A fascinating reading, just breeze through it if you don't have time for the whole ten pages:
A summary of the "best" points of the Obama Administration’s Health Care Plan currently under consideration.
Read the points, it is instructive even from behind the pond. Would love to see more laws being analyzed in detail with the cherries picked for general consumption.
"The tax imposed under this section shall not be treated as tax." There's more. (Hat tip to C4L.)
Friday, July 31, 2009
Wednesday, July 29, 2009
The message of nope
Sometimes it just hits you, an expression or lucky choice of words, that you have to consider or just laugh about. And this is one:
Bushbama and the continuing message of nope, by Idle Worship.
I heard some versions of it before ("the message of dope") and countless versions of "Yes we can" and "Change you can't believe in". But the simple wording of 'the message of nope' brought me immediately great pleasure. The picture blending Bush and Obama into one person is just the icing on the cake.
---
The reason I found the blog in the first place, is that I am considering to rename this blog, just note its subtitle. 'Slightly Political' doesn't seem that great, now that I'm posting here with some regularity.
Comments and ideas are welcome.
Bushbama and the continuing message of nope, by Idle Worship.
I heard some versions of it before ("the message of dope") and countless versions of "Yes we can" and "Change you can't believe in". But the simple wording of 'the message of nope' brought me immediately great pleasure. The picture blending Bush and Obama into one person is just the icing on the cake.
---
The reason I found the blog in the first place, is that I am considering to rename this blog, just note its subtitle. 'Slightly Political' doesn't seem that great, now that I'm posting here with some regularity.
Comments and ideas are welcome.
Saturday, July 25, 2009
The Ethics of Money Production: Chapter 15
Chapter 15: Fiat Monetary Systems in the Realm of the Nation-State
1. Paper money, as we know it today, originates from the European fractional reserve banks of the 17th century, while the search for more money by governments was the main driving force.
The Bank of England, a notable example, was founded to provide the English crown a massive loan, in exchange for special privileges. It made use of the 'suspension of payments' only two years after its founding, but was quite reliable afterwards (in peacetime at least). It grew through the growing business with the state and supplied it with more and more loans. Its notes became legal tender, it became a monopoly, until it stopped redeeming its notes permanently in 1914.
Other significant banks developed in similar ways, often faster and more recklessly. Fractional reserve banknotes have been widespread by the end of 18th century and the trend continued. They have turned into paper money in most countries by the beginning of World War I.
2. In the British colonies of North America, the local governments pushed for paper notes with legal tender privileges. The merchants forced to accept this rapidly depreciating money complained to the British Parliament, and it forbade the emission of further notes in all colonies. This, notes Hülsmann ironically, might have been one of the roots of the American revolution.
But the revolution moved away from the inflationist tendencies and those against inflation were for a long time successful. The principles for hard money based on gold and silver were even put down in the constitution.
Two central banks were set up, but their charters were not extended. The civil war brought paper money and a group of privileged "national banks". The money did not last, but the banking system was centralized. Finally, in 1913 was founded the central bank, that lasts until today. The pro-inflation movement has won.
3. On the national level was the cartelization of banks guided by laws, but it wasn't so on the international level. There have been purely voluntary cartels, which will be discussed in the next two chapters. What the future brings, we will see.
1. Paper money, as we know it today, originates from the European fractional reserve banks of the 17th century, while the search for more money by governments was the main driving force.
The Bank of England, a notable example, was founded to provide the English crown a massive loan, in exchange for special privileges. It made use of the 'suspension of payments' only two years after its founding, but was quite reliable afterwards (in peacetime at least). It grew through the growing business with the state and supplied it with more and more loans. Its notes became legal tender, it became a monopoly, until it stopped redeeming its notes permanently in 1914.
Other significant banks developed in similar ways, often faster and more recklessly. Fractional reserve banknotes have been widespread by the end of 18th century and the trend continued. They have turned into paper money in most countries by the beginning of World War I.
