Everyone is excited about the new, unified European currency, the euro, but it’s a terrible mistake.
To understand this, it is necessary to grasp what made freedom and prosperity possible in the West. For centuries, Europe, unlike Asia, consisted of multiple countries and legal authorities. On top of this was a transnational Catholic Church and then a decentralized Protestant religion. This resulted in a system of multiple and competing jurisdictions and divided allegiances. No one authority could claim or win a monopoly on the loyalty of people.
The overlapping jurisdictions had a fateful, unintended consequence: the system created zones of freedom within which people could engage in peaceful action unmolested by anyone. If any authority grew more oppressive than people could tolerate, they didn’t have to go far to find another jurisdiction. Church law could protect someone from the king’s law, and vice versa. In those zones grew trade and customs that eventually became the complex network of institutions we call civil society. Among the fruits were the rule of law, capitalism, limited government, and the richest civilization ever known.
What’s this have to do with the euro? The euro is the new, single currency for Europe. For years, Europe has been heading toward unification. Had this been confined to removing trade barriers between the European countries, it would have been a boon. But instead, Europe is on its way to becoming the United States of Europe, with major power vested in a continental government. That will be an unmitigated disaster.
Without unification, if one European country enacts onerous taxes and regulations, businesses can flee to a neighboring country. Technology makes that easier and cheaper than ever. The ability to vote with one’s feet tempers national governments.
Unification represents an effort to end competition among governments. If competition is good for citizens, ending it is bad for them. Voting with one’s feet will become prohibitively costly or impossible, freeing European politicians to raise taxes and impose regulations without fear.
As a unified currency, the euro increases the risk of destructive inflation. As long as there were competing governments and currencies, inflation in one nation produced opportunities in others. Wealth would tend to flow from high-inflation to low-inflation countries. But if there is one monetary authority and one currency, that check on inflation will diminish. Considering that inflation is one of the most destructive things any government can do, the people of Europe could be in for a rough time.
I can hear people thinking: What’s he talking about? The United States of Europe is analogous to the United States of America, and we haven’t done so bad. Actually, America’s experience makes my point.
The United States began with a decentralized system of governance. The locus of power was not at the national level, but at the state and local levels. The Constitution delegated only a few defined powers to the national government. The Tenth Amendment of the Bill of Rights re-enforced this principle by stating that all powers not so delegated belong to the states and the people. While state governments could be every bit as oppressive as the national government, at least the state jurisdictions were smaller and, if necessary, people could flee.
Over the years, power has flowed to Washington, thanks to politicians and judges who don’t give a hoot what the Constitution says. The result has been an incredible increase in levels of taxation and regulation that have stifled our ability to enjoy liberty and raise our living standards as high as they might have been.
With respect to currency, readers might wonder whether I am proposing that each state of the Union have its own money. No, I’m not. I’m proposing that government at all levels stay out of money and banking and let the free market operate. Real competition in currency, not the inferior competition by governments, is path to prosperity and freedom.
In its own way Europeans are repeating our mistake. They will live to regret it.
