Libertarian Land Philosophy:
Man's Eternal Dilemma
Oscar B. Johannsen, Ph.D.
BOOK II: Exchange and Money
Chapter 6 - Private Money
Private Money originated with private individuals seeking something
which would make it easier for them to trade the specific goods they
produced for the things they desired. Merchants devised the coins
which circulated and put their insignia on them attesting to the
weight and purity of these pieces of metal.
When States found how convenient it would be to pay their debts with
debased coins and could manipulate money to suit their purposes, they
made money their monopoly. The history of money and banking is
principally a history of the mess which States have made of monetary
matters. Had they let money alone, it would have developed in a
perfectly natural manner as other goods have. Whatever sophisticated
aids, as banknotes and demand deposits, came into existence would have
played an efficient part in helping men carry on commerce with one
another. It is doubtful that exchange media could have bean used, as
it is today, for the purpose of attaining dubious social and economic
reforms.
This writer is convinced that the sooner money and banking are
returned to private control, the better for the people. States cannot
conduct businesses efficiently, it matters not whether it is a public
utility, a railroad, or a postal service. The results are uniformly
bad. The same is true of money.
Whenever a problem becomes very pressing for a State, either it makes
matters worse by increasing governmental interference, or reluctantly
it turns the problem over to private enterprise. For example, today
the postal service in the United States reached such deplorable depths
that the postal system was been converted into a quasi-private
corporation. Now that the conversion has been completed, it probably
is an improvement over the socialized system which had existed.
However, if the country really desires the finest possible postal
service it should permit the establishment of private competing firms
as it does in other areas of endeavor.
Similarly, if the nation desires the finest possible type of money
and banking, the entire monetary field should be under the aegis of
private enterprise. This may appear to be a startling statement to the
reader. But that is because we are conditioned to money and banking
being controlled by government. It is similar to a man wearing a ball
and chain on his leg. If he had done it all his life, he probably
would be shocked if someone suggested discarding it. Although it would
be perfectly obvious that be should remove it, the man would probably
undergo a severe traumatic experience in developing the courage to
free himself of the impediment. After the event, he would probably
wonder why he ever submitted to wearing the ball and chain for so
long.
No doubt, the reader may wonder if the writer is so rash in his
advocacy of the private control of money and banking that he believes
that any individual could issue coins if he so desired. The answer is
an emphatic yes. Just as any individual may issue IOU's which people
may circulate in effecting transfers of goods, so any individual
should be able to issue coins of his own. As stated previously, during
the gold rush days of 1849 in California, private individuals produced
coins which circulated. It is interesting to note that, at least in
the 19th Century, so firmly had people in other lands been conditioned
to the governmental monopoly of coinage that foreign students of money
apparently never even mentioned the possibility of private coinage.[1]
It remained for the freer spirit engenderedin America for the ancient
practice of the private coinage of money surfaced once again.
It may well be that as inflation becomes increasingly rampant
throughout he world, that private coinage, legally, or illegally, or
through various subterfuges, will grow quite dramatically as a means
of protection from depreciating "paper money". Not too long
ago in Switzerland, private individuals minted coins identical with
those which England had minted before it went off the conventional
gold standard. These coins were of the same weight and fineness. The
British government objected, but since it no longer issued these
coins, and its actions implied that it considered its money to be "paper-money"
its objections were given short shrift in the Swiss courts. Today,
people strike medals in gold or in silver, and the process appears to
be growing. There are not enough in existence but if there were, they
probably would circulate.
It is not very likely that many individuals would issue coins. It
would probably be done by banks, with goldsmiths being hired to do the
minting. Through their banking association, no doubt, the banks would
agree on standard sizes for coins and ingots of varying denominations.
Presumably each bank would have its name on the obverse side of the
coin. Thus, the cost of minting the coins might be charged off to
advertising. The cost of minting the ingots might be borne by the
banking association as a convenience for its member banks.
Banks would probably even issue tokens, although this might become
the province of merchants. Time and again stores have issued tokens,
particularly when a country runs short of them. The most recent
instance occurred in the middle 1960s. The shortage of subsidiary
coins in the United States led some department stores to issue tokens.
However, the government, ever mindful of its monopoly, forced the
cessation of such minting.
It would pay banks and others to mint tokens because they would
probably be composed of a material worth less than the face of the
coin. The banks would gain seigniorage to the amount of the difference
between the face of the coin and all costs involved. As long as the
issuing bank stood ready to redeem the tokens, they would circulate.
