The Money of Your Choice
by L. Neil Smith and Rylla Smith
One chapter from their upcoming book, Where We Stand: Libertarian Policy in a Time of Crisis, a unique guide to the practical application of libertarian philosophy ...
It should be abundantly clear by now that government-issued "fiat" money (so called because of the Biblical use of a Latin term that means "let there be") -- paper currency, plastic or junk metal coins, and what might be called "magic wand credit" with nothing of actual, intrinsic, tangible value to support it -- has been an unmitigated disaster for everyone, everywhere, except possibly for corrupt politicians and certain of their pet mercantilists.
A mercantilist, you may recall, is one of those businessmen Adam Smith complained about in his 1776 book Wealth of Nations, who enlists the government as a weapon to help him against his competition in the marketplace, rather than honestly producing the highest quality goods and services he can at the lowest possible prices. This latter undertaking is called private capitalism. The two, mercantilism and capitalism, are often confused -- all too often willfully -- by those who hate individual freedom and the free market system.
For the most part, America is mercantilist, not a capitalist country.
Many of the nation's current financial difficulties have been caused by "fractional reserve banking," a corrupt and fraudulent mercantilist practice in which the government allows -- in fact, encourages, or even compels -- banks to lend many times the amount of money they actually possess. The effect is exactly the same as writing a bad check, or better yet, counterfeiting, but without the costs associated with actually acquiring paper and ink and printing the stuff. The trouble arises when, for one reason or another, borrowers can't pay their loans back and the bank is stuck with many times the debt that they themselves can pay.
On the other hand (although at first this may seem to fly in the face of what libertarians and some conservatives have been saying for decades), any attempt, well-meaning or otherwise, to create an official gold "standard" -- imposed or administered by government or by anybody else -- should be resisted just as vigorously as the present system, if we are truly interested in preserving freedom of individual choice, and building a genuinely free and secure market for money and for everything else.
Instead, individuals and organizations must be left alone to generate tokens consisting of, or representing, real wealth, in any substance, form, or denomination those they do business with find acceptable. Politicians and their "intellectual palace guard," most academic economists, detest this idea, denouncing gold, for example, as a "barbarous relic" precisely because it cannot be created politically, out of thin air. Over the ordinary course of events, money consisting of -- or based on -- something of real value cannot be inflated by government counterfeiters whose objective is to buy votes from millions of fools who, thanks to public schooling, have no understanding of economics or history.
Of course there is room in a free society for such things as privately issued certificates (for gold, silver, or what have you) which are, for all intents and purposes, glorified IOUs. Does the person offering the certificates in exchange for goods and services actually hold the wherewithal to back them up? It is up to the individual, not the government, to decide whether to accept them as money or not. The handing over of such a certificate is the same as signing a contract, and terms must be agreed upon by buyer and seller and ultimately enforced -- by adjudication, if necessary -- by the person accepting the IOU.
In all honesty, given history, personal experience, a free society, and private currency that weighs heavily and jingles in the pocket, the elder of your authors is uncertain that he would ever accept paper money again.
But we have digressed.
Gold, silver, platinum, nickel, or copper coins, manufactured by private parties, would represent the best kind of start toward a reformed economy. Every law against it must be repealed, nullified, or otherwise disposed of, thuggish raids against coin companies forbidden, and those who conduct them prosecuted. If there is any role for government in this connection (something that needs rigorous debate) it lies simply in assuring that such coins are what they advertise themselves to be. If a coin is marked "Silver, one ounce, 999 fine" it must really be an ounce of 99.9 percent pure silver, or it is fraudulent.
And we are speaking, here, about enforcing laws against fraud, not creating some new regulatory agency.
Privately-issued coins could be disks (which practical history appears to prefer), octagons, hexagons, pentagons, squares, or even triangles. They could be cubical or spherical. Ultimately, it is the market that will determine what works best. If an individual shoemaker, for example, decides that he likes spherical or triangular coins more than any other kind, then in a free market, he might accept fewer spherical or triangular coins per shoe, and that is his right as an individual, a collector, and a businessman.
