Money is the most important commodity in an economic system Indeed, money “makes the world go ’round.” This is because money is the general medium of exchange. We sell our products and services for money, and then use it to buy the products and services of others.
Money also permits us to comparison shop. Since all goods are traded for money, every item in the market has its own money price. Consumers and producers are easily able to evaluate the relative money costs of consumer goods as well as the resources with which these goods are manufactured. This allows an efficient and economical use of the resources and commodities in society.
Money also enables an efficient transfer of resources between savers and investors. People who wish to save their money are able to loan it to those who wish to spend it This process has been the basis upon which entrepreneurs and businessmen have been able to invest in the plant equipment and new and improved machinery that has given us our high standard of living.
Finally, money tends to keep people honest. If I want to buy what others have for sale, I must have money to do so. But, ultimately, the only way I can acquire money in a free-market economy is if I have earned it by producing something for which other people are willing to pay me.
Thus, my ability to obtain what others have produced is dependent upon first having produced something which others wish to buy from me. In a free-market society, each man serves his fellow men as the means to achieve his own personal ends.
Since the beginning of recorded history, governments have had an insatiable desire to consume wealth. Kings and princes, tyrants and democratically elected representatives have never run out of ideas on ways to spend what others have produced and earned. And when governments have discovered that no further wealth can be extracted by means of taxation, they have resorted to the debasement of the currency. In ancient times, governments “clipped” gold and silver coins; in more recent times, the invention of the printing press enabled governments to produce oceans of paper money; and in the era of “high tech,” governments merely add to the money in the economy by pushing a button on the computer — vast sums of checkbook money instantly appear on the balance sheet.
This is what makes a monopoly over the power to create money so valuable to governments. Since money, as the general medium of exchange, is readily and willingly accepted by every member of the society, the control of money enables governments to have access to the society’s wealth without having first produced anything to acquire that money in exchange. Controlling the printing press enables government to be a consumer without first being a producer.
In our century, governments have rationalized this process. They have declared that their purpose is to stabilize the economy, guarantee full employment, and assure a balanced financial environment. In 1913, the U.S. government established a central bank — the Federal Reserve System — to do this job. Its record speaks for itself a “great depression” in the 1930s, a series of economic booms and recessions of various frequency and duration in the post-World War II era, and unending inflation for five decades. By their fruits you shall know them.
Government monopoly and control over money has been an economic and social disaster. Wealth has been squandered and misinvested; the savings of millions have been destroyed through inflation; and the social fabric of societies has been weakened at various times during periods of monetary debauchery.
In a time when the belief in socialism is dying around the world, it is time to realize that government monopoly of money is nothing less than monetary central planning It, too, has been a failure. And it is time to “privatize” money for the same reasons that are being proposed to privatize the production and marketing of goods and services in the communist East and the democratic West Only private enterprise, operating in a free market can eliminate political abuse in the disposal of resources and can guarantee efficient use of those resources for the satisfying of consumer demands.
Contrary to government-created myth, money is not the creation of the State. Historically, money evolved in society out of the interactions of a multitude of buyers and sellers searching for ways to overcome the difficulties of barter. Commodities such as gold and silver were found by individuals to possess the qualities and attributes most useful in providing a sound and stable medium of exchange.
In the 19th century, the friends of individual freedom and economic liberty advocated the establishment of a gold standard to limit governmental abuse of the printing press. Unlike paper money, gold cannot be manufactured through the turning of the handle of the printing press. The amount of gold in the market is limited by the profitability of mining it out of the ground. The quantity of money, therefore, is controlled by the market forces of supply and demand.
But the mistake these friends of freedom made was that they still believed that governments had to be given the authority to manage the gold standard, even while that gold standard was meant to check governmental abuse of the money-creation process. The fox was assigned the role of watching over the chicken coop. As was to be expected, the system failed. The 20th century has seen tidal waves of inflation in various countries as governments found ways to circumvent the trust assigned to them under the gold standard and then rationalized the issuance of vast amounts of paper monies — all done in the name of the “national interest.”
Money must be separated from the State. The Federal Reserve System must be abolished; all legal tender laws prohibiting individuals from using and contracting in whatever money they desire must be eliminated. The market — which means all of us in our roles as consumers and producers — should be left free to decide which commodities shall be selected as the most advantageous mediums of exchange. Also, the market should be left free to determine the economically most useful forms of banking and financial intermediation.
Contrary to government propaganda, this would not lead to economic “anarchy” or collapse. Rather, it would be the foundation stone of freedom and prosperity in the 21st century. Government has been the cause of monetary disorder in our society. A free market in money and banking would be the solution to our “age of inflation.” Government central-planning of money has been tried and it has failed. It is now time for monetary freedom to be given a chance.
First published at the Capitalism Magazine and posted here with the kind permission of the author
Dr. Richard M. Ebeling is the BB & T Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina, He was formerly professor of Economics at Northwood University. Was formerly president of The Foundation for Economic Education (FEE), was the Ludwig von Mises Professor of Economics at Hillsdale College in Hillsdale, Michigan, and served as president of academic affairs for The Future of Freedom Foundation (FFF).