2. In the British colonies of North America, the local governments pushed for paper notes with legal tender privileges. The merchants forced to accept this rapidly depreciating money complained to the British Parliament, and it forbade the emission of further notes in all colonies. This, notes Hülsmann ironically, might have been one of the roots of the American revolution.
But the revolution moved away from the inflationist tendencies and those against inflation were for a long time successful. The principles for hard money based on gold and silver were even put down in the constitution.
Two central banks were set up, but their charters were not extended. The civil war brought paper money and a group of privileged "national banks". The money did not last, but the banking system was centralized. Finally, in 1913 was founded the central bank, that lasts until today. The pro-inflation movement has won.
3. On the national level was the cartelization of banks guided by laws, but it wasn't so on the international level. There have been purely voluntary cartels, which will be discussed in the next two chapters. What the future brings, we will see.
Thursday, July 16, 2009
The Ethics of Money Production: Chapter 14
Chapter 14: Monetary Order
1. Until now was the book analyzing economical theory, with historical examples used merely for demonstration. That being done, it is time to look at actual history through the theory available.
The analysis of the free market (or "natural") production of money, however theoretical, allows to analyze the many breaches of property rights and their effects. It also shows, points out Hülsmann, that a natural production of money is "unrealistic" only because of a lack of political will. There are no technical hindrances to its introduction, and it is superior in every way to the present system. It is a viable system. And free competition would allow it to spread.
2. A minor note on credit money: it is compatible with a free market. It probably won't see widespread use, but there is no reason to not let it compete along with other monies.
---
This was another short chapter, so let me talk a bit about the blogging process itself. Turns out, for 'liveblogging' is this a pretty extended activity, but it can be called blogging at least. :)
The book divided into chapters and smaller sections and most are not too long. When processing a chapter, I read the whole chapter first. Then I read the first section; and then I start making notes on the section itself, book in hand. That done, I go over to the next section and so on. Sometimes can be the text condensed nicely, some parts need to be repeated almost word for word.
Meanwhile, I am posting the chapters as I have time, stabilized at around once a week. Typing it up, more changes in text are sure to come in, but its mostly just cosmetic issues and wording. It is fun and useful to have a feeling for what is coming, while posting the current chapter. It also helps when points from the current chapter are posted into the wiki.
From this follows, that the note-taking and blogging can diverge quite a bit. The note-taking takes mostly less than a week, but I got delayed on several long chapters, so it matches up. At this moment though, there are notes up to Chapter 17, the last numbered chapter (there is one more short 'afterword' chapter), so the end is finally drawing near! It is quite taxing to do it all, but it is worth it... I can only recommend, if you have the time.
1. Until now was the book analyzing economical theory, with historical examples used merely for demonstration. That being done, it is time to look at actual history through the theory available.
The analysis of the free market (or "natural") production of money, however theoretical, allows to analyze the many breaches of property rights and their effects. It also shows, points out Hülsmann, that a natural production of money is "unrealistic" only because of a lack of political will. There are no technical hindrances to its introduction, and it is superior in every way to the present system. It is a viable system. And free competition would allow it to spread.
2. A minor note on credit money: it is compatible with a free market. It probably won't see widespread use, but there is no reason to not let it compete along with other monies.
---
This was another short chapter, so let me talk a bit about the blogging process itself. Turns out, for 'liveblogging' is this a pretty extended activity, but it can be called blogging at least. :)
The book divided into chapters and smaller sections and most are not too long. When processing a chapter, I read the whole chapter first. Then I read the first section; and then I start making notes on the section itself, book in hand. That done, I go over to the next section and so on. Sometimes can be the text condensed nicely, some parts need to be repeated almost word for word.
Meanwhile, I am posting the chapters as I have time, stabilized at around once a week. Typing it up, more changes in text are sure to come in, but its mostly just cosmetic issues and wording. It is fun and useful to have a feeling for what is coming, while posting the current chapter. It also helps when points from the current chapter are posted into the wiki.
From this follows, that the note-taking and blogging can diverge quite a bit. The note-taking takes mostly less than a week, but I got delayed on several long chapters, so it matches up. At this moment though, there are notes up to Chapter 17, the last numbered chapter (there is one more short 'afterword' chapter), so the end is finally drawing near! It is quite taxing to do it all, but it is worth it... I can only recommend, if you have the time.
Sunday, July 12, 2009
The Ethics of Money Production: Chapter 13
Chapter 13: The Cultural and Spiritual Legacy of Fiat Inflation
1. It is widely known, that inflation is dangerous, but the amount of damage it causes is usually underestimated. Forced inflation breaks the rules of society. It has always at least the three following consequences:
- it benefits its creator at the expense of all users of money
- it allows a greater proliferation of debts
- it lowers the purchasing power of money
But there is more.
2. The inflation benefits the state on the expense of its population, but also to the detriment of lower levels of government. In 17th and 18th century, the European kings have suppressed important centers of of intermediary and alternative power. The democratic nation states have completed the centralization. Inflation was its economic driving force; thus, as Hülsmann says, aided at least indirectly nationalist movements and their worship of the state.
Inflation supports the growth of the centralized state, and allows it monopolize more functions than under a natural production of money. This increases the influence on its citizens and weakens other groups, like families. But moral principles like subsidiarity (that problems should be solved on the lowest level possible) are hard to combine with such a powerful (and hidden) phenomenon.
3. Paper money makes it possible to prolong war. People grow eventually tired of war and will try to resist further expenses of the state of it. The state can simply print the money and ignore the will of its citizens. This was reported to be the case in both World Wars, prolonged by months, if not years.
If everything is allowed in war (and e.g. the just war theory says otherwise), one should note there are others, less dangerous means to gather funds available as well.
Some might say, that a state is better informed about the war than the citizens. But isn't exactly that the role of political leaders, to inspire and inform the citizenry?
4. The printing of money allows the state to act without support from the population, or against their will. A government taking the property of its citizens arbitrarily is called a tyranny.
5. Forced inflation inflation is inherently unstable because it turns moral hazard and irresponsibility into an institution. The slow decline creates a certain "race to the bottom" in financial institutions and leads to repeated economical crises.
6. Forced inflation makes credit cheaper, than it would be in a free market. With it, businesses can finance projects with credit to a larger degree instead of paying it out of their own money or not starting them at all.
Banks would be mere financial middlemen, lending out money of its savers (pooling resources, so to speak). They couldn't lend money under conditions much different from those given to their own lenders. For a bank to stay profitable in a free market, it would have to stay within narrow boundaries, determined by savers.
But Fractional Reserve Banks can do better. They can easily produce more money substitutes and give credit at better rates. The same is true with paper money, their producer can lend money at zero or even negative rates (like the Bank of Japan in recent years).
Few businesses can afford to resist such offers due to competition and mere survival instinct. They become more dependent on banks. Banks become de facto owners of many businesses and there are fewer true entrepreneurs.
Because credit produced by forced inflation is easily gained, it leads the economical decision makers to irresponsibility, a risk especially for large concerns with easy access to capital markets. While sometimes confused for innovativeness, real innovations have a tendency to upset the banks' investments, notes Hülsmann, and they will tend to resist them or want to make sure the companies they are invested in get the innovations as well. Thus are businesses made more conservative - and the existing ones protected from newcomers.
(One needs not to point out, that there is also innovation stemming from this carelessness, as evidenced by many innovative 'financial instruments' of recent years. These days, they are known as toxic assets.)
7. But people get cheap credit, too. It is not only easier to get into debts, the constantly rising prices make them downright attractive. To hoard cash, like it was safe to do in the old times, is counterproductive. It can be more rational to take on debt and buy something that will see its value rise with inflation. Beyond that, everybody has to invest their money into financial markets, to avoid its constantly sinking of value. Banks, stockbrokers, bond dealers and others profit nicely from the situation. They are not directly guilts of usury, points out Hülsmann, since it is institutionalized.
