Monetary Reform – The Case for Button-Pushing

Abstract

In this paper I present a monetary reform plan that seeks to achieve a sound monetary system. I suggest the following three criteria of a good reform: it must be ethical, it must be based on sound economic theory and it must leave room for evolutionary processes. Based on these criteria and applying them to the monetary system, I argue for an immediate cancellation of all government intervention into the monetary realm.

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ISSN 1801-0938
New Perspectives on Political Economy
Volume 5, Number 2, 2009, pp. 111 – 128
Monetary Reform – The Case for Button-Pushing
Philipp Bagus
JEL Classification: E50, P11, P21, P31
Abstract: In this paper I present a monetary reform plan that seeks to achieve a
sound monetary system. I suggest the following three criteria of a good reform: it
must be ethical, it must be based on sound economic theory and it must leave room
for evolutionary processes. Based on these criteria and applying them to the monetary
system, I argue for an immediate cancellation of all government intervention into the
monetary realm.
 Assistant professor at Universidad Rey Juan Carlos, Madrid, philipp.bagus@urjc.es. I would like to
thank William Barnett II, Walter Block, Barbara Hinze, Guido Hülsmann and Mark Thornton for
helpful comments and the Ludwig von Mises Institute for financial help.

112 New Perspectives on Political Economy
1 Introduction
In a previous paper (Bagus, 2008), I presented the proposals for monetary reform of-
fered by the Austrian economists Ludwig Mises, Murray N. Rothbard, Jesús Huerta
de Soto and Hans Sennholz. Their aim is a more stable monetary system that permits
monetary freedom. Without questioning the aim, I set out to criticize the way that
those outstanding economists proposed to get to their aim. In fact, Mises, Rothbard,
Huerta de Soto and Sennholz offer plans of monetary reform that entail numerous
state interventions into the economy, inconsistencies, arbitrariness, and tactical am-
biguities. Their proposals contradict their own ethical and political principles, only
partially resulting in monetary reform. All of these problems seem to stem from the
authors’ attempt to preserve the status quo and to avoid alleged chaos, their reliance
on a problematic economic theory of deflation, or the attempt to gain acceptability
by avoiding a deflation and its supposedly disastrous effects. In this paper, I will offer
a monetary reform plan that does not entail the setbacks of the criticized plans.
I will proceed as follows. First, I will suggest the criteria a good reform must
fulfill. Second, I will develop a reform based on those criteria and that can be called
a “button-pushing” reform as it immediately abolishes all government interventions
into the monetary sphere. Third, I will name the probable consequence such a reform
will entail. Fourth, I will describe the advantage that can be derived from such a
reform, mainly that it is in concordance with the criteria a good social reform must
have. Fifth, I try to anticipate the most important objection that could be raised
against such a proposal, concluding with a summary of the main results.
2 Requirements of a reform
After having critized the plans for monetary reform by Mises, Rothbard, Huerta de
Soto and Sennholz for being too interventionists, too less laissez-faire, having too
much fear of deflation, I will make a proposal for monetary reform that is in line with
Huerta de Soto’s theory of the compatibility of the three approximations towards the
reality of human action.¹ The three approximations are, first, the development of
¹ See Huerta de Soto (2004, 105-109).

Bagus: Monetary Reform – The Case for Button-Pushing 113
a formal ethical theory. Second, there is the study of economic theory and third the
study of the “conjectural history,” i.e. the interpretation of evolutionary processes and
its results. According to Huerta de Soto these three levels of study are complementary
and mutually enriching. Their careful and separated study is necessary. I would like
to apply this approach to the concept of social reform. Social reforms should be in
line with these three levels.
First, and most importantly, reforms should be ethical. This explains itself. A
reform that is unjust, cannot be regarded as a good reform as every unjust action
is something to be prevented. For example, the reform in itself should not imply
violations of property rights nor willingly sanctify property rights violations ex post.²
Second, reforms should rely on a consistent, true, and value-free economic theory.
Justifying this second criterion is also easy. Since if a reform is not based on a correct
theory, the results and the costs incurred by the reform are different from those the
proponents of the reform thought they would be. Therefore, the proponents do not
actually know what results and costs they propose. They will aim at ends that they
would not pursue if they would possess a correct theory. For instance, a monetary re-
form should not be based on a theory that claims the money supply must be adjusted
to money demand in order to allow for an increase in production.
Third, there is the study of historic evolutionary processes. Of course, this cannot
be applied one to one on a reform as a reform aims at the future and not at the past.
However, one can demand that the reform makes possible and implies itself a spon-
taneous evolutionary process only determining the general abstract rules instead of
imposing from above particular results. In other words, the reform should leave room
for evolutionary processes to run their course, i. e. the reform should leave its exact
results up to an dynamic entrepreneurial process.³ This is very important to make
use of innate entrepreneurial creativity of human beings. They know best how to
solve their problems, coming up, if they are let to, with solutions that the proponents
or planners of the reform would not have thought of. For example, it should not be
determined a priori which kind of money is to be used and produced.
² Of course, we are relying here on an ethical theory that protects property rights.
³ This criterion seems to be implied in the first requirement of being an ethical theory. However,
there might exist ethical reform alternatives that leave different amounts of room for evolutionary
processes.

114 New Perspectives on Political Economy
If all three points are fulfilled, one can be sure that the reform is worth consid-
ering. However, if the reform fails on one of the three levels one might want to look
at it in detail adjusting or discarding it. Therefore, in the following, I will develop a
proposal for monetary reform in line with the three approximations.
The proposal is as simple as it is thorough. It consists of immediately abstaining
from government intervention into the monetary realm. This is the strategy which
was implicitly endorsed by Rothbard:
Following the classical liberal Leonard Read, who advocated immediate and
total abolition of price-wage controls after World War II, we might refer to this as
the “button-pushing” criterion… The libertarian, then, should be a person who
would push a button, if it existed, for the instantaneous abolition of all invasions
of liberty… (1998, 259).
Everyone who subscribes to the idea of Rothbard to abolish government interven-
tions immediately cannot at the same time subscribe to monetary reform not do-
ing this and involving government actions. This person would always first propose
a button-pushing reform in monetary affairs and at most as a second best option or
compromise propose another reform in political negotiations.
3 Measures
So what would the “button-pushing” strategy mean for the monetary realm in the
U.S.? First, and most importantly, all restriction for private money production must
be removed in order to allow for free money competition. Then everyone is allowed
to produce money. Legal tender laws, i. e. laws that determine that settlements of
debts in the privileged currency must be accepted even though the contract was set in
another currency, must be removed. Also all laws that imply restrictions of the buy-
ing, selling, loaning, borrowing, importing and exporting of competing monies are
to be removed. Further, it must be possible to pay taxes in any currency at the pre-
vailing market rates between the currencies. Moreover, the government institution
Federal Deposit Insurance Corporation (FDIC) is to be abolished, because it gives an
advantage to deposits in dollar paper money.

Bagus: Monetary Reform – The Case for Button-Pushing 115
Second, the central bank, in the case of the United States, the Federal Reserve
System is a quasi-governmental institution. It was created by the state with the 1913
Federal Reserve Act and was given the nationalized gold. Its board and chairman
is appointed by the President and approved by the Senate. It holds the monopoly
to issue federal reserve notes with the U.S. Treasury printing them. All this is to be
removed.
Third, the gold that was nationalized and is held by the central bank is to be
given back to the population. Who can prove that he was robbed or is an heir of such
a person will get his property back. The gold that is not reclaimed in this way can
be used as compensation and restitution for government interventions in the past.
Former taxpayers, conscripted and expropriated citizens, can get restitution in gold
in proportion to the harm they suffered.⁴ That would imply that older people would
tend to receive a higher part of the gold, because they tend to have been taxed more
in the past. Further, interest will be considered in determining their compensation.⁵
Fourth, monetary and especially bank contracts must be enforced. If banks have
committed fraud in issuing more titles to money than they have money proper or
that have obfuscated “the difference between genuine (that is, 100 percent-covered)
money titles and imperfectly redeemable IOUs,”⁶ they should be held responsible.
⁴ Of course, this group includes only people that can prove that they have been net taxpayers and net
expropriated people and have not earned the amounts taxed in virtue of some governmental privilege.
In this sense, the distribution of the nationalized gold to state victims is not arbitrary but forms part
of a restitutional process for government invasions of private property.
⁵ Guido Hülsmann arguing for a libertarian monetary reform states that the unreclaimed property of
the central bank should go to its users (1998, 115). The gold and foreign exchanges would go to the
workers in the vault. In contrast, Hoppe claims that civil servants should not get public property, be-
cause they are not tax payers but tax receivers. (2001, 135-136). From a libertarian perspective it would
be indeed strange that in a desocialization process President Bush would receive (parts of) the White
House, limousine and Air Force One, all of which he uses. Or that Ben Bernanke receives any share
of the unreclaimed gold in Fort Knox that he is using to back the state fiat currency. All employers
of the central bank are to an extent part of a quasi-governmental institution and are collaborating in
the financing of the government’s activities. The same is true to a smaller extent though, for the bank
owners and bank employers. (See Block, 2004 and 2006, for a theory of a libertarian punishment of
statists and a libertarian Nuremberg Trial.) One could make the case that lower rank collaborators
could homestead the buildings or printing press they are using. But it seems to be that these collab-
orators have a smaller claim on the nationalized gold and the foreign exchanges than tax payers. For
a libertarian analysis of criminal possession, restitution and the burden of proof see Rothbard (1998,
esp. Chaps. 9-11).
⁶ Hülsmann (2003, 411). IOUs are certificates that banks issue in favor of a creditor who ususally receives
interest from the bank.

116 New Perspectives on Political Economy
4 (Probable) Consequences of the reform
With competition in the monetary production, private money producers will emerge
and start competing with each other. Commodities like gold or silver in turn his-
torically have a high cost of the material (of gold or silver) in comparison to their
monetary value, due to their scarcity in relation to their industrial or luxury usages.
The premium that the monetary value has on the material value is for gold and silver
much smaller than for existing paper money. Therefore, it is more risky to accept
paper money in daily exchanges, because its market value can drop considerably if
people start abandoning it.
Thus, people would start using other monies than the fiat paper currency in their
transactions. It will probably not be an instantaneous process and it is not so that en-
trepreneurs will stop quoting prices. Rather they will quote their prices in something
else other than the fiat paper currency or in several media of exchange. Entrepreneurs
will look at other entrepreneurs and chose the commodity or money they regard as
most appropriate. At the same time, the most perspicacious (farsighted) entrepre-
neurs will pick up the business of money production, picking commodities of a high
saleability. Other people will notice that some people are buying those commodities
in order to resell them. As these commodities are easy to sell, people will imitate the
innovators. As more people use those commodities, their saleability rises and it be-
comes ever more attractive to use them. In a self-enforcing process new monies arise.⁷
One cannot know how fast and smooth this process will be. However, there is also
no reason why it could not be fast and smooth.⁸ Probably in the beginning, when the
new money producers are just starting their production, people might start using for-
eign exchange. Yet, there already exists producers of gold and silver currencies⁹ that
might expand their business immediately when the restrictions on monetary compe-
tition are removed.¹⁰ Furthermore, in the long run the foreign paper money is likely
⁷ See Menger (1892, online: http://www.mises.org/web/2692) for the origin of money.
⁸ R. A. Redford (1945) describes how in a prisoners of war camp in World War II cigarettes immiediately
evolved as the general accepted medium of exchange.
⁹ For example: http://www.e-gold.com/ or http://www.goldmoney.com/ .
¹⁰ Note also that due to the denationalization of the central bank gold, most people will possess at least
a small gold stock, which gives gold the headstart to emerge as one of the future monies. (According

Bagus: Monetary Reform – The Case for Button-Pushing 117
to be driven out of the market by commodity money because, as pointed out before,
commodity monies are less risky. It is important to notice that during the process of
the evolution of new monies there is inflation (i.e. increase in the money supply) and
deflation (i.e. decrease in the money supply) going on at the same time. This always
happens when people start changing from one medium of exchange to another. The
old money is abandoned, its supply shrinks and its material is used in other lines of
production. At the same time new money emerges with an increasing supply. The
German hyperinflation in 1923 serves as an example of this process.¹¹ While the hy-
perinflated paper money was abandoned and demonetized, i.e. not accepted as a
medium of exchange anymore, new currencies backed by foreign exchange or gold
emerged spontaneously.
As the monopoly to print federal reserve notes is removed, we face two possible
alternatives. The first alternative is that people accept notes in daily exchange that are
printed after the end of the monopoly. If this is the case, entrepreneurs would start
printing fed notes freely, resulting in a hyperinflation and quick abandoning of the
paper money.¹² The other possibility is that people only accept the old pre-reform
notes. This seems to be more probable than the first alternative, especially when
courts decide about contracts entered into before the reform. Why would a creditor
that made a contract in the old fed notes accept the notes that a debtor just printed to
repay the debt? The contract was set in terms of the old monopolized federal reserve
notes. Why would someone accept a note that can be printed at no cost by everyone?
Courts would probably decide in favor of creditors. If no new fed notes are accepted,
the amount of fed notes would be fixed.¹³ In this case, it is not hard to predict that
to wikipedia there are currently 147.000.000 ounces of gold in Fort Knox. That means on average half
an ounce for every citizen of the U.S.)
¹¹ See Stucken (1953, 31-60, esp. 49).
¹² See for this scenario Hoppe (1994, 59). Walter Block (1991, 93-104) makes the case for a private coun-
terfeiter under a fiat money regime. For good critiques of his view see Robert Murphy (2006) and
Matteusz Machaj (2007). However, the whole scenario becomes different with the button-pushing
reform. There the government monopoly is abolished, and people would be free to accept or no, old
or new bank notes (printed after the monoply was abolished). Producers of new notes, pretending
them to be old ones, would be considered counterfeiters.
¹³ Probably the new owners (tax payers or homesteaders) of the old federal reserve printing press will
try to print new notes and try to make people accept them. Yet, without the prestige of the state, the
legal tender laws, etc. probably no one would accept these notes either. The antique federal reserve
printing press becomes like every other printing press.

118 New Perspectives on Political Economy
a price deflation would occur. It is probable that with the abolition of the Federal
Reserve System and the FDIC bank runs would occur immediately. The confidence
on which the system depends will be shaken. Some people might even call for runs
on certain banks, an action that will be legal. Also, banks that committed fraud in ob-
fuscating the distinction between money titles and IOUs or that issued more money
titles than they have money, will be sued.¹⁴ This also increases the possibility of a
decrease in confidence and increases the likelihood of bank runs. As one bank run or
bank failure undermines the confidence in other banks, all fractional reserve banks
are likely to collapse in a domino effect. Even if there are no immediate bank runs,
the system is very likely to eventually collapse. When the next recession, or political
crisis looms, confidence will fall and a credit contraction will likewise occur. If people
for some other reason want to have more cash, likewise a severe credit contraction
ensues. This credit contraction in turn can lead to business bankruptcies, bad loans
for banks and even less confidence in the fractional reserve banks, eventually leading
to purging bank runs. The whole fractional reserve banking system will go bankrupt
as they loose their cash and are sued for fraud. Their assets will be turned over to
their creditors and depositors.¹⁵
¹⁴ The exact legal status of fractional reserve banking is a historical contingency and must be decided
case by case. It is not necessarily fraud, since people might voluntarily agree to an IOU with a re-
demption promise. See Hülsmann (2003, 402). Huerta de Soto (2006, 156) names seven possible
legal classifications of a bank-deposit contract with a fractional reserve, one of them implying fraud.
Beside the question of fraud there are two additional considerations. First, banks obtain a “de facto
monopoly” (Hülsmann 2003, 415). One might consider the creation of new money through this privi-
lege as a kind of “stealing.” Second, there is the question of collaboration. In a libertarian Nuremberg
trial banks would probably be sued for exploiting their monopoly and for financing the criminal ac-
tivities of the state. It would of course be an extremely difficult exercise to find the main responsibles.
¹⁵ Mateusz Machaj argues that, maybe, not all assets should be turned over to the depositors or credi-
tors. The outstanding loans to private companies could simply be canceled or renegotiated, because
capitalist entrepreneurs were in a bad position in a system that privileged banks. They had to borrow
money from them in order to survive in the competition. Banks made contracts that are very benefi-
cial to them and that were signed thanks to their privilege. When a price deflation occurs, they would
have difficulties to repay their debts. Depositors do not only gain through the increase in purchasing
power, but also by taking over the production facilities that were created by stolen money. Hence,
debt should be renegotiated decentrally or cancelled. While this is an interesting argument, I do not
agree with it. It is ethically just that the assets of bankrupt banks are turned over to their creditors and
defrauded depositors. Also, debts must be repaid. If they cannot be repaid, there will be a change in
the ownership from the former owners to the creditors. This poses no economic or ethical problems.
No one was forced to cooperate with a privileged banking system.

Bagus: Monetary Reform – The Case for Button-Pushing 119
5 Advantages of the reform
Let us first turn to the ethical, economic and evolutionary advantages of the pro-
posed reform. First, the reform is ethical. It is in accordance with the libertarian
non-aggression axiom.¹⁶ It itself abstains from violations of property rights; it tries
to compensate for past property right violations as much as possible and it enforces
property rights.¹⁷ It is a libertarian “button-pushing” reform.
Second, the reform does not want to avoid deflation, because there is a sound
theory of deflation underlying it. It merely lets the free market run its course as a
natural reaction to the government interventions into the monetary realms and does
not aim at preventing monetary or price deflation. It recognizes that deflation purges
efficiently and quickly malinvestments that were committed in a inflationary boom
period. It is built upon a theory of entrepreneurship that shows that the reform is dy-
namically efficient in the economic sense that it does not inhibit the entrepreneurial
function.¹⁸
Third, it does not inhibit the entrepreneurial function and the reform leaves room
for evolutionary developments. And this is an important addition to the ethical re-
quirement. Only considering ethics, one might argue that it would be a restoration
of property rights to introduce a gold standard, 100 per cent or not. However, the
money that would evolve out of voluntary decisions of market participants might be
very different from gold and silver, now. Therefore, it is important that a gold or sil-
ver standard is not imposed from above. Also in different regions people might prefer
different monies. In a dynamic, decentralized, competitive process the best money
will be chosen by market participants. It is even likely that there might be several
monies used in everyday life. For example, silver might be used for small purchases
¹⁶ For a natural rights approach to libertarian ethics see Rothbard (1998). Note also that the proposed
reform in contrast to other reforms is argumentatively justifiable. One cannot even coherently argue
for other monetary reforms that imply a violation of property rights. This is so, because every argu-
mentation in favor of reforms that imply violations of property rights or amnesty for past violations
of property, imply a contradiction. The attempt to engage with someone and convince him in an
argumentation (of a reform) implies the abstention of violence and requires the acknowledgment of
property rights. Hence, one cannot consistently argue in favor for a reform that violated property
rights.
¹⁷ See Hoppe (2006, 305-338).
¹⁸ For the concept of dynamic efficiency see Huerta de Soto (2003, 231-254).

120 New Perspectives on Political Economy
and gold for larger ones. There is also room for innovations in monetary substitutes
like credit cards, etc.
In addition to the evolutionary, economical and ethical advantages there exist
some minor additional advantages of the proposed reform. First, there are some
practical advantages. The reform itself is fast and uncomplicated. The managing
or planning costs of the reform are very limited. Second, there is a unique oppor-
tunity to reduce the welfare state. The government bonds held by the central bank
and bankrupt fractional reserve banks can be defaulted which reduces the national
debt burden. Also the financing of the welfare state by inflation will become impos-
sible. Another interesting feature of the reform is that the denationalized gold will
primarily go the older and retired persons. That allows for reduced tensions that the
abolition of a public pension system could cause.
Fourth, there will be public pressure to make the economy more flexible and re-
duce state interventions. For example, during the reform there will be a price defla-
tion which could result in pressure from the involuntarily unemployed to break union
power and abolish minimum wage laws.
Fifth, one has to put emphasis on the results of the reform. There will be a to-
tally free monetary system, with competing moneys whose success results from the
choices of economic agents. The inflationary redistribution that entails a fiat paper
money system backed by a central bank immediately ends when the reform is put into
practice. Also recurring business cycles induced by the credit expansion of fractional
banks are put to an end. The implied misallocation of resources and impoverishment
of the population ends with it. A stable, sound monetary system can develop as fast
as is possible with freely interacting individuals.
Sixth, it is very difficult to reverse this reform. It does not leave in place state
institutions or laws in the monetary sphere, and it does allow for a dynamic system.
Moreover, people will not have the impression that the government provided them
with their newly emerged system, because they experience that government is not
necessary to provide for a monetary system or reform. Actually, there is not a single
case of monetary reform managed by the government that changed the trend toward a
fiat paper money system controlled by a central bank. For instance, the German mon-

Bagus: Monetary Reform – The Case for Button-Pushing 121
etary reforms in 1924 and 1948 were conducted by the government (Stucken, 1953).
Instead of permitting the already emerging alternative media of exchange to compete,
the government stayed involved in the monetary system. Even though Germany got
back to the gold standard in 1924, this was only for a short intermediate time. By in-
troducing a foreign exchange control the German government efectively introduced
a fiat paper money standard in 1931 again. The monetary break-down after World
War II could have been used for a thorough monetary reform. However, the mon-
etary reform from 1948 just changed the name of the currency and the institutional
framework. Even though the Bank Deutscher Länder engaged in restrictive monetary
policy in the beginning (Erhardt, 1968, 34), the new D-Mark was also just another fiat
paper money currency.
Furthermore, the collapse of the old monetary system is also an educational ad-
vantage in showing that the former monetary system was inherently unstable and
bankrupt. Rothbard´s hope that the failure of the governmental monetary system
provides insurance against its reemergence might become true with a thorough re-
form. As Rothbard stated in one of his earlier more radical works on the subject:
And if, as we contend, banks are inherently bankrupt and “runs” simply reveal
that bankruptcy, it is beneficial for the economy for the banking system to be
reformed, once and for all, by a thorough purge of the fractional-reserve banking
system. Such a purge would bring home forcefully to the public the dangers
of fractional-reserve banking, and, more than any academic theorizing, insure
against such banking evils in the future (2000, 21).
6 Objections to the “button-pushing” plan
Let us deal with some of the objections that come to mind regarding the aforemen-
tioned plan. The first objections one would raise is the political impossibility of such a
plan. This objection must of course be taken seriously.¹⁹ The political elite, banks and
¹⁹ Historically, there actually have been reforms entailing monetary and subsequently price deflation.
That shows that the proposed reform is not in principle impossible. These reforms happened after
wars, though, periods of great unrest. It happened in Great Britain after the Napoleonic Wars and
WWI and in the German monetary reforms after the hyperinflation in the 1920s and after WWII
in 1948. Also in the Netherland in 1946 deflation was employed in monetary reform. This induces

