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SCI LIBRARY

Libertarian Land Philosophy:
Man's Eternal Dilemma

Oscar B. Johannsen, Ph.D.



BOOK VI: THE STATE AND MONEY

Chapter 1 - The State's Place in Money




Government never of itself furthered any enterprise but by the alacrity with which it got out of the way. [Henry Thoreau --- Civil Disobedience]


Apparently only after money was in general use did States enter the picture. The reason usually advanced is that their interference was necessary to insure that a uniform money existed in convenient form. The State's imprint on a coin was presumed to insure that it was of a specific quality and weight. While this may have been a good excuse, it is doubtful if it was the real reason. Merchants initially produced coins. No doubt, at first, one merchant's coins varied in size and purity from those of other merchants. This inconvenience probably resulted in an informal agreement by the merchants in a particular area to produce coins of the same size or sizes and quality.

Just as a universal money facilitates trade in the world market, so a uniform money facilitates trade in local markets. Today, gold is the universal money. However, because most nations are indulging in the dubious luxury of inflating their exchange media, by means of issuing money-aids, few of them mint coins.

Coinage was fairly common in the latter part of the 19th Century. Most of the major nations' monetary units were defined in terms of gold, whether or not they actually produced coins. Had there been an international agreement by which all of them defined their monetary units as of the same fineness and weight, the world would have had a truly universal money. The coins of one nation then could have circulated just as readily in a foreign country as in its own.

However, though this was not the case, it did not really matter. As the weight and fineness of each monetary unit was known, the exact ratio of one nation's unit to another's was readily determined. This ratio is known as the mint par of exchange. For example, in the early part of the 20th century, the dollar was defined to he 23.22 grains of pure gold, while the English pound was defined to be 113 grains. The ratio of 113/23.22 is 4.86, that is, the pure gold of the pound (a sovereign) weighed 4.8665 times that of the dollar. In other words, an English pound was the equivalent of $4.86+. This was the foreign exchange rate. It is important to appreciate that these exchange rates, which were fixed, were the result of the physical relationship of one unit to another, and not due to the mandates of States.

A universal money was in existence which differed from a truly universal one only to the extent of the slight inconvenience that the coins of the various nations differed. An American. with a pocketful of American gold coins, could go to England secure in the knowledge that he had the same money as existed in England, though in a different form. All that was necessary was to exchange the American gold coins for English ones at the rate of $4.86+ to the pound. Even if it is assumed that States became involved in monetary matters to assure an honest money, history has taught the sad lesson that it is not long before all States do precisely what it is asserted they are in the business to prevent. They adulterate money. Monetary history is a sickening record of almost constant debasement of money by all States. It is doubtful if many merchants would have dared to issue debased coins. A merchant's integrity is one of his most precious assets. Therefore, it would be foolish indeed to have his reputation so easily ruined by issuing inferior coins. Any debasement was probably the work of counterfeiters.

The biggest and most persistent counterfeiters have been States. Adulterating coins only ceased when it became easier to inflate the so-called "money-supply" by issuing money-aids, as banknotes, with no relationship to commercial needs or actual money. As it is so simple to print money-aids, why bother debasing coins?

It may be of some historical interest to recall an amusing incident which happened to Henry VIII. He debased his silver coins by melting them down and reissuing new ones. Instead of being silver, however, they were of copper with only a plating of silver, and stamped with a figure of his head. Through wear and tear, the thin coating of silver gradually rubbed off and his nose protruded in copper. Because of this, he was dubbed "Old Copper Nose" The present American coins bearing president Kennedy's portrait are similar as they are composed of copper with a coating of silver.

As far as the public is concerned, it is a matter of indifference whether the government or private individuals or corporations issue money. All that it wants is that the metallic content of the coins is what the inscriptions on the face of the coins imply. Therefore, the public will not care if a government monopolizes the issuance of money. If a government has the confidence of the people, they might even prefer it. However the coinage must be in denominations and metal of their own choosing. People, and only people, determine what will be used as money.

