The Case for Market Money

In modern times, money production has become the domain of governments, and no longer reflects the demand of the free market. Instead, governmental money is used because it is backed by the state. To protect the monopoly of money in the United States, it is illegal to create a currency that can compete with the Dollar. U.S. Code Section 486 states, "Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title (!1) or imprisoned not more than five years, or both". Recently, the United States government backed this law with force on two occasions. First in 2008, with the seizure of the gold-denominated reserves of the online currency E-gold, and secondly, with the arrest of Bernard von Nothaus, the creator of the physical silver currency Liberty Dollar. This section of U.S. Code is egregious on two counts. First, this policy harms passive citizens whom may want to use, or create, a niche currency that fulfills demands of the market created by the unsettling monopoly - granted by government - to traditional payment methods. These people are commonly referred to as the unbanked. Secondly, this monopoly restricts the overall improvement and technological maturation of currency.

The monopoly over currency is crucial to sustaining an overreaching and insatiable government. The task of the monopolistic control over currency is used as a method to fund the actions of the state. It is the method of least resistance, because the common citizen is usually ignorant to the effects of inflation. Adherents to Keynesian economics may differ with the Austrian school on theory, however it is hardly disputable that government as a whole prefers Keynesianism because of the advantages of increased revenues. Inflation is accomplished through printing, and hence, inflating the money supply, then loaning the newly created money out to governments and other banks. In essence, this is a twofold blow for anyone participating in the economy under these institutions. The value of the money all citizens hold is decreased through inflation, then - the new money supply - loaned to the according government to pay off. The government will then tax the citizen to pay off this debt. This is how the cabal of corporate banks and government create new money. It is the easiest method of taxation because no elected representative, or taxpayer, ever consent to this hidden tax. It is a process of theft that has created an immeasurable loss of intergenerational wealth. Governmental money production is ethically wrong, and hence, money production should be left to the free market.

The origins of money are important to understanding the ethical problems of modern governmental currencies. In ancient times, money production came about as a solution to the problem of barter. If an individual wanted to trade, it was uncommon for items to have equal value. Divisibility was not always a solution, because individuals could not divide items - such as a chair - that are valuable as a whole, but not valuable as parts. Thus, individuals began searching for items that had specific properties making them useful in trade. Aristotle outlined these properties as follow: It must be durable; It must be portable; It must be divisible; It must have intrinsic value. Demand for these properties led to a higher value for the object during barter, and hence increased the velocity, the rate at which a given object changes ownership, leading to the first monies.

Contrary to modern expectations, money has not always been in the domain of government. The origins of money stem from the free market. The Native Americans provide an exemplary look at the origins of money because of their primitive state before the arrival of Europeans. The Native Americans used money consisting of Wampum, colored shells of clams found along the Eastern American coastline. This form of original money derived its value from the collectible nature of shells among Native American tribes. Wampum was also durable, portable, and used in a small unit. The use of Wampum came about in a free market, its use was not forced among members of the tribe. In fact, there are actually examples of competing currencies among the Native Americans. Many tribes used skeleton parts of hunted animals as currency, rather than Wampum. After the arrival of European settlers even tobacco became a desired method of exchange among Native Americans. Currency did not begin as a mandate handed down from government, it began as a solution - created in the free market - to barter.

Although money began as a free market solution, it was perverted by a process known as fractional reserve banking. Fractional reserve banking is the first unethical step towards a completely governmental fiat currency. It originates in the following manner: Money is deposited into a the vault of a goldsmith for safekeeping. In return, the depositors receive a promissory note for the amount of gold deposited. After many transactions, the goldsmith learned he could lend out notes on interest, rather than only accepting gold. In effect, the goldsmith, now fractional reserve banker, created money from paper. When individuals requested their gold, many times the banker could not provide. This process, originating in the Roman Empire, created fractional reserve banking - undoubtedly the largest ponzi scheme in history. Even today, people pay banks whole paychecks only to have this hard earned money fund a process that eventually depletes any profit they may make from interest, and will eventually deplete any value of earnings that could be passed on to future generations.

