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2007-07-23

Government-certified money

Once upon a time, people had to barter in order to trade. If you raised chickens and needed butter, you had to take a chicken to a dairy farmer and hope he needed chickens, and hope he'd give you enough butter that you wouldn't be shortchanged for your chicken, and hope you could find a use for all the extra butter, because it's hard to make change for a live chicken.

Then the free market discovered money, and if you haven't read the book I just linked to on the words "discovered money," I encourage you to leave my site immediately and go read it before finishing here, because the information there is more important than just about anything I have to say. The free market selected gold and silver as its two forms of money for several natural reasons, and soon anybody could make a better living by exchanging what they produced for money and then exchanging money for what they wanted or needed.

Of course, when you accepted a gold or silver coin as payment for something valuable you produced, you wanted to make sure you didn't get shortchanged, and you therefore wanted to make sure that you really got the amount of gold or silver you were promised. If you'll go bankrupt producing chickens for a half an ounce of gold each, then you want to make sure the one ounce gold coin you've been given really does contain an ounce of gold.

So the minting business arose and created spectacular innovations to protect its customers: gold and silver ("money") was turned into coins for portable convenience. A coin would be a uniform shape and size and contain a uniform amount of precious metal. The precious metal would be alloyed with a uniform amount of base metal in order to make the coin more durable so that the precious metal wouldn't wear away. (I have made the incredibly expensive and stupid mistake of dropping a United States gold bullion coin on my ceramic tile floor. Gold bullion coins are way too pure to be used in general circulation; there is very little base metal in them. The coin in question suffered ugly dents and little flecks of gold were seen flaking off from those dents.) The edges of the coin would be reeded so that if anyone tried to clip precious metal off the edges (do this often enough and you can make a new coin!) it would be obvious that the coin no longer contained its stated quantity of gold or silver ("money"). And the mints stamped the coins with their own seals or other indicator, giving them the chance to build a reputation for reliable coins. In Joachimsthal, now in the Czech Republic, one particular mint did such a good job that the name of its world-renowned silver coin, the Joachimsthaler, became the standard for other coins and eventually became the generic name for coins of the same weight and composition. The Joachimsthaler became the Thaler, which became the Dollar. (And then the United States government appeared and assassinated the dollar, but I'm getting ahead of myself.)

The free market therefore managed to provide the best possible protection against being cheated in money. If you didn't provide just weights and a just balance, people would actually find out, word would get around, and people would be visiting your competitors.

But liberty dies on a lie, and this is the lie: government persuaded everyone that the risk of adulterated or counterfeit money (gold and silver, remember) on the free market was too great. Despite the fact that the very best in money protection had been innovated by the free market, the government told people that this was not enough, that their money was at risk, and that they could magically help. You see after liberty is mortally wounded by the first lie, and that is that government is somehow a magic organization of people that can do what people organized in other ways cannot: protect you from the unacceptable risk of adulterated money.

And so the government had "proved" that it naturally must have a monopoly on the money supply. The government became the sole supplier of coins. Now money was government certified, and finally everybody could trust it. They could trust it so well the government hoped they didn't even find it necessary to check it. And it wasn't long until every time the government got its hands on a coin that the coin was clipped, or melted down and mixed with more base metal than it was supposed to have, in order to give the government more coins and trick people, for a while at least, into accepting less payment for the product of their hard work which government desired. So the government lied about protecting people and then perpetrated the same harm on those people. Sadly, one definition of government is a group of people with a monopoly on breaking the law. Note that in this case, the law already existed before the government even regulated the issue: private sellers have an incentive to keep just weights and a just balance; the government does not, especially when it comes to the money supply.

The big lie isn't just about money. Everywhere government tells the same story in order to kill liberty and expand its own power: there is a danger, and the risk of this danger is unacceptably great, and even though the government is just a bunch of people with fancy hats and titles they are somehow magically able to protect against this danger in a way that people organized in other fashions cannot.

Parents can't select who will teach their children; only somebody certified by the government should be allowed to do that! (And if parents want to teach their children by themselves, heaven forbid, we simply must regulate the situation and insist that the parents are certified.) It's too dangerous for people to simply select their own health care providers; the state must certify certain people as "doctors" and only they should be allowed to practice medicine. Food could contain dangerous additives and the government must look it over. Noone would preserve great natural wonders or historic monuments if the government didn't take care of them, with your money. The roads would be a warzone if we didn't license drivers. If government doesn't step in to regulate cheese, somebody might sell a lesser-quality cheese under the same name, or an identical-quality cheese from a different location which people would buy instead of the real thing, or people might even begin to think that quality is subjective. Chances are, you felt a gut feeling of agreement with some of these sentences.

Of course one of the biggest dangers to the state is the idea that anybody should be allowed to read the law and have their own opinion on it, and so practicing law without a license is of course completely forbidden.

Are there real dangers if the state isn't allowed to regulate and certify things? Yes, there are. As I showed above, in the realm of money the the free market protected against these dangers better than the government, though. Lord willing, I will later blog on two ways in which the free market protects against such dangers in general.

2 comments:

A.B. Dada said...

If I could perform a "magical" act to change one word in the English language, I would instantly change the use of the word "money" to "bartering medium" (or media).

When money WAS a bartering medium, money itself was useful because it had purposes BEYOND just as a bartering medium. If I bought your oranges with my gold, you had a bartering medium that was useful to you in more than just bartering. You might use it for dental work, or for jewelry or for a soldering agent, or a myriad of other purposes.

This is why gold and silver were not just the only bartering media used -- depending on society, the variety of what people used as a medium exchange varied on what each individual needed. The most popular bartering media were always the ones that were mostly universally acceptable, but that was not always the case.

In a free market, I have no doubt that paper "money" would become the norm, as well as digital "money," but only if that form of "money" was exchangeable for whatever backed it up. You might have a debit card with Chase that was backed in gold ounces. If you sent me money from your debit account, I would be free to go to Chase and withdraw the actual valued product to utilize as I choose, or I'd be able to use my new digital "money" to transact with another.

Right now, our fiat money only has value because others feel it has value. This CAN work in an economy where inflation and deflation doesn't exist. Fiat money CAN work if it is kept rare, with people backing up that fiat money with labor. The problem with fiat money has been that it is never rare -- there is almost more coming on the horizon.

Great article.

Ron said...

The free market is always superior to top down government and political actions.

We are very pleased to announce the creation of The Free Market Hall of Fame where members of the Freedom Movement will have the opportunity to initially vote on individuals contributing most to the success and advancement of free markets and free people around the globe during 2007.

Nominations for the Free-Market Hall of Fame are open to the public and can be made by anyone by e-mailing ron@freedomfest.com Individuals can vote for or nominate individuals who they believe should be in the Free Market Hall of Fame. Write-ins are permitted.

The categories will include the following:

1. Academic economists
2. Journalists and writers
3. Business leaders
4. Legislators and government officials
5. Think tanks

A select group of economists and other free-market supporters will make the final decision and vote on upcoming Hall of Fame members.

For more information on the Free Market Hall of Fame go to http://www.freedomfest.com/hofhome.htm

“It’s time we honored all the great teachers, writers, business leaders, legislators, and think tanks that have advanced the cause of liberty," Mark Skousen

Ron Holland, Editor
FreedomFest News http://www.freedomfest.com/news.htm
Author of the online book: “The Swiss Preserve Solution”.