Martin Wolf Unwittingly Gave Mark Zuckerberg 'Bulletin Board' Material
When World War II ended the British pound could be exchanged for roughly four U.S. dollars. Today a pound would buy the holder $1.29. The British currency has plainly declined an enormous amount versus the dollar since 1945, but the previous stat realistically only tells us a tiny fraction of the pound devaluation story.
You see, the dollar has similarly shrunk in cruel fashion since 1945. Figure that a dollar purchased 1/35th of an ounce of gold in 1945, but today it buys roughly 1/1500th. Hopefully this gives readers a better idea of what Britain’s monetary authorities have done to the pound over the last 75 years, along with what their counterparts in the U.S. have done to the dollar.
A lot of this and more came to mind while reading Martin Wolf’s latest Financial Times essay on money. Wolf is routinely incoherent on the subject, and readers can rest assured that his latest effort didn’t disappoint. He scored big by reminding the self-flagellating among us who flagellate ourselves by reading him, just how little he understands money.
Wolf’s clear intent was to discredit Facebook’s noble plan to introduce a global cryptocurrency, which is known as the libra. And while he failed in his stated objective, he reminded those who endured all of his 1,000+ words how very much the world’s workers need freedom from the state’s control over the measure that is money, and by extension economists like Wolf whom clueless monetary authorities in search of ego enhancement blindly read.
Speaking of the state, fairly early in his column Wolf made the historically inaccurate assertion that “the state has always had oversight of money and must continue to do so.” Actually, it hasn’t. That Wolf thinks it has is the first sign of how little he understands money.
Missed by the economist is that money has no purpose without production, and never did. None. That’s why in modern times there are so few dollars in Newark, but so many in Manhattan. Applied to the country where Wolf scribbles his op-eds, there are very few pounds in Wolverhampton, but stupendous amounts in London’s Chelsea. That there are endless quantities of dollars and pounds respectively in Manhattan and Chelsea isn’t a coincidence, or thanks to sun spots, rather they’re in abundance in both places as a consequence of the extraordinary productivity of the individuals living and working within both. Money doesn’t instigate production; instead it’s a consequence of it. Producers need an agreement about value to facilitate the exchange of what they produce, and money is the facilitator.
So no, the state has not “always had oversight of money” as Wolf laughably contends. As opposed to money having been a creation of the state, it was a logical effect of production. Producers needed an agreement about value that would enable exchange among producers, so “money” came into the picture. And given our need to trade the fruits of our labor, which is an outgrowth of our desire to not live as the cave dwellers did millennia ago, money would be abundant in the U.S., England, and anywhere else there’s production even if the state compassionately abdicated its present monetary role. If we’re realistic, there would in fact we be a lot more money, money that is much more trusted by producers, absent the state. But we’re getting ahead of ourselves.
For now, Wolf is flamboyantly incorrect in his contention that the state has “always had oversight of money.” A more realistic assertion for Wolf would have been that money has existed as long as producers realized life would be infinitely better if they divided up work while exchanging the surplus from same, after which the state entered the picture only to cruelly pervert money. See the dollar and pound since 1945 for one example, and of course there are sadly many, many more examples of governments inserting themselves into the money system only to confiscate, clip and otherwise destabilize what is an agreed upon measure of value minus the grasping hand of the state.
The state’s role, in truth, was to bring uncertainty and much worse to the measure. And to massively shrink trust in the measure. If anyone doubts the previous assertion, try buying real goods and services in Iran, North Korea, and Venezuela with rial, won, and bolivar. Lots of luck to you. The state that Wolf so venerates has surely had “oversight of money” in the aftermath of market actors creating it, and the results have been disastrous. That the dollar and pound are so globally accepted as exchange measures despite their stunning debasement over the last 75 years loudly tells readers how bad of a job the state has done. And by extension, how ostentatiously wrong Wolf is.
As the mildly sapient can likely imagine, Wolf aimed to make a case for government oversight of money given his desire to discredit the libra. He claims it and other cryptocurrencies represent “lousy architecture,” after which he hides behind the Fed’s Lael Brainard, and her comment that crypto money has often “exhibited extreme volatility.” Brainard is right about cryptocurrency volatility, but that’s just a sign that money concepts like Bitcoin are anything but. Bitcoin is a speculation, which means it isn’t money. Money in correct form is a low-entropy, stable measure of value. Nothing more, nothing less. Still, when Wolf hides behind Brainard, he does so while ignoring that the “extreme volatility” which defines certain misnamed crypto “currencies” is merely a sign that certain wannabe money forms will fail precisely because they mimic money so inexpertly overseen by the state.