Though fractional reserve banking existed much earlier in practice, modern fractional reserve banking originated in England; where governments realized that they could replicate the fractional reserve process on a national scale to raise more money for the state. Early central banks include the Bank of Venice, the Bank of Amsterdam, the Bank of Hamburg. These banks practiced sound monetary policy (not fractional reserve) unlike the later Bank of England (Griffin, 172-173). Most modern central banks are based on the Bank of England, including the United States central bank, the Federal Reserve. This modern form of banking overthrew sound banking because it was the most profitable for governments, not ethical and safe for the citizens. Almost all modern central banks are private monopolies granted by the federal government. No one person in the United States government can view Federal Reserve documents without an audit passed by Congress. Central banks lend out money to other nations and banks to be repaid with interest. The Federal Reserve lent out Dollars to be repaid in gold, until 1971, when Richard Nixon removed the United States from the gold standard. This was the equivalent of a bank run an a national scale. The Federal Reserve had received requests from numerous nations for the gold value of their promissory notes, Dollars. Unable to fill these requests without wiping out the national reserves of gold, the Federal Reserve forfeited these requests. All debts would now be repaid in paper, not gold. Accordingly, the last traces of silver in United States coinage was removed from production in 1971. The United States Dollar now represented nothing other than itself. This completed the transformation between a fractional currency and a fiat currency. The Federal Reserve could now print and loan as much money as possible, there was no longer a cap on how much money could be printed. Our founding fathers would have been ashamed of this practice. Thomas Jefferson once stated in a letter to John Taylor, "And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

As the governmental process for money production is revealed, the question presents itself, how does this money get into the economy? This process, directly related to the creation of governmental monies, is just as deceptive as the production of the money itself. Every Thursday of every week, the Federal Reserve releases a balance sheet for all of their securities. For every security the Federal Reserve holds, they hold an equivalent amount of Dollars in value. These securities usually consist of loans to various governments and banks, as well as bonds the Federal Reserve buys off the market. Since the Federal Reserve already controls the amount of assets they hold by creating money, they can allocate these resources to whatever securities they please. Complete control over currency allocation allows them to manipulate various sections of other markets to their advantage. This practice is immoral because the action of this underhanded theft is detrimental to many participants of the economy.

After the 2007 to 2008 financial collapse, the Federal Reserve began a process known as quantitative easing. Essentially, quantitative easing is a process that allocates a significant portion of the Federal Reserve assets, Dollars, towards bonds and other financial assets of commercial banks. The intention of this bond buying was to raise the price of financial assets on the market. This process is supposed to spread wealth throughout the economy and thereby lift certain sectors out of recession. Some argue that the process of inflation is justified through this legal form of market manipulation, that the means of inflation, justify the end of a better economy for us all. However, the economy does not work like that. Economies can not be planned or controlled; they act in adverse ways. The economy is the sum of all human action in a specified geographic location. When outside mechanisms are injected into the economy with the intent of coercing human action to act or behave in certain ways, this process is not a benefit, but a net loss from the innovation that could have occurred if the market was left alone. When government tries to coerce human action in the marketplace, the action does not stop. The action will change form or move to another less regulated sector of the market. The according is true even for quantitative easing. Money the Federal Reserve has injected into the bond markets, has caused a massive increase in price of stocks. However, this massive increase in price is not sustainable. After quantitative easing ends, the newfound money in bond markets will dry up. Conditionally, this will end the ripple effect that has caused the most recent stock market bubble. When this bubble collapses, countless individuals will be harmed by bad monetary policy at the Federal Reserve. Additionally, the general public will be harmed by another drop in real estate. The economy is by nature a perfect mechanism; when this mechanism is tampered with only net negative effects result. The process of using coercion to change the outcomes of events is wrong and unsustainable. Such will be the eventual downfall of the United States Dollar.

Though the government seems to have a stranglehold on currency at the moment, technology and markets are making substantial progress to eliminate this counterproductive and unethical scourge of governmental money. Currently, the two leading forms of free market competing currencies are commodity monies and cryptographic currencies. The primary reason these two currencies exist is because they are decentralized, and hence, hard to control by governments. With the current prohibition against monetary competition, the only format in which a non-governmental currency can successfully exist is in a decentralized format. Currencies such as E-gold and Liberty Dollar are quickly shut down because of their centralized nature. Accordingly, because government is a near majority holder of gold, it is prone to price manipulation and is not suitable for money until governments liquidate their supply. Bitcoin - a decentralized and cryptographically secure digital currency - seems to be the most obvious choice for a non-governmental currency because of its digital nature. The benefit of being divided into digital units in the 21st century is crucial to world commerce. Bitcoin can be transacted across the world for absolutely no overhead or fee; these are properties that gold does not have. Units of physical goods can also be attached to a Bitcoin through a process called Colored Coins. These goods are supported through legal contracts on the Bitcoin network. The creation of a programmable and digitally malleable currency is one of the largest unbeknownst innovations of the 21st century. A recent survey by HP and the Ponemon Institute concluded that 80% of organizations surveyed believed that virtual currencies would overtake traditional fiat currencies in the next ten years. Looking towards the future I can be confident money will be in good hands - our own.

*Originally written in February of 2015


Print References

Griffin, Edward G. The Creature from Jekyll Island. Westlake Village: American Media, 2010. 

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