The Money Problem In the Light of Liberty
Many thoughtful people are more and more aware that industrial depressions are caused chiefly by faulty control of money and credit. Most “reformers,” or those who recommend measures to remedy this, turn to government for issue and control of money. It is my purpose here to briefly present an analysis and “cure” in the light of economic liberty.
It is hardly necessary to inform clear thinkers that legal monopoly and liberty are opposites. To genuine libertarians, there is but one way to delegate social functions, and that is free competition. If any individual or group believes they can perform any social function better than is being done, they should have the right and opportunity to prove it in actual operation, on their own responsibility and that of any who voluntarily join them. To erect through law a monopoly of any social activity is a sure way to promote graft and exploitation. This is the fallacy of communism, fascism, and all schemes involving government monopoly.
If, instead of arguing with one another, the various money reform groups would come out openly for freedom in banking, then each could go ahead with their plans with voluntary cooperators. Each one’s money would circulate among those who considered the plan sound and workable. But no one would be compelled to accept any other money than he wished. The better ideas and systems would win out, having been proven sound by actual operation. There might be failures at first, no doubt. But it is by free trial and error, with only experimenters and free co-operators getting “burned,” that satisfaction is finally achieved. This is the method of liberty. Many of those who now turn to governmental schemes for lessening man’s plight may soon find themselves hog-tied by government force and violence, as has been the lot of several people in the eastern hemisphere.
Money grew out of the need to get rid of the inconveniences of barter. Money is that wealth or media that is generally acceptable in the exchange of goods of services.
Money is of two kinds: commodity and credit money.
Commodity money is that which has its value inherent in itself—such as skins, cattle, corn or a gold piece.
Credit money is a promise of goods of specific quantity or quality, either “on demand” or at a specified time. All paper money is credit money. Credit money may be (in honesty, should be) backed by, based on and redeemable in actual wealth or commodities. This is called commodity-backed money. Credit money based on government-debt is fiat or dishonest money.
A credit transaction is one in which an interval elapses between the completion of the exchange. In a credit transaction there is a complete exchange of the rights of ownership, an incomplete exchange of the goods in question. Since paper money is not wealth itself, the use of paper money means doing business on a credit basis.
Basis of Issue and Standard of Value
Money is inconceivable without both a basis of issue and a standard of value. One of the most misunderstood aspects about money is the distinction between the need for and nature of these two factors.
The basis of issue is some stable wealth like bales of cotton, bushels of wheat, ounces of gold, against which the money is issued and in which it can be redeemed, at the wish of the holder. The value of credit money is determined by the value of the wealth upon which it is based or secured, measured in terms of a standard unit of value.
The standard of value is some one thing, a unit of gold, like a dollar, ire, pound, etc. or a composite of things, of value by which the exchange value of other things is measured . The function of a standard of value is to serve as a yardstick for the measurement of values. Beside this it has no other influence on money. The substance of the standard need have no immediate connection with a monetary system.*
As long as money is based on wealth and is sufficient in quantity to carry on the necessary exchanges, its value will remain on par with the (unit) standard of value, irrespective of the amount of money in circulation. The value of credit money is not determined by the amount of money in existence. It does not follow the law of supply and demand as any money reformers believe. It depends upon the value of the unit used as a standard, and mostly upon the wealth on which it is based and the likelihood of its redemption in that wealth.
Any money is good if it is actually redeemable by its issuer as stated on the note. Many monetary systems today are not based on redeemable wealth, but are based on government debt. They exist only by force of habit because their users do not understand the “system” and its faults. They would collapse if it came to a showdown, if the holders of money asked for redemption. And it is this debt-based or fiat money which governments inflate and devalue, both of which are breaches of contract and partial repudiation of debt. Under these conditions it is difficult to see how even in a partially free economy, financial collapse is not inevitable in many countries today.
(to be continued, with suggestions for inaugurating a free, wealth-based money system)
Speaking of the tax which the banker who has a monopoly levies upon all commerce, Bernard Shaw says “Only by the freedom of other financiers to adopt this system and tempt his customers by offering to share the advantage with them, can that advantage be [d]istributed through the community.” Only, observe. No other method will do it. Government monopoly will not do it. Nothing but laissez-faire, free competition, free money, in short, as far as it goes, pure Anarchism, can abolish interest on money. When Mr. Shaw will apply this principle in all directions, he and his anarchists will stand on one platform.
-Benjamin R. Tucker
*Editor’s Note: Once a small group of us experimented to learn the essentials of a free money system and used a jar of homemade cold cream as a standard of value. Admittedly this was not “stable,” but one member made it available and it was acceptable to all of us for redemption of our scrip money. -M.J.L. [Mildred J. Loomis]
- The original text reads “Aunit of gold, like a dollar” and “etc.Q.”
Commentary – Eric Fleischmann:
Firstly, I would like to give a big thanks to Union of Egoists at UnionOfEgoists.com for providing a copy of this piece for the Laurance Labadie Archival Project. “The Money Problem In the Light of Liberty” was first published in 1937 in Labadie’s own journal Discussions and then republished in 1963 in the School of Living’s journal Way Out. As can be demonstrated in other pieces of his such as “Economics of Liberty,” “Money and Your Freedom,” “Basic Essentials of the Money Problem,” and “The Relationship of Money to the Social Problem,” Labadie sees money as a key element of society to be destatified and liberated. Like libertarian thinkers before him such as Stephen Pearl Andrews and William Batchelder Greene and after him such as Murray Rothbard, Labadie argues that government—specifically government control of the money monopoly—is ultimately the cause of economic crises. And he therefore takes the common libertarian position regarding money of advocating for the expansion of currency minting into a truly free market monetary system.*
This is notably related to Rothbard in particular because of their agreement regarding the problem but not entirely on the solution, a tension still felt between left- and right-wing libertarians to this day. In America’s Great Depression, he argues that the titular crisis occured by the fault of the Federal Reserve by their excessive printing of money. This follows his preferred formulation of the Austrian Business Cycle, which holds that expansion by the central bank gives the false appearance of increased level of savings, filters money through a rational-reserve banking system to be lent and deposited, and ultimately leads to long-run-unprofitable investments in the market. Rothbard’s solution, to be found in his treatise What Has Government Done to Our Money?, is totally private competition in currency and banking that, in his opinion, will lead to the use of gold or other precious metals by weight as the primary medium of exchange. This is the mirrored solution to Labadie’s proposal, and posits commodity money as being the solution as opposed to credit-money. Labadie acknowledges gold but ultimately does not favor it as a form of commodity money for the standard medium of exchange. But, unlike his Greenbacker father Jo, he does not hold up the idea of fiat money and instead he proposes ideas of credit-money and mutual credit that would sidestep the emptiness of state-minted fiat while maintaining the belief in free and widespread access to the creation of new money.
And placing Labadie in comparison to Rothbard is not purely a matter of whim. The two thinkers, though in some ways part of a common lineage toward contemporary left-wing market anarchism, represent the decline of the anti-capitalist individualist tradition of the 19th and early 20th century and the rise of capitalist libertarians respectively. And furthermore, they butted heads on occasion. For example, in response to Rothbard’s criticism of the earlier individualist advocacy of jury nullification in a ‘privatized’ system of law, Labadie writes, “[W]hen Mr. Rothbard quibbles about the jurisprudential ideas of Spooner and Tucker, and at the same time upholds presumably in his courts the very economic evils which are at bottom the very reason for human contention and conflict, he would seem to be a man who chokes at a gnat while swallowing a camel.”
*Note: The author has chosen to remove reference to counterfeiting in light of the tangential debate among libertarians on the subject. Amended 1/19/22.