Wolf then drools that cryptocurrencies are “an anarchistic fantasy,” which is Wolf reminding us yet again how little he understands money. Indeed, to reduce private money to an “anarchistic fantasy” is the equivalent of the FT columnist yelling in front the Bureau of Weights and Measures for defining a foot as twelve inches, and a pound as 16 ounces. Missed by Wolf is that money, in its correct form, quite simply is. It’s just a measure. So while the vast majority of cryptocurrencies have no chance (at least in present form) of replacing state money precisely because they exhibit state-managed money’s worst features, let’s not be blind to the why behind cryptomoney. It’s not to facilitate terrorism and drug trafficking as Wolf so obnoxiously bloviates, but instead it’s a reaction to the state’s persistent intervention in the oversight of money for hundreds of years, and the disastrous consequences of that intervention.
Simply put, producers create goods and services, and they want to get back goods and services roughly equal in value to what they produce. What Wolf sneeringly refers to as “stablecoin” is in fact a market response to this entirely reasonable desire among producers to get back value equal to what they bring to market. Naturally all of this is lost on Wolf, along with the economists hiding behind tenure and government jobs whom Wolf oddly venerates. And mimics.
Mimic is apt simply because Wolf, expertly filling his role as prominent central banker jock sniffer, misunderstands money in the exact same way that central bankers and monetary authorities do. Like them, Wolf doesn’t get that no one trades “money” in any kind of real sense. Instead, we trade goods and services for goods and services; money yet again the value agreement used by producers as a referee of sorts that speeds up the exchange. Just the same, no one really buys bonds as much as they buy what the income streams that bonds represent can command in the marketplace. Money flows are always and everywhere a consequence of actual goods, services and labor moving around countries, and around the world. This truth may help readers understand why dollars, euros and Japanese yen are collectively traded by the trillions on a daily basis, but the volume of rial, won and bolivar trade amounts to near nothing. Money is yet again a consequence of production, and exchange of that production, not an instigator. Is this basic truth lost on Wolf? Such a question is rhetorical.
With the libra in mind, Wolf contends that “Facebook has not proved itself worthy of trust, to put it mildly.” Is he serious? Once again, the question is rhetorical.
Back to a reality that Wolf is rather separated from, Facebook meets the needs of over 2.7 billion of the world’s inhabitants who eagerly joined the network, while billions of the world’s inhabitants deal with government as little as possible, all the while risking jail time (or worse) if they avoid its tax collectors altogether. Yet Wolf claims Facebook is the entity we shouldn't trust in comparison to government? Oh dear...
After that, Facebook provides us with endless joy, a social network that frees us to connect with old friends, new friends, and mere acquaintances around the world. Such a service must cost a lot of money, right? Actually it’s free. Facebook only “charges” its users by aiming to learn more about them, and helping other businesses learn about them, so that they can more expertly meet user needs.
As for the state which Wolf apparently trusts quite a bit more, it routinely devalues our work through currency debasement, forces us to accept services we don’t want, then provides other “services” to others while leaving us with the bill. And if we don’t want to pay the bill? The result is jail time; the latter often preceded by the flashing of loaded guns.
So no, Facebook is nothing like government. And people the world over clearly trust it exponentially more than they do government. The same will be true of the libra unless politicians backed by the power to destroy, and economists backed by fallacy, harass the libra out of existence. How unfortunate if so.
Indeed, while it’s shooting fish in the most crowded of barrels to talk about the state’s horrendously awful oversight of money over the centuries, Facebook’s libra is a humanitarian response to the state’s tragic oversight that has robbed so many billions of their work, and the people in all too many countries of the prosperity that quality money can enable precisely because it facilitates the trade and investment without which there is no progress. Facebook’s global reach gives those who’ve long suffered the agony of devaluation the chance to denominate their wealth in something else that, if devalued, would rather instantaneously push Facebook out of the currency game. With good reason.
You see, a business would never openly rob its customers in the way that monetary authorities backed by the state have with great constancy. Facebook must oversee a stable currency, one that is an improvement on the dollar, euro, yen and other relatively credible currencies that it plans to peg the libra to. Precisely because they haven’t always been trustworthy, the libra’s peg plainly won’t exist without tweaking with an eye on enhanced stability as a measure of value.
For the libra to succeed, it must improve on the dollar and other currencies issued by the state. In short, Facebook will come to the rescue of workers around the world, and in the process give them a chance to escape the inept state that so impresses Wolf.
Martin Wolf just gave Mark Zuckerberg and David Marcus serious “bulletin board” material. Let’s hope they use it.