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.
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