Free Market Money

I shall begin with the premise that anything which must be rammed down the public’s throat at gun point is bad. Things that are good do not require coercive force to impose. People will voluntarily engage in things that are in their best interest.

The one area where people seem to have trouble comprehending this is when it comes to the issue of money.

For some odd reason, people think that a currency which is imposed upon them at gun point and then constantly inflated by a gang of criminal counterfeiters is in their best interests.

I can assure you that it is not.

First we must understand what money is. Money is simply an intermediary of trade. If we were to remove money from the markets, people would be reduced to bartering for goods and services. This means that if I am chicken owner and I want a pickle, I have to find a chicken wanting pickle owner with whom I can trade.

What people realized is that if they traded the chicken for something that everyone wants, they could then use that new commodity to barter for the other good more easily. So the pickle wanting chicken owner would trade his chicken for gold and then trade the gold for the pickle.

As this intermediary of trade becomes the market chosen standard against which all other goods are bartered, it takes on the form and property of money. Shop owners begin to price their goods in terms of the market money, which history shows us is almost always gold or silver.

Gold has several unique properties that make it conducive to being “money”:
-It is scarce, which means it can not easily be added into the economy. This keeps prices stable.
– It is easily identifiable and extremely difficult to counterfeit
– It is divisible, meaning it can be divided into small amounts and each part retains an equal value of the whole. A diamond for instance loses a significant amount of value if it is cut in half, gold does not.
– It has a high value per weight, which makes transacting with it easy

This is how money and prices arise in a free market.

First the market choses the money, then the market sets the prices of all goods based on the supply and demand of that market “money”.

No violent coercive force is necessary for this to take place. It takes place all on its own without the use of weapons, police, brutality, or courts. People freely chose to engage in trade with this money because it is in their best interest to do so.

None of what I have written is true of fiat currency. Fiat currency can not be introduced into a market without gold first being used as a currency. For example, if there were no money in a society and everyone simply engaged in barter, I could not print up a bunch of 100 dollar bills and start buying things with them. No one would have any idea what prices should be or how much the 100 dollar bill was worth. First, the paper money must be used to represent gold, otherwise it would be impossible for anyone to set prices.

Only after paper money is used to represent gold can a criminal counterfeiter step in and replace the gold backed money with unbacked fiat paper money. This is why government loves fiat money and why almost all governments use fiat paper money today. Fiat paper money can be easily counterfeited.

This counterfeiting is a hidden tax in the form of inflation.

In reality, inflation is nothing more than the central bank stealing gold out of your pockets. When the central bank expands the money supply by creating more debt, it steals the value of all the money already existing.

Inflation is what funds wars, oppression, government domination, domestic spying, police states, bureaucratic paychecks, and all other manner of tyranny that the public has to put up with. Government knows it can only tax up to a certain point before people start evading their taxes or moving their money off shore.

The insidious thing about government printing money is that people have no where to run and can’t see the immediate effects of the inflation until it is too late. People don’t realize just how much has been stolen from them until well after the theft has taken place.

Professor Walter Block gives a short interesting history of money and trade:

Professor Tom Woods lectures on American monetary history: