THE LIBERTARIAN ENTERPRISE
Number 184, July 29, 2002

FATHEADS ABOUND!

Voluntary Money
by Curt Howland
Howland@Priss.com

Exclusive to TLE

When I find myself in the situation of presenting and defending some of the bigger repercussions of non-aggression, there are several subjects which I find myself up against the wall to prove, or disprove, in order to justify the entirety of voluntary interaction as a viable process. Vin Suprynowicz detailed one of these in his article "Why does it always have to be roads?"

A good friend of mine said that government must exist to "establish treaties with foreign powers, provide overall direction to armed forces in times of war, provide a court system for resolving disputes, etc." Even some individuals who consider themselves to be anarcho- capitalists believe there are specific services that only a government can satisfactorily provide.

What I have found very educational is that people differ as to what those specific services are. In the spirit of free enterprise, if you see a way to provide a service that others do not, do it and make a fortune serving your customers better than anyone else. Making government irrelevant is my preferred peaceful path of revolution, one service at a time, which is one reason I absolutely loath government mandated monopolies.

One such service is money.

So what is money? My mother taught me that money represents work, that money takes the place of having to spend my time laboring for each person from which I wish to receive something. This was ok, as far as it went. It certainly grounded my thoughts much better than highhanded theories that get presented in first grade textbooks such as "Money is what drives the economy. It makes it possible to buy things." Any 4 year old knows they don't get ice-cream from the Good Humor Man without money, that doesn't answer the question of what it is.

Money is a medium of exchange. It is the middle ground, its physical value unimportant to its use as money. The paper currencies printed by governments around the world have almost no intrinsic value. A 1 euro note and a 10,000 euro note are no different in terms of materials or costs of production. It is only in their use as money that they differ.

These are the four properties of money that I believe to be essential:

  • It must be divisible. I cannot barter with someone for half a car, or half a chair, or half a computer chip. Such things have no value to anyone when incomplete. Making change is an essential function, technically known as "fungibility".

  • It must be durable. Ice, while valuable and divisible, is impractical or impossible to "save for later" because it melts.

  • It must be accepted. Unless my partner in trade believes that what I give them is something they will be able to trade to someone else in the future, it is worthless as money. At best, they may take it on speculation that they might get something good out of it at some future date, but the relative quantity of this "money" I provide would then have to increase to cover their work of later conversion above and beyond the object or service I wish to buy now. No one is going to accept "Curt Bucks", a sad fact which I've had to learn to deal with.

  • It must be scarce. If the quantity increases, it becomes inflated and worthless. Air on Earth makes lousy money, but might work to some extent as money in space.

Government fiat currency is widely used as money. All four essential attributes are satisfied, most of the time. Anyone who accepts a bill or coin that is obviously wearing out can trade it for a new one at face value from the issuer, banks often do this in wholesale quantities. Laws can be used to enforce acceptability, "This Bill Legal Tender For All Debts Public And Private". Officials can maintain scarcity, if they want to, by not printing or coining more than is used up in wear and tear. Divisibility is standardized and requires only some small effort.

This is where the argument stops for the person who questions the ability for cooperation and consensus to create and maintain a money supply. The obvious problems of inflation and fraud are answered the same way objections to government programs are always answered, "That just means they aren't doing it quite right. I agree the system may need reform, but you can't just get rid of it."

Human civilization had settled on these attributes long ago. Gold and silver, most people still can remember, were the last and most widely accepted commodity moneys in the world. The American government under Franklin D. Roosevelt had to forcibly confiscate gold from the citizens in order to prevent its use as money when the American government fiat currency had become effectively worthless in the 1930's. I am not personally aware of what happened elsewhere in the world specifically, but I suspect much the same kinds of enforcements have been taken by governments to protect their currencies.

I recall in one of the James Bond movies, when "Q" is showing Bond his enhanced briefcase, "Q" unsnaps and draws out a strip of leather in which a dozen gold coins have been set. "Just in case." People trust hard currency, instinctively, even if they don't know what to do with it in practice.

When I have presented these ideas to the people convinced that only fiat currencies can meet the "needs of today", they bring up one last objection: There isn't enough gold to go around. They believe the actual scarcity of gold makes it unsuitable as money.

However, scarcity is essential to something's use as money. The inflation caused by the printing of fiat currency has earned the issuers of those currencies vast wealth. Each time they print more, they get to use it first. When markets adjust to the larger quantity of currency in circulation by raising prices, the currency that had been in circulation before this new influx is all devalued, the currency issuers effectively robbing the savings of everyone else to line their own pockets. The failure of fiat currency in its use as money is because it is not actually scarce. It is subject to bureaucratic whim, deliberate avarice, and even simple human fallibility.

