any other crypto unit in general. If there were no state (as we know it today), we would undoubtedly have a free money market. People would be free to decide what money they would choose. No one would have to hide. In a genuinely free market of money, it would be far from a done deal that Bitcoin would outcompete digitalized gold money.

The world is as it is, however, so I would like to conclude by saying that technological progress is just one aspect of making the emergence of good money possible. The other aspect is to inform the public at large that fiat money is bad money, that good money is possible, and that it is advantageous for them, and that all it takes is a free market in money unimpeded by the state.

Technology alone might not do the trick of putting an end to the tyranny of fiat monies—it also requires people to actively invoke their right to self-determination in monetary affairs.

***

This talk was given at the Value of Bitcoin Conference in Munich, 3 June 2019.

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Thorsten Polleit
Thorsten Polleit

Thorsten Polleit, Chief Economist of Degussa, Honorary Professor at the University of Bayreuth, and Partner of Polleit & Riechert Investment Management.

This article was originally published on FEE.org. Read the original article.