Objectivism and a National Currency

[Minarchist]

I've been searching for quite some time on what Objectivists believe in regard to a national currency.

If the proper roles of government are limited to police, military, and courts, it seems to follow that national currency would cease to exist.

Since the question has yet to be brought up (to my knowledge) I feel as though I'm missing something very, very obvious.

[Iudicious]

I've been searching for quite some time on what Objectivists believe in regard to a national currency.

If the proper roles of government are limited to police, military, and courts, it seems to follow that national currency would cease to exist.

Since the question has yet to be brought up (to my knowledge) I feel as though I'm missing something very, very obvious.

I personally do not support a national currency, and as far as I know, most Objectivists don't either. The government has no position in the economy, and one of the key parts of an economy is its currency(-ies).

[softwareNerd]

Apart from deciding on what language it will use in writing laws and what currency it will use in its own transactions (potentially multiple), a government ought not have a role.

At most there may be a role in definition, to act as a filler where contracts are silent: "1 ounce of gold means 1 oz of gold of fineness of xyz", and so on.

[Daniel Casper]

All currency would be private property, so there would be no "national currency," if you mean currency that is state controlled/printed.

In my mind, all forms of "currency" are simply promissory notes that are capable of being drawn upon a tangible asset. These notes may be traded, and their value would be relative to the demand of the asset backed by the note. So, in this sense, the currency aspect has value only so far as it is used as an instrument to expedite trades. Instead of sending a man twenty gold bricks so a man can buy a horse, a banker can send that man a note that is worth twenty gold bricks (via a contractual promise which the holder of the note can drawn upon the issuer), which that man can then trade the note for the horse. The horse-seller, knowing he has a note that is worth twenty gold bricks, also does not have to obtain the twenty gold bricks to trade - he can simply hand the note off to someone else who would value the currency (ie the promise of 20 gold bricks) or who wants the gold themselves.

So, anyone can print currency, backed by any asset. You could have a plutonium dollar or a wheat dollar, but you, the issuer, by creating the note, are obligated to provide that asset to the holder of the note when he wants it, whomever it may be.

It is up to the traders in a given market to determine the value of different types of currency for themselves.

The role of the police and the courts, in this system, is to protect the rights of the note-issuers, by fighting things such as counterfeit, and protect the rights of the note-holders, by forcing issuers to honor the promise for payment made when they printed the currency.

Furthermore, to print currency for an asset you might not have at the moment is not necessarily fraud (hence why we can have interest on banking), but you are still obligated to honor the note. To print currency and then refuse to honor the holder, is fraud.

That's my take on currency.

[Minarchist]

All currency would be private property, so there would be no "national currency," if you mean currency that is state controlled/printed.

In my mind, all forms of "currency" are simply promissory notes that are capable of being drawn upon a tangible asset. These notes may be traded, and their value would be relative to the demand of the asset backed by the note. So, in this sense, the currency aspect has value only so far as it is used as an instrument to expedite trades. Instead of sending a man twenty gold bricks so a man can buy a horse, a banker can send that man a note that is worth twenty gold bricks (via a contractual promise which the holder of the note can drawn upon the issuer), which that man can then trade the note for the horse. The horse-seller, knowing he has a note that is worth twenty gold bricks, also does not have to obtain the twenty gold bricks to trade - he can simply hand the note off to someone else who would value the currency (ie the promise of 20 gold bricks) or who wants the gold themselves.

So, anyone can print currency, backed by any asset. You could have a plutonium dollar or a wheat dollar, but you, the issuer, by creating the note, are obligated to provide that asset to the holder of the note when he wants it, whomever it may be.

It is up to the traders in a given market to determine the value of different types of currency for themselves.

The role of the police and the courts, in this system, is to protect the rights of the note-issuers, by fighting things such as counterfeit, and protect the rights of the note-holders, by forcing issuers to honor the promise for payment made when they printed the currency.

Furthermore, to print currency for an asset you might not have at the moment is not necessarily fraud (hence why we can have interest on banking), but you are still obligated to honor the note. To print currency and then refuse to honor the holder, is fraud.

That's my take on currency.

I'm still digesting what you've said, but before you disappear on me, I'm wondering how you think a government would function in this society.

Taxation, for instance, would be incredibly complicated, and the money that is raised would be a patchwork of different currencies accepted in different markets.

[Jake_Ellison]

I'm still digesting what you've said, but before you disappear on me, I'm wondering how you think a government would function in this society.

Taxation, for instance, would be incredibly complicated, and the money that is raised would be a patchwork of different currencies accepted in different markets.

Why would people use different currencies in different markets? Even with hundreds of governments doing their best to isolate their people from the rest of the World, through trade barriers, national currencies, and massive fences to stop immigration, businesses from across the World manage to trade with each other in only three or four major currencies. If there was no government interference in the economy, over a large geographic area, I'm guessing everyone would accept the same exact standard of gold (even if the government didn't prescribe a specific standard, for an ounce of gold, silver, etc. the way SoftwareNerd suggested, the most widely used formula would grow to be accepted by everyone).

Just look at how well the Internet works, without any government engineering the massive communication between billions of servers and computers. Do you think it would work as well if the protocols used were negotiated among politicians, at the UN or the WTO, or haggled on by the two parties and their various lobby groups, in Congress?

But all that regards trade between individuals and companies, not taxation. Objectivism is against taxation. The government could very easily suggest private contributors to send their donations in a single currency (likely gold).

[Daniel Casper]

I'm still digesting what you've said, but before you disappear on me, I'm wondering how you think a government would function in this society.

Taxation, for instance, would be incredibly complicated, and the money that is raised would be a patchwork of different currencies accepted in different markets.

First, if we are talking about an ideal society, there is no taxation, the system of the government is set up in such a way that it pays for itself. This is a complex issue, which I am not going to address right now, but the question of "how" applies with or without taxation.

There is no intrinsic value to a currency. Our society would like to evade the responsibility of negotiating individual contracts and actually measuring the value of what they deal in by creating a national currency which is supposed to hold an intrinsic value, but such a system actually destroys their wealth through inflation and allows the government manipulation of the economy via the banks. Your question of "how would the government deal," is equally applicable to the individual: How would the individual deal with obtaining income when he had all the currencies to choose from?

That being said, the government would simply collect and deal in whatever it needed to pay its employees. Since all currency would be backed by tangible assets, if the government were, theoretically, to acquire a note it didn't want, they can trade that note for another note, or the goods can be acquired. It may require some effort, but effort is required of anyone if they want to function. Employees of the government could even request in what form they be paid (likewise for employees of a private entity). Above all, it is up to each and every individual to negotiate the terms they want to live under.

This naturally leads into how one would determine the value of a currency, but that is also a complex question of economics. The theory I accept is that it is the most capable producers' demands which drive currencies, but really, all demands drive currencies.

[Minarchist]

Why would people use different currencies in different markets?

Because certain people might be unwilling to take certain kinds of currency. The government would have to deal with that problem in regard to making necessary expenditures. