What is Free Market Money?

"What we need now is a Free Money Movement comparable to the Free Trade Movement of the 19th century, demonstrating not merely the harm caused by acute inflation...but the deeper effects of producing periods of stagnation that are indeed inherent in the present monetary arrangements. I still believe that, so long as the management of money is in the hands of government, the gold standard, with all its imperfections, is the only tolerably safe system but it is better to take money completely out of the control of government. The only way to save civilization will be to deprive governments of the power over the supply of money."
- Friedrich August von Hayek, The Denationalization of Money, 1976

For thousands of years, men have organized governments. In the earliest years, the government was a sort of religion or priesthood which not only told people to obey but told them that disobedience was heresy. Priests of the great Temple of the Pyramid in ancient Egypt were responsible for the surveys of all the lands along the Nile River. These surveys were the basis for taxes collected from as early as 3,500 BC.

About 280 BC, a Hellenistic Egyptian named Aristarchus of Samos set out to measure the circumference of the Earth. He already knew that the Earth was a sphere, that it orbited the Sun, that the Moon orbited the Earth as a satellite, that all three bodies were spherical, and that the Sun was much, much further away than the Moon. He learned of the famous well at Cyene, Egypt which is situated exactly on the Tropic of Cancer. The Sun shines directly down into the well on the equinoxes, casting no shadow. Aristarchus knew that at Alexandria, Egypt, much further north where he lived, there was a shadow cast by the Sun on the equinox. So, he took a six foot pole and measured the shadow it cast on the equinox. With a little trigonometry, he could relate the distance from Alexandria to Cyene to the circumference of the Earth. All he needed to know was the distance between the two cities. Since both cities are on the Nile, he turned to the tax records of the Temple of the Pyramid. Adding up the north-South distances for each property between the two cities, Aristarchus came up with a fairly close figure. He then calculated the circumference of the Earth. His figure was too high by 10%.

But his math was correct. Astronomers and archaeologists pondered the matter for many years. Why was his result off, if his math was right? In the late Nineteenth Century, British and French teams performed surveys of the Nile River valley. Subsequently, these surveys were compared to the tax records for the Temple of the Pyramid. It turns out that the priests cheated. They recorded each property as 10% larger in its east to West dimension and 10% larger in its north to South dimension. In this manner, they were able to collect 21% more taxes from everyone.

This story serves to illustrate the fact that government has always been corrupt. It has always been a temptation for those in power to use their power to gain more for themselves and their families, even though doing so is a betrayal of the trust placed in them.

Given the importance of money in every single conceivable transaction, why trust the creation of money to those in government? Indeed, how can economics ever be secure from tyranny if the issue power of money is trusted to those least capable of upholding the public trust? It is this essential issue which Hayek wrote about in his brilliant book The Denationalisation of Money in 1976.

That same year, gold was legalized. President Ford, presumably seeking campaign contributions from wealthy gold bugs, signed an executive order which reversed the decree of President Roosevelt. Once again, Americans were free to own gold coins, gold bullion, and write contracts in terms of gold. The stage was set for the development of free market money.

In 1996, Doug Jackson founded e-gold. In 1998, Bernard von NotHaus founded the Liberty Dollar. Since then, several other companies have been organized including GoldMoney, e-Bullion, 1MDC, Loom Gold, Pecunix, and the Phoenix Dollar. These private companies issue money which is redeemable for gold or silver.

Monetary competition has staggering consequences. It is so significant that many governments through the ages have forbidden it. "Uttering money" is illegal in many places, as is refusing the "coin of the realm." Legal tender laws make it difficult to compete against the government currency. As we saw in Chapter 9, these laws have been used to the detriment of shopkeepers and consumers.

It is a curious thing that the USA has no legal tender law. Or, rather, its legal tender law consists of authorization for the text "This note is legal tender for all debts public and private" to be placed on the Federal Reserve Notes. There is no punishment for refusing to accept Federal Reserve Note money. So, in the sense that a legal tender law punishes those who won't accept the national currency as legal tender, as acceptable for payment, there is no such law in the USA. In other words, if you want to accept credit cards and turn away cash, you are free to do so. If you want to accept gold and silver coins only, you are free to do so. If you want to take e-gold and refuse American dollars, you can do so without fear of prosecution.

Why is free market money so vital? E.C. Riegel wrote in June 1947 that, "it has not dawned upon society that the political monetary system that prevails in every nation is fundamentally socialistic. To point the finger at conscious socialists is self-deceiving, for it implies that others are not socialists. The finger should be pointed as well at the professing individualists who accept the socialization of the monetary system and are naive enough to believe that we can have a free enterprise system in spite of it (Escape from Inflation, 1979)."

He also wrote, in April 1952, in a letter to Ludwig von Mises, "The economy functions by means of verbal and written contracts, and under a monetary system, these contracts are all expressed in terms of the monetary unit. Hence the meaning of the monetary unit is the meaning of the contract. With the state's power to change the meaning of the monetary unit, it holds complete perversive power over the economy. To admit this all pervasive intervention while objecting to collateral ones is to swallow a whale while gagging at minnows (Ibid.)."

Plunder is the abusive practice of taking without compensation. It has many forms. None is more pernicious, none is more evil, than the plunder of bad money. Inflation is theft. When debased coin or counterfeit money is forced into the market, the worst sort of scum are stealing from everyone.

The ability to trade freely is an essential element of individual liberty. Restrictions on trade inevitably lead to restrictions in other areas. Fiat money, money which has value as "legal tender" only by decree or government order, is the very worst form of restriction on trade and commerce. It necessarily distorts markets, destabilizes prices, and destroys value. Productive people who are able to work for a living, to create and prosper, are deliberately hampered by the policies of fiat money, fractional reserve banking, redistribution of wealth, and intervention in the market.

The adoption of a free market money policy sets the economy free. Free market money helps people live free and prosper. The greater prosperity of every individual is best provided for by free market money.

Free market money lacks nothing that you would desire in monetary policy. It is the best possible money at the best possible price.