If they wish to have silver as their money, and the government decides that instead gold should be the nation's money, they may or may not agree. As mentioned previously, Russia once tried to substitute platinum for gold, but the people's reluctance to accept the new coinage forced it to abandon the effort.

States monopolize money because they wish to manipulate it. A State may initially involve itself for the purpose of insuring a sound money. The Founding Fathers apparently inserted the monetary clause in the Constitution for that purpose. However, through successive interpretations of that clause, Congress has attained almost unlimited freedom to manipulate money as it sees fit.

This does not mean that manipulation is resorted to necessarily for unethical purposes. That may be the case, as occurred in the early 1920's, when Germany inflated its currency to wipe out the national debt. More often, though a State may wish to induce business recovery, or attain social gains, such as a more equitable distribution of the wealth produced. But it is seeking the impossible when it expects monetary manipulation to attain such ends. Money is a medium of exchange. But just because it serves that end does not mean that its manipulation can insure prosperity, full employment or the elimination of the business cycle. A State might as well manipulate money to assure eternal life.

Even if the aim is a laudable one, to manipulate money is unethical. In the world in which man lives, just ends require just means. To tinker with money is to cheat some of the people, possibly all of them. If a State inflates its exchange media by issuing money-aids, with nothing back of them, so that "prices" rise, the debtor may be benefited at the expense of the creditor. The creditor claims he is not getting back the same amount of purchasing power that he lent. While this is not strictly correct, he is not concerned with fine points in monetary theory. As far as he is concerned, he has been unfairly treated. Therefore, to protect himself in the future, either he insists on a rate of return high enough to take into account any anticipated depreciation of the exchange media, or else he may simply refuse to lend any money at all. Instead, he may expatriate his funds to another nation where there is little or no inflation. On the other hand, while the debtor may have been helped in repaying past debts, in the long run, he will be worse off for the protective devises which creditors institute increase his costs of future debts.

For most of the first quarter of the 20th Century, in comparison with other nations, the exchange media of the Americans was relatively good. This does not mean that money and money-aids were handled the way they should have been. However, in comparison with most other nations, the United States Government did not abuse its monopoly to the extent that others did. The establishment of the Federal Reserve System was a grave error. However, the centralization process had not been completed until after the Great Depression. Thus, the manipulation of the monetary system had not attained the absurd stage that it presently occupies. As of this writing, monetary tinkering has resulted in so great an inflation of money-aids that almost everyone is aware that there is something seriously wrong.

It is a mistake to assume that people do not eventually wake up and become aware of the disadvantages of tinkering with money. In the past, the practice of "moneyage" developed in some kingdoms. The people agreed to pledge a "moneyage." This was a heavy tax which might be levied every three years to repay the king for not altering or debasing the coin of the realm. People preferred to pay this tax than to have their money debased. They knew that in the long run, it was less than the hidden tax of inflation.

It hardly seems necessary to point out that a State, whether it be a kingdom, republic, or dictatorship, stresses that control over the nation's money is its priceless privilege. For hundreds, if not thousands of years, in order to maintain their stranglehold over money, States have encouraged the belief that the issuance of money is so obviously a function of government that no one would ever think it was not. The belief has been widespread that for anyone, other than the sovereign, to coin money is not merely illegal but unethical. The truth is that the issuance of money is not a function of government at all. The sooner money is restored to private enterprise, which originated it, the better for all.

Preface and Introduction

BOOK 1

Chapter 1 * Chapter 2

BOOK 2

Chapter 1 * Chapter 2 * Chapter 3 * Chapter 4
Chapter 5 * Chapter 6

BOOK 3

Chapter 1 * Chapter 2

BOOK 4

Chapter 1 * Chapter 2

BOOK 5

Chapter 1 * Chapter 2

BOOK 6

Chapter 1 * Chapter 2

BOOK 7

Chapter 1 * Chapter 2 * Chapter 3

BOOK 8

Chapter 1

BOOK 9

Chapter 1 * Chapter 2

BOOK 10

Bibliography