Monetary Order

1. The Natural Order of Money Production

The first two parts of this book were devoted to a discussion of the two basic modes of money production: the natural production of money on the free market, and inflation. We studied their general characteristics, but also went into a more detailed study of the subcategories that come into play. Money and money certificates, credit money, paper money, counterfeiting, legal tender, monopoly, and suspension of payments are such subcategories of the production of money. Our theoretical analysis had to dissect them in isolation from one another; and even when we analyzed their interrelations we had to abstract it from any concrete historical context. It is true that we frequently referred to historical events, but these references merely served as illustrations of insights that were in fact obtained through theory. This is standard scientific procedure. It provided us with all we can ever hope to obtain from theory: information about causes and effects, and information about relevant moral aspects of the production of money. Our basic mission has therefore been completed.

In the present third part, we will apply our findings to the analysis of monetary orders. We can define a monetary order as the total network of persons, firms, and other organizations involved in the production of money. Few readers will be surprised to learn that no historical monetary order has been “pure” in the sense of a pure free-market order, or a pure fiat order. A good case could be made that the contemporary paper-money orders are purer than any previous monetary order—which shows that such purity is hardly a virtue per se.

Real-life monetary orders combine the categories that we discussed above into a great variety of more or less complicated settings. But it does not follow that it is pointless to deal with pure orders. We have already demonstrated the usefulness of dealing with the pure order—or rather the pure orders —of the free market. The point of the analysis in Part One was not to provide an accurate description of any concrete historical order of the past, but to make us become acquainted with the workings of a monetary order defined by the universal respect of private property. Probably such an order has never existed in a pure form. But for theoretical and practical purposes this is irrelevant. The point is that it could have existed and could be introduced even today, technically at a moment’s notice. The importance of this purely hypothetical order is that it presents us with a theoretical benchmark. It is an ideal monetary order, and we will therefore call it by the lofty name of monetary Order.

We have seen in Part Two how this Order provided a meaningful standard of comparison for the analysis of the effects that violations of property rights have on money production. Moreover, it provided us with a meaningful basis for the rational criticism of monetary orders that are based on the violation of private property rights. (Such monetary orders we may call monetary systems.) It makes no sense indeed to criticize existing systems for being different from some idealized scheme. But it does make sense to criticize them for being inferior to known alternatives. It makes sense to reject inflation because there is a well-known and ready alternative to inflation, namely, the production of money on the free market, which is superior to inflation both from an economic and from a moral point of view.

The natural production of money on the free market might be an unrealistic order of things in the sense that abandoning the existing monetary systems presently does not find the necessary political support. But it is unrealistic only in that sense. It is not impossible to establish from any technical point of view, it is not unreasonable, and it is not morally offensive—quite the contrary. It does at present confront a problem of the will. But the human will can change, and it will change under the guidance of truth and courage. The significance of the natural production of money is that it gives us a meaningful goal to strive for.

Notice that the free market is by its very nature a global Order of economic relations. Human cooperation in production and trade is beneficial for all parties, not only those within the frontiers of the nation-state. And so are gold and silver—and whatever else free men might discover and develop for monetary service—useful monies not only for the residents of Europe or of North America. There is a natural tendency in the market to spread the use of the most useful monies over the entire world, thus establishing one great network of human cooperation based on indirect exchange.

In the High Middle Ages, when large-scale commerce and the interregional division of labor started to flourish, the great merchants of northern Italy found that no government produced money that was suitable for their new needs. The traditional coin system contained only silver coins, virtually all of which were hopelessly debased and, what is more, were debased to different degrees. The merchants then set out to produce their own money, new and sound gold coins, which at first they used only within their own circles. And because the other governments tolerated this practice—because for once they did not stand in the way—by the thirteenth century the fiorino d’oro from Florence became a generally accepted medium of exchange in central and eastern Europe.

A little liberty of this sort could work wonders in our age, which from a technological point of view is so much better endowed than the medieval merchants were.

2. Cartels of Credit-Money Producers

We have already pointed out that the production of credit money is congruent with the principles of a free market. Individual sorts of credit money as well as the cooperation of credit-money producers are therefore legitimate parts of a natural monetary Order in the sense in which we have defined the term above. In particular, we must highlight the possibility of free-market cartels of credit-money producers.^[1]

How important would such systems be in a free society? This question can only be answered after the fact. One has to establish a free market for money and see how well credit money fares. It is true that a great success is not very likely because people—and the famous “man on the street” in particular—prefer the tangible security of precious metal, as David Ricardo knew so well. But, again, this is a highly speculative question, and from a moral point of view it does not seem to be very important. The crucial issue is whether the law recognizes the full liberty of the human person within the limits of his own property rights and the like property rights of other persons. Such responsible persons are still free to set up stupid monetary systems, but certainly no inherently evil ones; and there is good hope that they would quickly learn from their errors.