As for the issuance of bank notes, up until the passage of the
Federal Reserve Act in 1913, that was a function of the national
banks, and before the passage of the National Banking Act during the
Civil war, it was a function of state banks. A banknote is what the
word implies --- a note of a bank --- and until governments intervened
and made the issuance of banknotes a function of the government, banks
issued them. Demand deposits are still generated by banks, for the
most part through loans, so there would be nothing new for banks to
create them.
The only essentially new function for banks would be the issuance of
actual money, that is, coins and ingots of gold as well as tokens. At
the same time they would have recaptured their ancient right to issue
banknotes and money certificates to whatever extent they felt the
market would permit.
If the private issuance of money was permitted, then the quantity of
money in existence would be controlled by the people via the
marketplace instead of by the government. For example, if new sources
of gold were discovered, the banks would probably mint more gold coins
and ingots. This would have a tendency to increase prices, other
things being equal, as the people used the money to purchase goods.
However, as prices rose, it would become more costly to mint money.
The banks would then cease minting. A new equilibrium level would be
established for the time being between money and other goods. This
would have been determined by the people as a result of how they used
the new money.
If, on the other hand, the supply of most goods increased to such an
extent that prices generally decreased, then, other things being
equal, it would become less expensive to mint money so more would be
produced. With more money in existence, the spending of the money by
the people would tend to raise prices so that, other things being
equal, a somewhat higher level of prices would ensue.
Probably the fluctuation in the money supply would be so gradual as
hardly to be noticed. A growing, dynamic country would find that not
only would its supply of money keep pace with its growth but also the
supply of its money-aids. That is not to say that there is any set
ratio between the money supply of a society and the number or value of
its transactions. Rather, it means that whatever supply of money and
money-aids is required by the people at any time would be
automatically forthcoming. It would he determined by the people
through their purchases or lack of them in the marketplace. No one
knows what the proper ratio between money and goods is at any time any
more than anyone knows the proper ratio of steel production to the
number of people in a country. Looking to the past is no guide as to
how much steel is required today nor how much money. The only correct
proportion is that determined by the people in the marketplace. If too
much steel is produced, the people will order the reduction of steel
production by not buying the excess. !f too much money is produced
similarly the people will order the reduction of the production of
money by not buying it (i.e., prices will rise, which means that
people will give less of other goods for money.)
If the private minting of money became universal, and banking was
strictly in the domain of private enterprise with no regulation on the
part of government, the gigantic counterfeiting in which nations
indulge would cease. This is the issuing of banknotes and the creation
of demand deposits through the mechanism of central banks on the
excuse that such is necessary to encourage business growth and nourish
employment. Actual counterfeiting by private persons would probably be
minimal. As is true in all businesses, there will always be some who
will attempt to cheat, but these most likely would be a minority. At
any rate, such private swindles could never even remotely approximate
the swindles which governments have perpetrated on their peoples --
witness the inflation of the 1920s by the German government which not
only resulted in its money-aids becoming worthless but which
practically bankrupted most of the people. This inflation was an
important contributory cause for the rise of the megalomaniac, Hitler.
If money is under private control it would probably tend to be the
neutral factor that the classicists envisioned it to be. It is not as
neutral as they thought, because, after all, it is an article of
wealth. Just as the increase or decrease of any commodity has an
effect on the market so does the increase or decrease of the supply of
money have an effect. But the effect would not be that which occurs
under a governmentally monopolized monetary system, wherein money
becomes a vehicle for attempting to institute reforms to aid debtors
or to alter social and economic conditions.
A people certainly want a sound money. However, it must not be
assumed that just because sound money does exist that economic justice
necessarily is the order of the day, Such requires, among other
things, the adoption of a just system of land tenure, as well as the
freedom of the individual to do as he pleases, qualified only by his
not interfering with his neighbor's equal freedom.
Money and its effects may be likened to the blood system. The fact
that one has a sound system for distributing the blood throughout the
body does not mean that one is necessarily healthy. Other factors are
required. But just as it is difficult, if not impossible to have a
truly healthy body if the circulatory system is not a healthy one, so
it is difficult if not impossible to have a just society in a highly
developed civilization if the monetary system is not a sound one.
On the other hand, it is hardly likely that a healthy circulatory
system will exist if other parts of the body are seriously diseased.
Analogously, it is hardly likely that a sound monetary system will
prevail if other aspects of the economy are unhealthy. One can almost
measure the degree of health of an economy by its monetary system. If
the economy is a just one, the monetary system will be sound. If the
economy is not a just one, then the monetary system will probably be
an unhealthy one. This points up the fact that while people are
groping toward creating a sound currency, they must also strive to
create a just economic system, for the one goes with the other.
And it must be remembered that the only truly sound monetary system
is one in the field of private enterprise with the people controlling
it through the market place.
NOTES
- Cf. Arthur Nussbaum, A History of the Dollar, p. 86
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