Good Money Is Real Money
By Doug French
One of the key pillars to returning money to the people, as Ron Paul mentions in a new edition of The Case for Gold which will be released this week for free to Laissez Faire members, is to undo government’s monopoly on money creation. None of us can imagine what that would be like because the government has held such a monopoly in modern times.
But money is no different than anything else. It benefits from the spirit of enterprise. Competition is good. Competition leads to product innovation. It ensures product quality. In contrast, as with any monopoly provider, the government’s money product has denigrated over time. Since 1971 the U.S. dollar has no backing. The coinage has gone from gold to silver to an alloy of copper and zinc.
The quarter, for instance, was minted in 100% silver on and before 1965. Now the quarter is 91.67 percent copper and 8.33 percent nickel. Pennies are 97.5% zinc and 2.5% copper. Could plastic coins be in our future?
As evidence that the market is seeking a sounder currency, the digital world has developed a currency that is getting attention and use, Bitcoin. Bitcoins have no central issuer but are administered through a decentralized peer-to-peer network that began in 2009. There are somewhere around 10 million bitcoin in existence and more will be released until a total of 21 million have been created by the year 2140.
Bitcoins is the currency of the online black market. For instance, The Silk Road (Amazon of the illegal drug trade) only accepts payments in Bitcoin. The European Central Bank observes in a new report that “It operates at a global level and can be used as a currency for all kinds of transactions (for both virtual and real goods and services), thereby competing with official currencies like the euro or US dollar.”
It is not the best or final answer to the monetary problem but it does serve as evidence that market desires something better than what governments are giving us. And yet even adherents to laissez faire recoil at the idea of private money providers.
In his book Good Money, as published by the Independent Institute, George Selgin points out that Herbert Spencer was one of the few classical liberals to question the state’s control of money.
Spencer said that Gresham’s Law (bad money drives out good) only applies when government’s force people to use debased or inferior coins. Spencer believed, “the opposite tendency–a tendency for good money to drive out bad–would prevail if coinage were left to private enterprise,” writes Selgin.
But what would it be like to have private coinage? That’s what Selgin’s very engaging book is all about. Indeed, the University of Georgia economics professor has written the definitive story of the private coinage market of 1775 to 1821 England. The historical episode had been known by specialists but this is the first general, in-depth treatment of a very exciting real-life example of private coinage.
Gresham’s law did drive all good silver coins out of the country. While the market was 13 pounds of silver to a pound of gold, Britain’s great recoinage set the ratio higher. Master of the mint Isaac Newton attempted to stem the tide, lowering the ratio to 15 ¼ to 1, but that was still too high. “So silver kept right on flowing east…,” Selgin writes, to, quoting Thomas Southcliffe Ashton, “grace the bodies of women in India, to provide votive offerings in the temples of China, or simply to swell hoards in these far-off places.”
While the royal mint ran out of silver, people still needed small change. The government couldn’t supply the demand and private business stepped in, making for a compelling “story of the initiative of local authorities, companies and individuals in the face of state ineptitude,” according to Roger Scott Whiting, whom Slegin quotes.
This is not a story of the government granting a protected minting contract to a single crony. From 1787 to 1797 there were 20 coin manufacturers serving 200 known clients. Nearly all the mints were located in the bustling industrial city of Birmingham, described by Edmund Burke as the “great toyshop of Europe.”
These entrepreneurs didn’t even need to devote most of their businesses to creating good money. A handful were button makers, a couple were metal rollers, a few were die sinkers, there was a copper miner and a toy maker. Selgin explains that Birmingham manufacturers had the reputations of being “Jacks of all trades.”
The commercial coining story played out in three acts. Initially, leading industrialists dominated the market. Then new competition appeared. Finally a craze in token collecting took off. This led manufacturers to make even more attractive tokens. And the upshot was that the private coinage became of such high quality it was nearly impossible to counterfeit.
“In short,” writes Selgin, “counterfeiters played less havoc with the commercial coin regime than they played with the regal coinage.”
Far from a disaster, the commercial coin market was like any other. Inferior coins weren’t accepted and their manufacturers were forced out the business. And while copper coins became lighter over time, this compensated for rising copper prices. Commercial coinage did not fall prey to Gresham’s law like state monopoly coins.
Good history is as important as good money. It provides a firm foundation for understanding the world. George Selgin has done us a tremendous service enlightening us with a little-known story that has so many important lessons. Lessons that provide the answers to solve so many of today’s monetary problems.
Like public schools, the post office, and so many other government monopolies, it’s time to consider alternatives to the state’s money monopoly. Good Money is a good read to relieve the anxiety of wondering what a state-free monetary system would be like.
Laissez Faire has the last remaining copies of the hardback. It includes an eye-popping gallery of some of the most beautiful coins I’ve seen — entirely the product of private enterprise. This is probably the last chance to buy this classic in this form.
Sincerely,
Douglas French