And in this way, people are driven into debt by the monetary policy of their own states. This is not compatible with financial independence and it undermines independence in other areas as well. To quote:
Inflation is sometimes defended as the means to "jumpstart the economy" and give businesses the means to invest. But hoarding does not endanger anyone's investments (see Chapter 4.). Inflation doesn't create new resources, it merely shifts existing resources from businesses financed by own money, to those running on credit.
8. To protect their savings, people need solid financial understanding, time and luck. Lucking any of those, losing a large part of their property is very likely. The old might lose their life's savings and despair. The young will throw many of the old principles completely away.
Inflation forces people to think more about money and let it influence their decisions more, to earn more money, but often on the cost of their personal happiness. It makes society more materialistic, if you will. The temptation of money increases even more.
The constantly rising prices lowers the quality of products and services in some sectors of economy. With the principal lie of fractional reserve banking, the habit of lying seems to spread throughout society.
9. Forced inflation enabled the growth of a welfare state, and grow it did. A welfare state weakens the institution of the family and the moral principles it imparts.
It crowds out the services supplied by a family and charitable institutions, not by virtue of providing them in a better way, but by being financed by tax money and inflation, thus taking away resources applicable to other uses. It is inefficient economically and unable to provide emotional and spiritual support (Hülsmann quotes the pope John Paul II to the effect).
A welfare state allows a greater proliferation of 'alternative lifestyles', and socializes the costs of careless behavior, making it easier to live without moral guidelines.
To Hülsmann, a welfare state is not evil per se. But the forced inflation allows its uncontrolled growth and the mentioned destructive tendencies.
1. It is widely known, that inflation is dangerous, but the amount of damage it causes is usually underestimated. Forced inflation breaks the rules of society. It has always at least the three following consequences:
- it benefits its creator at the expense of all users of money
- it allows a greater proliferation of debts
- it lowers the purchasing power of money
But there is more.
2. The inflation benefits the state on the expense of its population, but also to the detriment of lower levels of government. In 17th and 18th century, the European kings have suppressed important centers of of intermediary and alternative power. The democratic nation states have completed the centralization. Inflation was its economic driving force; thus, as Hülsmann says, aided at least indirectly nationalist movements and their worship of the state.
Inflation supports the growth of the centralized state, and allows it monopolize more functions than under a natural production of money. This increases the influence on its citizens and weakens other groups, like families. But moral principles like subsidiarity (that problems should be solved on the lowest level possible) are hard to combine with such a powerful (and hidden) phenomenon.
3. Paper money makes it possible to prolong war. People grow eventually tired of war and will try to resist further expenses of the state of it. The state can simply print the money and ignore the will of its citizens. This was reported to be the case in both World Wars, prolonged by months, if not years.
If everything is allowed in war (and e.g. the just war theory says otherwise), one should note there are others, less dangerous means to gather funds available as well.
Some might say, that a state is better informed about the war than the citizens. But isn't exactly that the role of political leaders, to inspire and inform the citizenry?
4. The printing of money allows the state to act without support from the population, or against their will. A government taking the property of its citizens arbitrarily is called a tyranny.
5. Forced inflation inflation is inherently unstable because it turns moral hazard and irresponsibility into an institution. The slow decline creates a certain "race to the bottom" in financial institutions and leads to repeated economical crises.
6. Forced inflation makes credit cheaper, than it would be in a free market. With it, businesses can finance projects with credit to a larger degree instead of paying it out of their own money or not starting them at all.
Banks would be mere financial middlemen, lending out money of its savers (pooling resources, so to speak). They couldn't lend money under conditions much different from those given to their own lenders. For a bank to stay profitable in a free market, it would have to stay within narrow boundaries, determined by savers.
