What to Say?

by Don Boudreaux on May 17, 2016

in Myths and Fallacies

When one reads passages such as the one quoted below from pages 130-131 of Douglas Rushkoff’s new book, Throwing Rocks at the Google Bus, one is left wordless at the spectacle of such a vast quantity of ignorance being packed into such a small number of words.  Rushkoff is here writing about the late middle ages and early Renaissance (footnote deleted):

In country after country where local moneys were abolished in favor of interest-bearing central currency, people fell into poverty, health declined, and society deteriorated by all measures.  Even the plague can be traced to the collapse of the marketplace of the late Middle Ages and the shift toward extractive currencies and urban wage labor.

The only reference Rushkoff supplies in the above quotation is to another book of his, namely, to pages 170-171 of his 2009 volume, Life, Inc. (which I’ve not read and will not waste my time reading).

My colleague Larry White or my friend George Selgin can comment on Rushkoff’s monetary history better than I can – for example: Just when did national governments ‘abolish’ “local moneys”?  And what historical evidence is there for the assertion that changes in markets brought about by the nationalization of the money supply so worsened the material conditions of the masses and so altered the structures of life and commerce that not only did people’s health decline, but people became – because of these changes – more susceptible to the plague than they would otherwise have been?

I do not doubt that nationalization and monopolization of money was an undesirable occurrence.  But I’m pretty darn sure that – whatever its faults or merits – such nationalization and monopolization did not cause urban wage labor.  Nor did it cause the growth of cities and the expansion of trade that might perhaps be blamed for the Black Death of the 14th century.  (Growth of cities by creating more densely populated living areas through which disease can more easily spread, and expansion of trade that allowed flea-bearing rats to be brought to Europe on merchant ships from central Asia.)

And I’m quite certain that the nationalization and monopolization of money a few hundred years ago cannot reasonably be blamed for causing people back then to ‘fall into poverty.’  Most people back then were already in poverty, and deeply so.  For Rushkoff to suggest, as he does, that widespread poverty was chiefly caused by the nationalization and monopolization of money in the late middle ages proves only Rushkoff’s utter lack of knowledge of history.

Finally – and most absurdly – is Rushkoff’s claim that local moneys were displaced by “interest-bearing central currency.”  While there were from time to time a handful of experiments with interest-bearing currencies, the vast majority of currencies used throughout history – and that are used now – are emphatically not interest-bearing.  Rushkoff, however, throughout his book complains repeatedly of the interest-bearing currencies that we today generally use!  I have never, ever received interest from the Fed (or the U.S. Treasury, or from my local bank, or from anyone else) on my dollar balance held as cash.  Have you?  More to the point, has Douglas Rushkoff?  I’m quite certain that he has not – which, then, raises the question: what does he mean by the term “interest-bearing central currency?”

Perhaps he means not that interest is paid to currency holders but that currency holders must pay interest on the currency they hold.  (Much of the time, as here, it’s difficult to tell what Rushkoff means, as he uses terms – such as “extractive currencies” – that seem to have meaning but possess neither any commonly understood and accepted definition nor are ever defined by Rushkoff.  Readers, presumably, are expected simply to go “Ououou – extractive currencies!  That sounds bad.  It must, therefore, be real and bad.”)  If Rushkoff means by “interest-bearing currency” currency that requires its users to pay interest to the issuer, he again is mistaken.  I have never paid interest to the Federal Reserve for the many dollars that I’ve held as cash over my lifetime.

I’ve suffered losses of my cash-balances’ value because of inflation, but value lost on cash balances to inflation is not an interest payment.  (Moreover, Rushkoff himself believes that the Fed protects holders of cash from inflation.  That Rushkoff is wildly mistaken about this reality is irrelevant to the point being made here.)

Federal Reserve Notes, whatever their weaknesses or strengths, neither earn interest nor require their holders to pay interest.  So, again, what does Rushkoff mean by his frequent use of the term “interest-bearing currency”?


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