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Classical political economics gave birth to the sound money theory that governed nineteenth-century monetary ideas and policies. It was a crucial component of the liberal platform as formulated by eighteenth-century social theory and promulgated by Europe’s and America’s most powerful political parties in the next century.
The liberal worldview views the market economy as the greatest, if not the only, method of societal economic organisation. Private ownership of the means of production tends to place control of production in the hands of those most suited for the task, ensuring the broadest possible satisfaction of all members of society’s requirements.
It gives customers the power to pick the purveyors who will provide them with the most affordable versions of the items they need most urgently, and therefore puts the entrepreneurs and owners of the means of production, especially, capitalists and landowners, to the purchasing public’s sovereignty. It liberates nations and their residents while also providing adequate food for an ever-increasing population.
The market economy could not function like a system of peaceful collaboration under the division of labour without an organisation guaranteeing its members security from home gangsters and external opponents. Armed resistance and repression are the only ways to stop violent aggression. A defensive system, such as a state, a government, or a police force, is required by society.
Its unhindered operation must be ensured by a constant readiness to repel aggressors. But suddenly a new threat emerges. How can the folks in charge of the government apparatus be kept in check, lest they use their weapons against the people they were supposed to serve? The most pressing political issue is how to keep rulers from becoming despots and enslaving the people. The main subject of Western civilization’s history is the defence of individual liberty against the expansion of authoritarian regimes. The quest for liberty is a defining attribute of the Occident, a concern unfamiliar to Orientals. All of the Western civilization’s amazing achievements are fruits of the liberty tree.
It is hard to comprehend the concept of sound money unless one understands that it was created to preserve civil freedoms from dictatorial government intrusions. It falls in the same ideological category as political constitutions and bills of rights. The need for constitutional guarantees and bills of rights arose in response to kings’ arbitrary control and disregard for established conventions. The sound money postulate was initially proposed in reaction to the royal practice of debasing the coins.
It was later carefully elaborated and perfected in the age which — through the experience of the American continental currency, the paper money of the French Revolution and the British restriction period — had learned what a government can do to a nation’s currency system.
The sound-money theory was drawn from Classical economists’ interpretation of historical experience rather than their understanding of market events. It was an experience that could be felt by a far bigger audience than the small circle of economists who knew what they were talking about. As a result, the sound-money concept became one of the liberal program’s most popular points. It was regarded as one of the most important postulates of liberal policy by both supporters and opponents of the movement.
A metallic standard implied sound money. Standard coins should contain a specific quantity of the standard metal as stipulated by the country’s laws. Only standard coins should be considered limitless legal tender.
The sound-money theory was drawn from Classical economists’ interpretation of historical experience rather than their understanding of market events. It was an experience that could be felt by a far bigger audience than the small circle of economists who knew what they were talking about. As a result, the sound-money concept became one of the liberal program’s most popular points. It was regarded as one of the most important postulates of liberal policy by both supporters and opponents of the movement.
A metallic standard implied sound money. Standard coins should contain a specific quantity of the standard metal as stipulated by the country’s laws. Only standard coins should be considered limitless legal tender.
Those who questioned the gold standard’s superiority were branded as lunatics by representatives of the official ideology, including academicians, bankers, statesmen, and editors of major newspapers and magazines.
Adopting such techniques by proponents of sound money was a huge miscalculation. It’s pointless to deal with any ideology in a sweeping manner, no matter how dumb or contradictory it may look. Even a clearly false theory should be debunked by meticulous examination and the exposure of the underlying errors. Only by destroying the misconceptions of its opponents can a rational ideology triumph.
The sound-money doctrine’s fundamental principles were and continue to be unassailable. However, in the later decades of the nineteenth century, their scientific backing was flimsy. The attempts to prove its rationality from the standpoint of Classical value theory were ineffective and made no sense when this value notion had to be abandoned. However, for over half a century, proponents of the new value theory limited their research to problems of direct trade, leaving the discussion of money and banks to routinists inexperienced with economics.
There were treatises on catallactics that only mentioned money in passing, and there were works on currency and banking that made no attempt to incorporate their topic into the structure of a catallactic system. In the end, it was decided that the present philosophy of value, the subjectivist or marginal utility doctrine, was insufficient to explain the issues of money’s buying power.
It’s easy to see how, in such conditions, even the most reasonable concerns presented by inflationists went unaddressed. The gold standard lost favour because no meaningful attempts were made for a long time to illustrate its virtues and debunk its opponents’ claims.