One thing is certain: free market money would be denominated in weights -- ounces, grams, etc. -- rather than in terms of meaningless and deliberately misleading expressions like "dollar," "franc," or "peso." At one time in history, the British "pound," which is currently worth less than a buck and a half, meant an actual pound of silver, at today's prices, about $225. (In the decades immediately following the American Revolution, a dollar was worth about five shillings, or a quarter of an English pound.) Silver hasn't gotten more expensive over the centuries, British currency has become more and more worthless. The huge difference in value reveals the amount of real wealth stolen from the British people over the centuries through inflation by greedy royalty and politicians.
Mind you, there is nothing magical about gold, or any other single substance, only that it has been acceptable as money by billions of individuals for thousands of years. Free market activity could also be based on stores of various commodities not ordinarily thought of as money: petroleum, grain, various ores, precious gems, even computer chips, and so on, all of them fluctuating constantly and minutely against one another to produce an overall stable economy.
When the elder of your authors was in London in the 1970s (before the European Union and its own fiat currency were imposed on tens of millions of unwilling individuals), he noticed that all the banks hung chalkboards in their windows every morning, divided into grids that showed the relative value of various national currencies. Exactly the same kind of thing could be done with various monetary commodities, except that computers would make calculation and display of such information a great deal easier.
This could prove important in the long run. In the 16th century, the economy of Spain was more or less destroyed when conquistadors brought home tons of gold they'd looted from the New World. The value of gold, relative to other things, plummeted because the more there is of anything, the less any of it is worth. Fortunes based solely on gold tended to suffer as gold became more abundant and therefore cheaper. Economists refer to this phenomenon as the "Law of Marginal Utility." Spain ceased to be a world power and became, instead, the first "sick man of Europe." In many ways, it has never recovered.
The Law of Marginal Utility is not a law of economics or any kind of physical phenomenon -- the quality of a commodity does not change simply because there is more or less of it -- but is psychological in nature. If Man A has a thousand gold ounces, and Man B has a hundred, Man A will be less concerned about spending ten of his ounces, possibly because he will have many more left at the end of such a transaction than would Man B.
But again, we have digressed.
The future of monetary practices based on precious metals lies in the stars, or, more accurately, in the Asteroid Belt, where roughly a third of the millions of rocks circling the Sun between Mars and Jupiter are composed of metals, mostly iron and nickel. Other metals are present in lesser amounts: it has been said that a single metallic asteroid a mile in diameter contains more gold than has ever been mined on Earth, lying within relatively easy reach of the asteroid's surface.
Thanks to the Law of Marginal Utility, importing that much gold would halve the perceived value of the gold we already possess. Given a future that offers relatively easy and inexpensive means of importing gold and other metals from space, probably within this century -- current proposals for "space elevators" present just such an opportunity -- the entire future global economy could be affected in exactly the same way that Spain's was 500 years ago, if America (and humanity) relies on gold and gold alone as a monetary standard. On the other hand, allowing the market to decide, and to constantly re-decide from day to day, what is money -- and what is not -- would prevent such a catastrophe.
The lesson in all of this is that money needs to be based on something of real value, and that the market must be open and flexible enough that it can adjust to changes like the one that damaged Spain. Unless government and its hangers-on cause civilization to collapse altogether in the next few years (a real danger, we believe), almost all of the technological pieces are already very nearly in place -- cheap space travel, access to the Asteroid Belt -- and metallic inflation is bound to arrive sooner than most individuals might expect.
But in a free market, if gold (or any other single commodity) declines in value (for whatever reason), people can switch to money based on other commodities, and civilization will keep rolling along.
Which is more than anyone can guarantee right now.
Four-time Prometheus Award-winner and the author of 28 books and hundreds of articles, libertarian L. Neil Smith has been called one of the world's foremost authorities on the ethics of self-defense.
Neil's co-author is his 19-year-old daughter, Rylla Smith, a gifted student of libertarianism and author of three novel-length works in her own right.
Saturday, June 20, 2009
The Money of Your Choice