F. A. Hayek won the Nobel Prize for economics in 1974, for his and Ludwig von Mises work demonstrating that boom and bust business cycles were instigated by the expansion and contraction of fiat currency supplies and credit by national banks. The letter written in veto of an American national bank by President Andrew Jackson says much the same thing. The abuses that a central bank and currency issuing authority promote are not news.

No one can "print" gold. The effort of using atomic technologies to "turn lead into gold" require far more resources than the resultant gold could be traded for. No one controls the supply of gold, it is found all over the world. Production of new gold, as well as its consumption in manufacturing, is exceptionally stable in comparison to the printing of fiat currencies.

Please don't limit this to gold! Pick anything that has the basic attributes important to its use as money, and the same arguments apply. E-gold, one company presently doing business as a repository facilitating electronic transfers, keeps stocks of gold, silver, platinum and palladium.

It's not that hard currencies "can" work as money, it's that they always did work. Problems occur only when a currency violates one of the essential properties of money. As the trade routes between Europe, the Americas and East Asia were opened by more and more efficient trade methods, "backward" civilizations were looted and various trade goods came under high demand. Large quantities of gold and silver flowed in and out of various countries, violating and exacerbating the "scarcity" aspect of the use of those specific commodities as money. "Inflation", by another name.

This is hardly an argument against hard currencies. Rather, I consider it the most effective argument in favor of diversifying your investments.

There is a psychological aspect that must be addressed. I don't believe the objection to hard currency is rational; it is one of conditioning and teaching. The resurgence of commodity metal currency on the 'Net is a good way to break this conditioning.

People are already accustomed to credit cards. Conversion is automatic. There is no issue of divisibility or durability. The one remaining aspect is acceptability, and credit cards illustrate this issue perfectly. In only 30 years, credit cards have gone from individual "fiat" cards issued by a gas station chain or large department store to their customers and usable no where else, to there now being a short list of almost universally accepted cards with ATM's around the world to dispense local currencies.

However, like fractional reserve banking before it, credit card use has created a debt-based mess. The only reason the house of credit cards stands is because of the "trust" in government issued fiat currency, which credit card transactions are accounted in. Also, because of inflation, paying off today's debt with tomorrow's currency is good fiscal policy for the customers.

Replace that debt with commodity money. What if I had a credit card that drew on an account of actual metal? Would I care if I "transferred" an ounce of silver, or 1/125 ounce of palladium? Would I care if the transactions were measured in grams, ounces, grains or Avagadro's of Atoms? Not in the slightest.

So I can hold up my "Gold" card and say to the believer in the Church of the Federal Reserve, "Here is something that answers every single objection you can mention." Money, based on physical reality instead of trust in bureaucrats, widely accepted without compulsion. Anarcho- capitalist money. They're whipped.

... Except for one thing: "Well," they cry at the last, "what happens when someone finds an asteroid that's solid gold, and brings it back to earth, and makes gold worthless? Where will your precious 'hard' currency be then?"

At that point, all I can think of is my father, who said he bought cigarettes at 12 cents a pack and movie tickets for 25 cents. Cigarettes are now 5 dollars, and movie tickets 9 dollars, while an ounce of gold then and now still buys a good men's suit. An asteroid of gold is hypothetical; the abuses of the fiat currencies by bureaucrats are real.

Jim Davidson, who runs GoldBarter.com and generously read through this for me, relates the following: "Seriously, in the year 2 A.D. one could go to the Roman Forum with an ounce of gold in coin and buy a toga, a pair of sandals, and a belt. Today, you take the dollar equivalent of an ounce of gold ($317.90 today) and buy a decent suit, a pair of shoes, and a belt at the Men's Wearhouse. Not bad for protection against inflation, huh? Two thousand years of price stability. (G. Edward Griffin, The Creature from Jekyll Island, 1994. Page 52, I think)"

The worst of it all is that this asteroid objection was raised, not too long ago, and the person walked away convinced I was wrong because for them state inflicted inflation and coercion had to exist. Like a prisoner terrified of the dangers of freedom he bore his chains willingly, even gladly. I had failed, but maybe the next discussion will bear fruit.

Some links for interested people, and to demonstrate that this stuff works:

Send two cents in gold to the author (or anyone else with an E-gold account):

Open an E-gold account (and give me a tiny kickback):

The Libertarian Enterprise takes E-Gold too.

Jim Davidson operates an online auction house with all deals made in online hard currencies: http://www.GoldBarter.com/



Curt Howland [http://www.Priss.com/] is a freelance computer network engineer, looking forward to the Free State Project or the perfect telecommuting job, or better yet both.


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