But Fractional Reserve Banks can do better. They can easily produce more money substitutes and give credit at better rates. The same is true with paper money, their producer can lend money at zero or even negative rates (like the Bank of Japan in recent years).
Few businesses can afford to resist such offers due to competition and mere survival instinct. They become more dependent on banks. Banks become de facto owners of many businesses and there are fewer true entrepreneurs.
Because credit produced by forced inflation is easily gained, it leads the economical decision makers to irresponsibility, a risk especially for large concerns with easy access to capital markets. While sometimes confused for innovativeness, real innovations have a tendency to upset the banks' investments, notes Hülsmann, and they will tend to resist them or want to make sure the companies they are invested in get the innovations as well. Thus are businesses made more conservative - and the existing ones protected from newcomers.
(One needs not to point out, that there is also innovation stemming from this carelessness, as evidenced by many innovative 'financial instruments' of recent years. These days, they are known as toxic assets.)
7. But people get cheap credit, too. It is not only easier to get into debts, the constantly rising prices make them downright attractive. To hoard cash, like it was safe to do in the old times, is counterproductive. It can be more rational to take on debt and buy something that will see its value rise with inflation. Beyond that, everybody has to invest their money into financial markets, to avoid its constantly sinking of value. Banks, stockbrokers, bond dealers and others profit nicely from the situation. They are not directly guilts of usury, points out Hülsmann, since it is institutionalized.
And in this way, people are driven into debt by the monetary policy of their own states. This is not compatible with financial independence and it undermines independence in other areas as well. To quote:
The debt-ridden individual eventually adopts the habit of turning to others for help, rather than maturing into an economic and moral anchor of his family, and of his wider community. Wishful thinking and submissiveness replace soberness and independent judgment. And what about the many cases in which families can no longer shoulder the debt load? Then the result is either despair or, alternatively, scorn for all standards of financial sanity.
Inflation is sometimes defended as the means to "jumpstart the economy" and give businesses the means to invest. But hoarding does not endanger anyone's investments (see Chapter 4.). Inflation doesn't create new resources, it merely shifts existing resources from businesses financed by own money, to those running on credit.
8. To protect their savings, people need solid financial understanding, time and luck. Lucking any of those, losing a large part of their property is very likely. The old might lose their life's savings and despair. The young will throw many of the old principles completely away.
Inflation forces people to think more about money and let it influence their decisions more, to earn more money, but often on the cost of their personal happiness. It makes society more materialistic, if you will. The temptation of money increases even more.
The constantly rising prices lowers the quality of products and services in some sectors of economy. With the principal lie of fractional reserve banking, the habit of lying seems to spread throughout society.
9. Forced inflation enabled the growth of a welfare state, and grow it did. A welfare state weakens the institution of the family and the moral principles it imparts.
It crowds out the services supplied by a family and charitable institutions, not by virtue of providing them in a better way, but by being financed by tax money and inflation, thus taking away resources applicable to other uses. It is inefficient economically and unable to provide emotional and spiritual support (Hülsmann quotes the pope John Paul II to the effect).
A welfare state allows a greater proliferation of 'alternative lifestyles', and socializes the costs of careless behavior, making it easier to live without moral guidelines.
To Hülsmann, a welfare state is not evil per se. But the forced inflation allows its uncontrolled growth and the mentioned destructive tendencies.
Sunday, July 5, 2009
The Ethics of Money Production: Chapter 12
Chapter 12: Paper Money
Paper money never arised on the free market, it was always the preferred child of the state, protected by laws. The state creates a monopoly for one precious metal, either by forbidding others (Germany, France) or through bimetallism (England, USA). Then it grants the privilege of legal tender to the banknotes of a specific fractional reserve bank. Once are all other monies pushed off the market, this bank is allowed to refuse to redeem its banknotes. These become paper money; and such is the history of banking in the West. The first World War was financed in this way. Gold was used less and less, until it was completely abandoneded in 1971 in the US.
Paper money was always instituted through massive breaches of contract and of private property rights. It is kept in existence through legal privilege only.
