The people writing and thinking about political economy in the United States in the age before central banks had enormous advantages.

1. They were never, as we are, confused about what money was. It was, quite simply, the stuff that would keep you out of the hands of the people with badges and guns. Money was whatever the revenue agents, excise men, internal revenue collectors, and court, bureau and treasury clerks would accept as payment - either as a bribe or as an actual payment of a tax. If the stuff you handed over was considered legal tender, then it was money; if the officers of the Crown would not take it in payment, then it was not money but something else.

2. They were - for the most part - untroubled by the question of the "value" of money. The money you used to pay the government or pay off the people with official authorities might have a great deal of value or very little. That did not change the fact that it was the stuff that kept you out of debtors' prison.

3. If the people writing and thinking believe that liberty, not authority was the greatest of all values, they wanted money to be what the Constitution said it should be - gold (and silver for small denominations) coin. They did not "believe" in gold; if they were devout, they believed in Almighty Providence and the natural right to be free. If they wanted gold to be money, it was not because they thought that would offer "price stability" or a "strong dollar" or "full employment" or any of the other fraudulent promises that are made every day by politicians and academic economists promoting the latest magical system of "economic order". Gold's price would fluctuate, rise and fall, bubble and crash just like all other prices that are set by actual buying and selling by free people and not fixed by "the law".

The people who believed in Almighty Providence had only one reason to want gold to be money. It would prevent the government from swallowing the people. Governments - the people who could claim the power of "the law" - and "ordinary" citizens were alike in their desire to spend more than they had. Yes, there were some people were naturally thrifty; but they were never more than a minority. What kept most of us gamblers, borrowers and spenders from defaulting on our debts was the fact that we wanted to keep our credit. We paid back our debts so that we could borrow again and even borrow more. The people who could claim the power of "the law" - i.e. the government - were no different about spending. But, they had an advantage the rest of us never had; "the law" would never, ever make them pay off their debts in anything but the stuff that the government itself defined as money. The doctrine of "sovereign immunity" meant that the people who got to wrap themselves in the protections of the flag could never, ever be held personally responsible for the government's debts. But, even worse, they government itself - that collective entity without a face or name - could always write itself a check to pay off its creditors. "Regulation" was no help; the regulators would always be people who also worked for the government. The only effective restraint was to require everyone - whether inside or outside government - to use the same money; and require that money to be something that no one - inside or outside government - could make for free.

Peter Grieve writes: 

A very timely post for me. I've just been reading how a guy bought a large interest in the Bank of England with a notched stick - a stick which the government would accept in payment of taxes.

Of course, they eventually decided that the stick money was silly, so they burned them all. Unfortunately they burned Parliament down in the process. This is an early example of the dangers of misjudged monetary policy.


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