There are several broad categories of threats to your wealth:

• Inflation

• Volatility

• Theft

  • Litigation

  • Monetary Policies

  • Predatory Government

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

John Maynard Keynes (Keynes, 1919)

Money Supply and Economic Liberty

Fiat currency[1] is designed to be manipulated by the sovereign to allow them to inflate the currency over time so that they can pay off debts later more cheaply. When the sovereign inflates the currency, they remove buying power and rob currency holders in the process.  This is true of all fiat currencies.

"One danger of fiat money is that governments will print too much of it, resulting in hyperinflation."

James Chen

The primary mechanism used to control the value of fiat currency is the monetary supply. The more scarce the money, the greater its value. The more abundant, the less its value. During the COVID Pandemic the Federal Reserve of the USA has increased the money supply to more than $6 trillion. Since 2020 they monetary supply increased from 4 to 6 trillion. Such significant and sudden growth in the supply of any fiat currency cannot occur without triggering significant inflation, and perhaps hyperinflation. It is arguable that such a significant increase would cause any currency to suffer inflation.

Figure 1 25 Year History of USD Money Supply[2]

During the era of the Spanish conquest of the Americas, Spain used specie[3] currency of gold and silver coins. The gold and silver Spain brought back from the Americas flooded Europe with an abundance of something that had been scarce.  This made gold and silver less valuable, which drove prices upward. In other words, the abundance of money (gold and silver) caused inflation. “Too many people with too much money chased too few goods” (Wikipedia, 2022). 

At a summit of actuaries in 2013, Martin Hickling blatantly stated that “increases in the supply of money can be seen as a form of property theft.” (Hickling, 2013)  He is not the first to give voice to this view.

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

John Maynard Keynes (Keynes, 1919)

What adds insult to this injury is that “while the process impoverishes many, it actually enriches some.”[4] What makes this idea more insidious still is that Keynes was agreeing with the notions Lenin was proposing as a means to destroy the “Capitalist System.” Once again we see that Communism is at the heart of this systemic threat to economic liberty.

When BitCoin (BTC) was launched, a prominent objective was the ability to store value and be impervious to inflation. This is to be accomplished by enforcing scarcity, limiting the total number of BTC to 21 million coins (Nakamoto, 2008).

[1] Fiat money is a government-issued currency that is not backed by a commodity such as gold. Fiat money gives central banks greater control over the economy because they can control how much money is printed. Most modern paper currencies, such as the U.S. dollar, are fiat currencies. (Chen, 2021)

[2] https://tradingeconomics.com/united-states/money-supply-m0# using the 25 year view with the Y-axis in millions of USD.

[3] Specie currency is valuable because the currency is shaped from a valuable commodity. In the case of Spain, it was gold and silver.

[4] (Keynes, 1919) pg 290

Theft

There are lots of folks who want to steal your wealth. They will scam it out of you, litigate it out of you, tax it out of you, and sometimes legislate it out of you.  While each of these different sorts of threats to your wealth requires different means to protect your wealth, the threats from sovereign authority in the form of taxation and legislation are far more powerful, dangerous, far-reaching, and difficult to combat than all the scammers, thieves, and greedy litigants put together.  In combatting those latter threats, the power of the State is on your side.  In combatting predation by taxation and legislation the power of the State is against you.

Government is the only thief you cannot throw in jail.

Predatory Government

From the standpoint of economic liberty, Communism, in all its forms and derivations is the most predatory form of government. A central tenet of communism is that personal property is not allowed. The State owns absolutely everything. All the fruits of labor and production are owned by the State and are dispensed to the individuals according to their needs, as determined by representatives of the State.

Most communism is most often seen in the guise of Socialism. Socialism is a tacit acknowledgment that no bureaucracy can effectively provide for the detailed management of each individual life and needs. Under Socialism there is a very limited amount of personal property allowed and a minimal degree of economic liberty. Workers (and non-workers) are paid a symbolic wage or stipend which they can use to purchase food, clothing, and a limited array of other material goods from State operated outlets. Thus, they have enough economic liberty to choose if they prefer to buy food, clothes, or booze. Under Socialism all the means of production (enterprises) are owned and operated by the State.

Fascism is a form of Socialism which allows for the limited existence and semi-independent operation of business enterprises which are not wholly owned by the State. These enterprises are closely regulated and are allowed to continue only as long they serve faithfully as a privatized form of enforcement of the State.  Individual economic liberty is greater under Fascism than under either Communism or Socialism.  However, what the individual can do with their private property and wealth is tightly monitored and controlled by the State and may, at any moment, be wholly or partially confiscated by the State at the whim of bureaucrats.

Democratic Socialism is, in fact, either Communism, Socialism, of Fascism, depending upon the degree of economic control the democratically elected socialists decide to implement.

It is important to note that a government can support a mixture of capitalism and communism. Accordingly, a government which does not openly declare itself adherent to Communist principles can implement policies and practices which limit economic liberty in ways that are entirely consistent with any of the degrees of Communism.  In fact, in the United States of America today we see a great many Communist-consistent laws, regulations, and practices.  Nearly all of these have been put in place under the guise of protecting the natural rights of the citizens, while in fact depriving them of those rights.

The Bank Secrecy Act (BSA) is an excellent case in point.  Signed into law in 1970, ostensibly to uncover the financial activities of illegal drug dealers as they attempt to transform the (untaxedx) proceeds from their sales of illegal drugs into ‘clean’ money which could be used to invest and pay taxes.  BSA compels financial institutions to spy on the financial dealings of their customers without need for probable cause or a warrant. On a daily basis they report transactions and customers which the Government has categorically defined as “suspicious.” Again, this reporting is compelled by law without regard to the rights of citizens against unreasonable searches as guaranteed by the 4th Amendment and searches without a warrant as required under the 14th Amendment to the US Constitution.

If a financial institution fails to report these transactions in an accurate and timely manner the business will be penalized and responsible individuals can be both fined personally, and thrown in jail.

After the terrorist attacks on the USA by Al Queda in September of 2001, in October of that same year Congress passed (and President George W Bush signed into law) The USA Patriot Act, again under the premise that it was needed to protect the natural rights of Americans to life, liberty, and the pursuit of happiness. The act authorized additional financial and electronic spying on Americans in the form of regulations affected all Americans without the need for individual warrants and probable cause.

Since 1997 the Cato Institute has periodically published the results of a survey of world conditions about economic freedom (Hanke & Walters, 1997). In this survey they establish a criteria defining economic freedom, they consider the effects of economic freedom, and they rank countries around the world according to their criteria of economic freedom.

Their findings indicate that per capita income and life expectancy have a “positive linkage.”

They differentiate between economic freedom and political or civil liberty. “Political liberty is present when citizens are free to participate in the political process on an equitable basis, there is meaningful competition in the political sphere, and elections are free and fair. Civil liberties include protection against unreasonable searches, access to fair trials, and rights of free assembly, expression, and practice of religion.”

They go on to note, “a country may be ‘free’ or ‘democratic’ in a civil or political sense, but lack economic freedom. At the same time, a country may lack political or civil liberties, yet possess abundant economic freedom.”

They identify the following four primary characteristics of economic liberty:

1.      Secure rights to property (legally acquired);

2.      Freedom to engage in voluntary transactions, inside and outside a nation’s borders;

3.      Freedom from governmental control of the terms on which individuals transact; and

4.      Freedom from governmental expropriation of property (e.g., by confiscatory taxation or unanticipated inflation).

They conclude, “these elements prescribe an important but balanced role for government. The institutions of government will create and enhance economic freedom by making and enforcing rules governing behavior in the economic sphere—e.g., by preventing Paul from stealing Peter’s property. But government might also diminish economic freedom by itself robbing Peter, whether to pay Paul or achieve some other objective.”

Starting in 1994, the Heritage Foundation began to publish an annual Index of Economic Freedom. In 1996 the USA was in the top 10 in three different surveys of economic liberty[1]. In 2022 (Heritage Foundation, 2022) the United States of America didn’t even make it into the top 10, or the top 20. We came in at 25th place, and the survey indicates our numbers are trending downward.

[1] (Hanke & Walters, 1997) pg 13.