However, producing paper money is not counterfeiting per se. It is not claimed, that it pretends to stand for something else, it stands for itself. Its promise is to give another banknote in exchange. Talk about a recursive definition.
2. The moment a central bank issues not only legal tender, but is freed from the obligation to make its payments, its banknotes turn into paper money. But the bank also changes: it is now a producer of money, even if it's paper money. The banknotes and the bank turn into something very different, without any outward change. This confuses many students of monetary politics, so it has to be emphasized.
(Hülsmann actually writes, that the bank changes into something completely different and shouldn't be called a bank anymore. To me, it still provides banking services for its customers, it is still a bank in a way. That its nature has deeply changed, is undeniable.
He also mentions something about "reverse transsubtsantiation". That was probably the first part, that was completely lost to me. Oh well.)
3. Banks of this kind cannot really go bankrupt. They can print any amount of paper money (which they freely admit, if the freely admit, if the terrible dangers of deflation are mentioned). Producers of commodity money don't have that privilege.
Instead, their greatest risk lies in hyperinflation. The constantly rising prices can lead to the complete abandoning of a currency ("flight from money") and the collapse of the economy. All hyperinflations were based on the inflation of paper money. But this hard limit seems to be a rather low risk: many have inflated in massive amounts, a few lesser currencies have collapsed in a hyperinflation, all the major ones persist.
4. Possibly the most visible consequences of paper money inflation is the explosion of public debt. For private debtors, how much can be borrowed depends on the value of their property and expected income. The limits stay, even if the availability of credit is growing with inflation.
A state cannot go bankrupt, as long as its central bank supports it. No wonder, despite is claims about independence are central banks created by laws and its top management appointed by their governments. And even if they don't directly throw money at the state, there are ample ways of making sure its demands are met. The result is growth of public debt far above the increase of money supply. (There are some more details here and example cases US and Germany. I'd wish to see more of the exact workings of the current banking system, but that is out of scope here.)
5. There are claims, that paper money could be more stable than commodity monies, if it would compete on the free market. But this is not only contrary to all historical experience, but runs into theoretical issues as well. A stable purchasing power is an illusion (see Chapter 4) and paper would have a hard time to survive competition anyway (Chapter 1).
The production of commodity money (like gold and silver) has definite limits and is unlikely to jump up quickly. With paper money, the possibility is well known and many speculate on its growth. This leads to the wasting of resources and potentially to larger problems. A few speculators, that lose their money, can be saved by printing more (or left to go bankrupt). But what if many speculate and get into trouble? Saving them means a high inflation; letting them fall to mass bankruptcies. The political pressures will make the second option rather hand to follow.
The very existence of a producer of paper money creates a moral hazard. A high inflation is in the end hard to avoid.
The signs of moral hazard are evident in the "bubbles" plaguing this financial system. In the dot-com boom and the housing bubble, market participants have been speculating with assets without regard to the price/earnings ratio and expecting, that someone in the future will buy it for even more. Whatever happens, things will always go up. In the US, the money supply is growing, but much of the new money is exported into other countries. Should they slow down their buying of US dollars, a large inflation (and potentially hyperinflation) will loom on the horizon.
States have attempted to curb these excesses through regulation, to cure the symptoms while letting the cause untouched. The result is merely driving the moral hazard into new areas. One could of course regulate everything likely to fall to it, that is everything. With paper money, you can choose between a hyperinflation and a centrally planned and a centrally planned economy. You might even get both.
6. From an ethical point of view, there is not much to say. Paper money was always created and continues to be kept in place by force. As there is no necessity for forced inflation, it is morally not acceptable.
Paper money never arised on the free market, it was always the preferred child of the state, protected by laws. The state creates a monopoly for one precious metal, either by forbidding others (Germany, France) or through bimetallism (England, USA). Then it grants the privilege of legal tender to the banknotes of a specific fractional reserve bank. Once are all other monies pushed off the market, this bank is allowed to refuse to redeem its banknotes. These become paper money; and such is the history of banking in the West. The first World War was financed in this way. Gold was used less and less, until it was completely abandoneded in 1971 in the US.
