Letter from the Paper Planet; E. Ross

Ernest G. Ross Letter from the Paper Planet Dear Sir: This is my first letter to you since arriving "incognito" several weeks ago here on The Paper Planet. When you suggested that traveling to this planet for the summer would be good experience for a student working to ward his economics degree, I had no idea why you felt that way. I should have guessed. Given all the "exper iments" with fiat monetary systems in which the nations of Earth have chosen to engage, "The Paper Planet" is indeed a good nickname for the place. It would be an understatement for me to say I'm astonished. The extent of the mental contortions in which most of Earth's economists are will ing to engage in order to justify pa per money schemes strikes me as in credible. The extent of the deceptions and coercion in which the politicians are willing to indulge strikes me as downright barbaric! But, as one of Mr. Ross is an Oregon commentator and writer es pecially concerned with new developments in human freedom.

our own great economists once stated, "The economists provide the seeds of monetary policies; the politicians merely sow." In that case, I suppose many of Earth's economists are equally guilty of barbarism. But enough of my moralizing. Here is a summary of what I have ob served. (Please understand, Profes sor-these observations are taken largely from my notes as I made them. I have not had time to for mally organize my writing yet. Nev ertheless, the pattern should be clear.) As you know, all of the truly civi lized planets have long ago adopted "hard money" standards-stan dards based generally on precious metals, usually gold, due to its store of value qualities of rarity, divisibil ity, relatively steady demand, and durability. Gold exists in normal amounts on Earth and would there fore be the logical choice for a mon etary standard here. However, despite actual experi ences with the virtues of gold, al579 580 THE FREEMAN October most all nations have abandoned this metal in favor of fiat paper curren cies. The first purpose I set myself was to find out why.

The most common argument against a gold standard seems to be that it is "too limiting" to a nation's economy. Inasmuch as all planets' histories show that hard money standards are growth-promoting, I could not understand this claim at first. Limiting Aspects,of Gold The key to comprehension of this amazing contention is to define what the Earthlings mean by "too limit ing." Apparently it has two major meanings-economic and political. Often, on The Paper Planet, they are inextricably intertwined. First, the economics. A fiat standard of money can give the impression that it is possible to "force feed" an economy in order to achieve continuously high levels of stable growth. This force feeding is done by printing money in vast quantities and often involves subsi dized interest rates. The idea is to give people more incentive to spend money and less incentive to save. And, indeed, this process does result in abnormal growth-for short pe riods of time.

But a couple of severe problems soon occur. More money in circula tion (because the printing of money inevitably continues to exceed the rate of production of goods and ser vices) results in a depreciation of purchasing power. This, in tandem with disincentives to save, erodes the capital base of a nation. Less capi talless quality capital, I should say-means less business invest ment, which means less growth and employment. This eventually leads to an economic contraction called a "recession." Strangely, one of the early aims of fiat systems was to prevent reces sions! How this was to be accom plished is very vague-never ade quately explained in all of Earth's economic literature. Personally, I believe that because such force feed ing policies are in total violation of several economic laws, it is not at all surprising no one has been able to clearly explain the policies. At first, I thought that perhaps Earthmen were inordinately prone to wishful thinking. But that is not the case.

What they are prone to is politics. That brings us to the second inter pretation of the phrase, "too limit ing." One of the hallmarks of our gal axy's civilized worlds is their uni versal restriction onmoney-tamper ing. I confess that until I visited The Paper Planet, I· had a very incom plete understanding of the reason for this restriction. I want you to know, Professor, that I have thoroughly corrected that gap in my knowledge. A hard money system keeps a 1983 LETTER FROM THE PAPER PLANET 581 check on politicians; it is their ex cesses that a gold standard limits. I have found that when a politician on Earth complains that hard money is "too limiting," it is simply his way of saying that he has reasons to em bezzle the populace's wealth. Per haps, Sir, that sounds a bit harsh; but in fact, that's what it all boils down to. My supporting evidence: Paper money systems always lead to inflation-and politicians always manage to construct tax systems to take advantage of this fact. As peo ple demand higher wages to offset the erosion oftheir purchasing power, they are "pushed into higher tax brackets," meaning, they are taxed at increasingly steeper rates. The more taxes the politicians have at their disposal, the easier it becomes for them to "buy" the favors of spe cial interest groups. Politicians are quite careful to buy these favors quietly (at least in the early stages of a fiat system-later on they can become embarrassingly brazen about it)-that is, they do not admit what they are doing. Instead, they use eu phemisms as, "the public interest,"

