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The Money of Your Choice
by L. Neil Smith and Rylla Cathryn Smith
lneil@netzero.com

Attribute to The Libertarian Enterprise

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 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 price. The 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.

Many of America's current financial difficulties have been caused by "fractional reserve banking", a 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—without the costs associated with actually 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 will seem to fly in the face of what libertarians 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 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 they find acceptable by those they do business with. Money consisting of—or based on—something of actual value cannot, over the ordinary course of events, be inflated by government counterfeiters whose objective is to buy votes from millions of fools without any understanding (thanks to public schools) 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.

Given a free society, the elder of your authors is unsure 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. If there is any role here for government (something that needs rigorous debate) it lies 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% pure silver, or it is fraudulent.

Privately-issued coins could be disks (which history appears to prefer), octagons, hexagons, pentagons, squares, or 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 $180.00. (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 stolen from the British people over the centuries by greedy royalty and politicians.

Mind you, there is nothing magical about gold, or any other single commodity, 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 forth, 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 calculating and displaying the 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 conquistadores 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, a phenomenon economists refer to 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, we insist, 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.)

The future of monetary standards 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—current proposals for "space elevators" present just such an opportunity—within this century, 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, 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), 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.

Another chapter of (working title) What Libertarians Believe. A book designed to sort of pat the Libertarian Party, and the broader movement of which it is a part, back into shape after years of abuse it has suffered at the hands of individuals whose interests, apparently, are focused somewhere other than on creating a free society.

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