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SCI LIBRARY

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


  1. Cf. Arthur Nussbaum, A History of the Dollar, p. 86

Preface and Introduction

BOOK 1

Chapter 1 * Chapter 2

BOOK 2

Chapter 1 * Chapter 2 * Chapter 3 * Chapter 4
Chapter 5 * Chapter 6

BOOK 3

Chapter 1 * Chapter 2

BOOK 4

Chapter 1 * Chapter 2

BOOK 5

Chapter 1 * Chapter 2

BOOK 6

Chapter 1 * Chapter 2

BOOK 7

Chapter 1 * Chapter 2 * Chapter 3

BOOK 8

Chapter 1

BOOK 9

Chapter 1 * Chapter 2

BOOK 10

Bibliography