122 New Perspectives on Political Economy
other individuals profiting from the current system will oppose the reform. Maybe
also frightened voters unable to grasp the economic importance of and their benefits
from the reform would object to the plan with politicians picking up their concerns.²⁰
However, it is in principle not impossible to convince the majority of voters or the
population that they would benefit from a plan that is just and consistent.
More importantly, the political practicability is irrelevant when searching for an
optimal reform plan. Often plans that are politically less practical present the best
solutions. In turn, what is most politically popular is normally the worst solution.
Adding as a fourth criteria the popularity of a reform would mean adding a criterion
that does not necessarily and very probably contradicts the other three (ethical, eco-
nomical, evolutionary) criteria. Also it must be understood that by offering a mone-
tary reform, I am not opposing any other monetary reform. In fact, every reform that
moves in the direction away from state intervention in the monetary system is a step
in the right direction. And this step should be endorsed under the condition that it
is made clear, that the step is only a step and not an ideal monetary reform.
One could further argue that another criterion for a good reform should be that it
is stable. One might fear that after the reform there would occur social unrest that is
likely to reverse the reform. People would say: “That did not work.” While this might
be considered a complementary argument, the most important criteria is that it is
ethical, economically sound and leaves room for the entrepreneurial process. They
are primarily important. Furthermore, the proposed reform is necessarily just and
based on sound economic reasoning. In contrast, there is not necessarily social un-
rest. It is possible that there will be no strong social unrest for two reasons. First,
in order to introduce the reform one would have to convince people of it in the first
Hamilton (1952, 330) to say about the role of monetary deflation in monetary reform: ”Deflation
through writing down bank deposits and destroying currency, in effect, crying down money, has been
the commonest type of monetary reform in recent years [Footnote about monetary reform in Germany
and the Netherland omitted] and is likely to continue in medieval fashion, alternately with inflation
of paper currency and bank deposits in a distinctly modern and sometimes violent fashion.”
²⁰ See on this problem William Hutt (1971). He points out that the competition of economists in gaining
political influence and swimming with the political tide leads them to make compromises in theories.
As a consequence the argumental basis and the prestige of economists as experts weakens. Paradoxi-
cally their influence might decline. He argues (1971, 22), that the economist should propose both the
ideal and expedient policies and make explicit what he is dealing with. In this paper, I am proposing
an ideal reform leaving it to others to come up with expedient reforms.

Bagus: Monetary Reform – The Case for Button-Pushing 123
place. Therefore, they would know its consequences. Second, there are many win-
ners from the reform who would embrace it. The losers are mainly the government,
the banks and the welfare-warfare complex. Why should there not be social unrest
when the losers of the actual system become aware that they are under an unjust
system and exploited? Why should there not be social unrest if an unjust reform is
carried out? In the change from the D-Mark to the Euro, Germans had to calculate
in a different medium of exchange over night. With the button-pushing reform the
transition would be smoother and people would gradually learn to perform economic
calculations in terms of other media of exchange.
Moreover, historically button-pushing reforms have become stable and successful
after initially being confronted with short lived reistance. Ludwig Erhard pushed at
the button on price controls after WWII, in 1948 eliminating over night all price con-
trolls in Western Germany and initiating the economic recovery of Germany. Erhard
introduced the market economy in a day even though there was opposition by con-
temporaries arguing that one should make a gradual refrom. The majority of people
thought that the reform could not be successful as it seemed to be too radical. Even
though there was a strong opposition and a general strike, Erhardt held on to the
reform (1964, 18-48).²¹ A similar button-pushing reform happened in the 1990 in for-
mer communist Eastern European countries when price controls were abolished.²²
As Daniel Gros and Alfred Steinherr (2004, 107) in their analysis of the transition of
former communist countries point out “…the revovery was stronger in countries that
had liberalized most thoroughly…” The authors also point to the dangers of slow re-
forms (2004, 127):
Our first result is that experience has shown that slow reforms meant, in
many cases, just that: slow reforms and no willingness to progress faster after
the ground work had been done. The tortoises did not overtake the hares.
Another set of questions is can a major “turmoil” be prevented at all, and can the exist-
ing system ever be stable. Economic theory tells us that a fractional reserve banking
²¹ See Erhardt (1964, pp.18-38) for the details of the reform.
²² There is a parallel of the former socialist countries in Eastern Europe and our case of monetary reform,
because we are faced in the Western World with socialism in the monetary sphere. (See for the
socialism in the monetary sphere Huerta de Soto, 2006, pp. 647-675)