Paper money was always instituted through massive breaches of contract and of private property rights. It is kept in existence through legal privilege only.
However, producing paper money is not counterfeiting per se. It is not claimed, that it pretends to stand for something else, it stands for itself. Its promise is to give another banknote in exchange. Talk about a recursive definition.
2. The moment a central bank issues not only legal tender, but is freed from the obligation to make its payments, its banknotes turn into paper money. But the bank also changes: it is now a producer of money, even if it's paper money. The banknotes and the bank turn into something very different, without any outward change. This confuses many students of monetary politics, so it has to be emphasized.
(Hülsmann actually writes, that the bank changes into something completely different and shouldn't be called a bank anymore. To me, it still provides banking services for its customers, it is still a bank in a way. That its nature has deeply changed, is undeniable.
He also mentions something about "reverse transsubtsantiation". That was probably the first part, that was completely lost to me. Oh well.)
3. Banks of this kind cannot really go bankrupt. They can print any amount of paper money (which they freely admit, if the freely admit, if the terrible dangers of deflation are mentioned). Producers of commodity money don't have that privilege.
Instead, their greatest risk lies in hyperinflation. The constantly rising prices can lead to the complete abandoning of a currency ("flight from money") and the collapse of the economy. All hyperinflations were based on the inflation of paper money. But this hard limit seems to be a rather low risk: many have inflated in massive amounts, a few lesser currencies have collapsed in a hyperinflation, all the major ones persist.
4. Possibly the most visible consequences of paper money inflation is the explosion of public debt. For private debtors, how much can be borrowed depends on the value of their property and expected income. The limits stay, even if the availability of credit is growing with inflation.
A state cannot go bankrupt, as long as its central bank supports it. No wonder, despite is claims about independence are central banks created by laws and its top management appointed by their governments. And even if they don't directly throw money at the state, there are ample ways of making sure its demands are met. The result is growth of public debt far above the increase of money supply. (There are some more details here and example cases US and Germany. I'd wish to see more of the exact workings of the current banking system, but that is out of scope here.)
5. There are claims, that paper money could be more stable than commodity monies, if it would compete on the free market. But this is not only contrary to all historical experience, but runs into theoretical issues as well. A stable purchasing power is an illusion (see Chapter 4) and paper would have a hard time to survive competition anyway (Chapter 1).
The production of commodity money (like gold and silver) has definite limits and is unlikely to jump up quickly. With paper money, the possibility is well known and many speculate on its growth. This leads to the wasting of resources and potentially to larger problems. A few speculators, that lose their money, can be saved by printing more (or left to go bankrupt). But what if many speculate and get into trouble? Saving them means a high inflation; letting them fall to mass bankruptcies. The political pressures will make the second option rather hand to follow.
The very existence of a producer of paper money creates a moral hazard. A high inflation is in the end hard to avoid.
The signs of moral hazard are evident in the "bubbles" plaguing this financial system. In the dot-com boom and the housing bubble, market participants have been speculating with assets without regard to the price/earnings ratio and expecting, that someone in the future will buy it for even more. Whatever happens, things will always go up. In the US, the money supply is growing, but much of the new money is exported into other countries. Should they slow down their buying of US dollars, a large inflation (and potentially hyperinflation) will loom on the horizon.
States have attempted to curb these excesses through regulation, to cure the symptoms while letting the cause untouched. The result is merely driving the moral hazard into new areas. One could of course regulate everything likely to fall to it, that is everything. With paper money, you can choose between a hyperinflation and a centrally planned and a centrally planned economy. You might even get both.
6. From an ethical point of view, there is not much to say. Paper money was always created and continues to be kept in place by force. As there is no necessity for forced inflation, it is morally not acceptable.
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