"the common good," "the welfare of the people," "aiding the local econ omy," and "watching out for the folks back home." Each special interest group (and almost everyone belongs to some such group inasmuch as it is natural for people to have special interests in certain things) finds it almost im possible to resist taking these favors from the politicians because the fa vors represent wealth far and above what any individual group believes it could otherwise acquire as quickly on its own. Tojustify acceptance, the recipients of this inflation-gener ated tax largess also have euphe misms, the more common of which are, "If we [or I] don't accept it, someone else will," and, "We're just getting back a little of what we al ready paid in [in taxes]." As you can see, Sir, it is a very vicious cyc1e and, I might point out, has histori cally led to the downfall of nation after nation on this planet.

Paper Money Policies A few lines back, I mentioned the fact that paper money has (espe cially in the late Twentieth Cen tury, the current hundred-year cal endar period on Earth) been adopted partly on the idea that its judicious (D use could prevent recessions. In light of The Paper Planet's brief re cent historical experiences with hard money, this idea needs special at tention. Flying in the face of evi dence, modern politicians on Earth seem convinced that under a gold standard the "ups and downs" of an economy are much more severe than under a fiat standard. All I can say to this, Sir, is that whatever stan dard ofjudgment is at play is, to twist the meaning of an Earth colloquial582 THE FREEMAN October ism, "out of this world" -because it certainly hasn't come out of our hard money worlds!* The facts: Under periods of hard money standards on The Paper Planet (a good example is the late Nineteenth Century in the geo graphical area called "The United States of America"), inflation-defla tion had been up and down about two per cent (averaging out to zero, of course), while in the late Twen tieth Century-paper money times inflation has steadily increased from lows of two per cent in the immedi ate post-World War II period to highs of nearly 15 per cent in the late 1970s!

While some argument might be made that growth rates have been a little higher under the paper money system than under the gold stan dard (four or five per cent during *Although hard money has limited recent experience, it was quite extensively used in more ancient Earth-for example, as Why Gold? (Exposition Press, 1974) author, Leslie Snyder, wrote of the Byzantine Empire, "The bezant [unit of currency] was minted at a standard of 65 grains of fine gold for 800 years . .. So deter mined were the empire's rulers to maintain the integrity of their money that they required all bankers and others through whose hands money passed to take an oath never to file, clip or de base coins in any manner. The penalty for any violation of this oath: the offender's hand was cut off." This, unfortunately, was the longest recorded use of an uncorrupted gold standard. Even in the ancient world, gold standards did not long remain inviolate from the tamperings of politicians.

"boom" times for the former, three or four per cent for the latter), the picture is quite distorted. Fiat cur rencies so disrupt the accounting procedures of the economy that the argument is specious at best-and does not take into account the higher, productivity-advancing technolo gies which leapt into existence in the 1970s; the subtle, but vast erosion of incentives to save-which, as men tioned earlier, plays havoc with a nation's future productivity; the enormous burdens of taxes which the inflation created, resulting in vir tually no rise in the standard of liv ing for nearly a dozen years. As a student of economics, Profes sor, I admit I'm compelled to ask, "If fiat currencies really produce higher economic growth-as their advo cates maintain-then why have liv ing standards stagnated during the period of most explosive money growth?" Keep in mind, Sir, that these facts pertain to the nation which is thought to be the best off economically of all the major na tions of The Paper Planet.

Already I miss my homeworld. I cannot help but wistfully reminisce on the differences in everyday life at home and here on Earth. At first, I was going to leave these reminiscences out of my letter. However, upon serious reflection, I believe they have instructive value at least, they did for me; I'm sure you're already aware of these differ1983 LETTER FROM THE PAPER PLANET 583 ences, Sir, or you never would have suggested this visit to Earth. So, bear with your Humble Student. On the homeworld, under our gold standard, businessmen have an enormous advantage over those here on The Paper Planet. The gold stan dard creates a climate of great sta bility and confidence in the future. Here, the erosion of money's value (as well as the periodic bouts of high interest rates when they are politi cally allowed to reflect inflation) creates an atmosphere of fear-fear of economic crashes and recessions, of renewed periods of stagnation, and of reduced purchasing power. These factors lead to other fears, especially fear of protectionism (and thus con tracted trade and international ill will), which has often-I shudder to think of how often-led to war as the more tyrannical nations began to prey on the perceived corruption and weakening of the fabric of their wealthier neighbors. Often the at tacks against their neighbors were used to distract attention from the tyrannies' own terrible economic problems.

