Last week, the Senate did not quite confirm President Trump’s Federal Reserve Board candidate Judy Shelton. There could be another vote in a few weeks. Opposition to the nomination, mostly from Democrats and economic establishment connoisseurs, centers on how wild and out of touch his views are in favor of a monetary role for gold.
There was a time – the end of the 20th century – when you could freely laugh at the gold standard, say it was picturesque, not modern, responsible for the Great Depression. This time is now in the past. During the third decade of the twenty-first century, it becomes increasingly evident that the current monetary system has reached, if not passed, its peak. Fiat currencies issued by sovereigns and being legal tender by their enlightenment for all transactions – this era is ending its historic moment. The US dollar managed by the Federal Reserve: this is the institution that, within a generation or so, will be quaint, non-modern, and seen as responsible for episodes like the Great Recession, 1970s stagflation and the march of economic inequalities.
The creative destruction of the existing monetary system is unfolding before us. Bitcoin has gone completely nuts since it emerged Joe Biden could win the presidency, up three-quarters since October. Whatever its practical monetary virtues, Bitcoin is also, and perhaps primarily, a clue to the fate of the current monetary system, of the dollar king. The more Bitcoin rises, the more the overall impression that money should go not only in monetary alternatives, but also monetary system alternatives.
The narrow question of whether Bitcoin operates as an overnight currency is not the crux of the matter. The central point is whether the global crowd comes to realize that innovation in private currency issuance is reaching a tipping point, beyond which governments are unlikely to be able to continue. to apply the legal tender preference for their currencies. The price of Bitcoin on the stock exchanges is an overtaking of this upcoming episode of creative destruction in the market.
We have seen much of Joseph Schumpeter’s theme – creative destruction – in business and commerce since the 1990s. Now it is becoming evident that this most primordial and unstoppable economic impulse is yet to come for the monetary system. All is of course for the best, as creative destruction usually leads to huge net gains in terms of living standards and other opportunities in the economic realm. In this case, the gains will be particularly significant. In normal examples of creative destruction, some private companies – that of the Sears catalog – meet their equality in a new top private company – amazon.com. In the usual case, the new private excellence replaces the old private excellence.
In the case of the monetary system, on the other hand, we have a government monopoly, complete with legal means of enforcement (indicating the sub-optimality of the system), meeting its match in private innovation, the mass of crypto developments. -change. Since a private system intends to crush and replace the government system, the gains for the market and the public are particularly significant. Indeed, in general, government initiatives are much less effective and realistic than private initiatives, in the field of business and commerce. The potential increase in the real economic benefits of the creative destruction of the market money system is enormous, perhaps the greatest in the entire Information Age.
And here is Judy Shelton saying look, Federal Reserve, the dollar has lost 85% of its value since the country lost gold in 1971. You can scream the oil shock and best of all possible worlds and the no rate. -accelerating inflation from unemployment and no tenured economist favors the gold standard (they did a poll) and everything, but the fundamental problem is that the global public won’t get it. In time, therefore, agents of the global public will end up creatively destroying the fiat dollar, regardless of the sovereign power of the United States or anyone else.
This process is upon us, still at the beginning of its iterations. If the powers that be don’t bring Judy Shelton to the Fed, the posture will be that of an ostrich ramming its head into this inviting sand.