124 New Perspectives on Political Economy
system headed by a central bank leads to recurrent boom and bust cycles. That is
not a stable system either. This system can easily end in hyperinflation and Roth-
bard predicts its crash: “…we have to realize that the banking system is headed for a
mighty crash in any case” (Rothbard 1995, 11). That means that the current system
causes social unrest as well, which will likely get much worse as credit expansion and
economic cycles increase.
Another objection might be that the monetary system collapses. That is true.
Yet, the system collapses because it is unsound and people voluntarily change to-
wards other monies. The collapse of the German monetary system in 1923 occured,
because people began to abandon the old inflated currency. Instead of letting peo-
ple discover new monies that seemed to be appropriate, a process that was already
under way²³, German authorities introduced another state money. Would one argue
that if a fraudulent firm collapses and a sound one takes its place that this would
be somehow bad and a new fraudulent firm should be installed? Of course, many
individuals that were hurt by or benefitted from the fraudulent firm will experience
(substantial) changes in their life. However, there is no necessary “disruption” of eco-
nomic activity. As the fraudulent gas trader Enron went bankrupt, stakeholders were
hurt. However, houses did not go cold due to a shut down of gas. Gas was still be-
ing produced, traded and distribuited as was in the interest of agents involved in the
bankruptcy. The same will happen when the monetary fiat paper system collapses.
Stakeholders in the state´s monetary system will be hurt, but their goods and services
that are demanded by economic agents will still be supplied, money included.
Furthermore, to speak of “disruption” would already involve an ethical statement.
There will be a redirection of economic activity. Namely, the structure of production
that was distortet by continous inflation will be readapted. Further, more activity will
be spent to come up with monetary innovations or barter ideas that make life simpler.
One might also argue that button-pushing reforms do not work as institutions
need time to develop. However, how long will this time be? Would the development
of institutions not be the fastest if there is a button-pushing reform. Moreover, this
argument contrasts with the ethical criterion and leads to questionable conclusions.
Against an immediate abolition of slavery one might argue that slaves do not possess
²³ See Stucken (1953, 49).

Bagus: Monetary Reform – The Case for Button-Pushing 125
institutions to live successfully in liberty; therefore, slavery could only step by step
be abolished in order to give the slave opportunities to develop institutions. Prob-
ably the slaves would not accept such a reasoning, as they wanted to develop their
capacities to live free as fast as possible. The same can be said about the monetary
system. Free monetary institutions can be developed faster, if monetary interventions
are abolished immediately.
Another objection might be that there is a huge redistribution of wealth. Of
course, every reform has its winners and losers, as has every change in the econ-
omy and continuation of government intervention for that matter. It is arbitrary to
say that a certain amount of redistribution is too big. It is also hard to see, that if
individuals who anticipate the abolition of government interventions and position
themselves to profit from it, would earn unfair gains during the reform. The impor-
tant question is if the changes that occur and turn people into winners and losers
are based on decisions of voluntary interacting individuals or not. Of course, there
will be a huge readjustment of the structure of production due to the redistribution
of wealth. There will also be many bankruptcies. But by which standard can one
say that there would be too much of a readjustment or too many bankruptcies? By
which standard could one say that they are bad? One objective standard to judge
this is property rights. And property rights are restored by this reform. Always when
government interventions are abolished there are disruptions in the economy, small
ones if agricultural subsidies are abolished, greater ones if slavery is abolished.
The last objection that is considered here is the affirmation that the proposed re-
form could only be undertaken on a world wide scale, because otherwise there would
be huge foreign exchange fluctuations disrupting international trade. However, this
is not necessarily the case. While the old currency might lose in value quickly, the
new monies will not necessarily fluctuate more against foreign exchanges than the
old one. They will probably increase in value, showing the competitive advantage of
the new monies regarding paper money. Actually, there is a first mover advantage
for those countries who apply the reform first (Hülsmann 1998, 113). This is so, be-
cause the first movers will get the new monies at lower prices, before their purchasing
power increases as other countries apply a similar reform. Those countries are similar
to the entrepreneurs who are more farsighted than others in choosing a medium of
exchange.

126 New Perspectives on Political Economy
7 Conclusion
Most plans for monetary reform have been interventionist and unethical and they
impose results. This is partly so, because of a problematic underlying economic the-
ory regarding deflation. Sometimes the reform plans are in apparent contradiction to
other writings of the very same author. An ethical, dynamical reform based on value
free economic analysis consists in the immediate abstention of state intervention into
monetary affairs (“button-pushing”). This plan would very likely imply the deflation
of the old money and the purge of the banking system, i.e. those consequences that
other reforms tried to avoid. Even though this plan is far away from getting only near
to a political approval it is important toshow its advantages. It can serve as a standard
for comparison.
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