On the homeworld, entrepreneur ship is a constant, normal, exciting part of our lives. With the stability of a hard money system (which, of course, helps keep taxes down) it is possible for most people, with a very few years of work, to raise enough capital to start their own busi nesses. This has resulted in virtually no forced (Le., government caused) unemployment. It is hard to imagine a system un der which individuals do not have the option of easily switching ca reers through entrepreneurship choice; it is almost impossible to imagine a system under which the people have come to expect govern ment to take care of them when they are out of work, or forcefully "pro tect" their jobs by preventing busi nesses from failing (by law, no less!); it is downright distasteful, Sir, to see people who have become so depen dent on government expropriation of their neighbors' wealth! Yet, that is exactly the kind of systems that dominate The Paper Planet. It is the kind of horrid dehumanization which happens from institutionalization of fiat currencies.

Related to the previous para graph, on the homeworld, we have no concept of "social security"-a system almost universally accepted on Earth as a way of guaranteeing that no one will be without means of support in his or her old age. Reasons for Social Security There are several reasons why this so-called "security system" has evolved as a direct result of paper currencies: (1) With the loss of the entrepre neurship choice, it is impossible for most of the Planet's people to effec tively generate large enough quan584 THE FREEMAN October tities of capital wealth to provide for their later years. (2) The high tax rates generated by a fiat standard discourage sav ings even by a lifelong wage earner; thus the non-entrepreneur, the per son who doesn't like being an entre preneur, is stripped of his means of self-provision. (This varies from na tion to nation on The Paper Planet. In the United States, more than any other major nation, it would still be possible-though barely-for aver age wage earners to provide for their personal retirements, if they were allowed to keep the money which is now taxed for Social Security and instead put it into private retire ment plans of their choice. There is a move in that direction now, but I fear that unless the paper money system is abandoned, the trend will grind to a halt.) (3) The fiat system has so under cut the self-confidence of the people that it has largely instilled in them an actual (I believe inhuman) desire to be taken care of by government.

That is a sad,· sad state of affairs to witness, Sir. The horrible thing is, the more the government caters to this dependency, the worse it gets. In a perversion that perhaps best il lustrates how serious the situation has become, most people now think of Social Security as a right! On the homeworld, even simple, everyday things are easier to accom plish than on The Paper Planet. A good example would be the way my wife is able to deal with our family's financial needs. Because prices are so stable (of course, they actually fall a bit each year), she is able to logi cally, confidently plan our home's future. As most families do on the homeworld, we can reasonably project when we'll be able to buy new furniture, purchase a new family vehicle or new entertainment/com munications equipment, acquire a finer home, and so forth. More importantly to us, we know that we'll be able to finance our two children's education (presuming they want our help-little Suzy and Johnny are showing signs of dedi cated independence!). Sir, did you know that on Earth, most graduate students cannot even consider start ing families for years? They are sim ply too poor to do so. I cannot imag ine suffering the poverty they endure; I don't know what I would have done without the option of freelancing work for homeworld financial insti tutions while going to college; it's wonderful to be able to earn enough money to raise a family and pay for my education out of such part-time work-truly an indication of how a hard money system raises living standards!

Faith in the Future While the spirit of the future, un derscored by the constant introduc tion of thousands and thousands of 1983 LETTER FROM THE PAPER PLANET 585 innovations, permeates the world view of the average citizen of the homeworld and our sister planets, here on The Paper Planet, that spirit is a frustrated, deformed thing, where it exists at all. At home, under the venture-capital-encouraging hard money system, innovations are not abnormal-they are virtually taken for granted! As you know, we all ex pect that each year we will person ally have newer, better products from which to choose. It is a condition which my father and grandfather enjoyed-and their fathers and grandfathers before them for many generations. It is a condition which we regard as one of the great joys of our hard money system. To witness the bountiful fruit of human inge nuity flooding our markets each year-what could be more inspiring to an individual?

