Paper Money Collapse – The Folly of Elastic Money and the Coming Monetary Breakdown

 

“Detlev Schlichter’s book Paper Money Collapse develops a concise, clear, and at the same time deep economic analysis on the current elastic monetary system and why it is incompatible with a free market economy. I strongly recommend this book to anyone interested in financial crises, economic recessions, and the future of capitalism.”
–JESÚS HUERTA DE SOTO, Professor Of Political Economy, King Juan Carlos University (Madrid)

Mankind has used money for more than 2,500 years. For most of history, money was a commodity of limited and practically inelastic supply. Occasionally, over the past 1,000 years, state authorities introduced paper money, the supply of which was elastic and under complete control of the state. Today we live again in a complete paper money system. Since the dollar was taken ‘off gold’ internationally in 1971, the entire world has been – for the first time in human history – on a global standard of irredeemable paper money.

The book demonstrates that paper money systems are not inevitable, not advantageous and not sustainable. Contrary to common belief, a growing economy does not require an expanding supply of money. None of the benefits that elastic paper money is supposed to have, relative to inflexible commodity money, stand up to critical examination. Importantly, systems of elastic money are inherently unstable and must destabilise the economy.

Eminent economists suspected long ago that an expanding money supply had disruptive effects. But only the Austrian School of Economics, in particular Ludwig von Mises, provided, in the first half of the twentieth century, a satisfactory theory of money-induced instability. The book applies these insights to the present institutional setting.

The book also provides a brief historical account of paper money systems that shows that paper money was always introduced by state decree, never by private initiative. All paper money systems in history ended in failure. Either they collapsed in chaos, or a voluntary return to commodity money was accomplished before this happened. Although history supports the case the book makes, the argument rests ultimately on a systematic and conceptual analysis of paper money. This analysis starts with some simple observations that the reader can check for himself or herself, and progresses from there via verbal logic to the conclusions. The argument does not rely on complicated models, economic statistics or econometrics. Readers with no background in economics can follow the argument throughout. Yet, the book still adheres to strict scientific standards and does neither trivialise the subject nor unnecessarily sensationalise it.

The book also reveals the fallacies behind the current mainstream consensus in favour of paper money. It shows why many in financial markets, in media and in the policy establishment are unable (and often unwilling) to fully appreciate the underlying problems with elastic money.

What is the endgame? Either the authorities abandon further money printing and allow the undoubtedly painful liquidation of misallocations of capital, or they print ever more money in an attempt to postpone the correction, and, in the process, accumulate ever more debt. In the latter scenario, the public will ultimately lose faith in the system. Paper money systems are confidence games. When the public realizes that the printing press is increasingly used to keep states and banks solvent, this confidence will evaporate quickly. The endgame will then be sovereign default, hyperinflation and economic chaos.

Prologue

Chapter Outline

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