I suppose, Sir, that my letter from The Paper Planet would be some what incomplete if I did not mention how Earth could, in my view, rid it self of this "paper pestilence." Having speIl:t several weeks with Earthlings, and despite their stub bornly uncivilized monetary ways, I have grown rather fond of them. While-as on all worlds-there are evil people scattered about, most Earth people are basically decent, and if given half a chance in the or dinary courses of their lives, show a promising respect for the rights of others. I believe this "gut level" respect could be solidified in a major way if even one nation-especially an influential, large nation-were to return to the discipline of gold. Gold cements the right of property, which in many ways underlies all other rights-hence, the idea that a gold standard would assist in institution alizing a respect for rights. It would make for a much better planet Earth.

The United States Could Lead As far as I can tell, the most likely candidate for a return to a hard money system is the United States of America. This nation is still the freest of all the large nations, and has recently undertaken greater discipline of its fiat currency-a cur rency which, it is important to note, is virtually the "base" or "reserve" currency of all other major, non-to talitarian trading nations. However, because of the insidious nature of the politics constantly en gendered under a fiat money stan dard, I fear this new discipline can not last. At least, it will not unless it is underpinned by something more than the resolve of politicians-as attracted as they are to a fiat stan dard's "constituency-buying," spe cial-interest-catering qualities. So, clearly, that underpinning ought to be .a hard currency-probably both gold and silver. Because the United States is also the most advanced nation techno logically, and is considered the lead586 THE FREEMAN ing nation of the planet, a return to a gold standard would be the fastest avenue for helping Earth to gain many of the same benefits which we on the homeworld now take for granted. The U.S. lead in technology would allow industry to most rap idly expand under the stability a gold standard would provide; U.S. "leader"

status would, by example, and by the greatly increased value of its al ready respected (though fatally flawed) fiat currency, spread the benefits of a new, hard currency sys tem to the rest of the world. In a sense, the American dollar is the circulatory system of world trade. Putting gold· into the system would be like increasing the oxygen-car rying capacity of blood-infusing world trade with new energy and vi tality. Steps Back to Gold While there are undeniably many ways in which U.S. leaders could ac complish this conversion from a "soft" to a "hard" standard of money, the best way would have to involve these three factors: (1) Allowing free private owner ship of gold (already in effect in America). (2) Tying the dollar to a specific weight of gold or silver-and allow ing people to convert back and forth. Convertibility is absolutely nec essary if the citizens are to have a "veto" over political money-tampering. When citizens can exchange dollars for specific weights of gold or silver, the burden is on the govern ment to refrain from inflating-for if it does reflate, citizens will drain the government's valuable gold re serves. Of course, when point num ber three is implemented, private coinage will provide the final check on politicians: taking the gover nance and responsibility for main taining the integrity of money out of their hands entirely. This, of course, is our system on the,homeworld.

(3) Ultimately permitting private coinage of gold and making no laws barring the use of privately minted coins in trade or banking. Well, Sir, that about wraps it up. I'll present a more detailed report to you in further letters and in person when I return to the homeworld. Thank you for suggesting my visit to The Paper Planet. It is a visit which will undoubtedly remain as one of the most important experi ences of my life. My only hope is that the residents of this lovely planet Earth learn as much about the na ture of their fiat systems as I have. Until they do, I fear they will re main mired in an immature culture and may very well lose an immense amount of the progress they've al ready gained. Sincerely, Your Humble Student Bettina Bien Greaves From Caves to Computers To MANY, computers appear human, perhaps even super-human, "mira cle" workers. Certainly, they can help with many difficult and time-con suming tasks-keeping records, making mathematical calculations, drafting manuscripts, designing charts and diagrams, compiling sta tistical tables, and so on and on. They are remarkable "productivity-rais ing devices." Yet they are neither human nor super-human. They are only inanimate, man-made contriv ances. If "miracles" are involved in making computers, they stem from the thoughts and the accomplish ments of countless individuals throughout the ages, individuals who conceived of new ideas, were free to try them out and dared to experi ment.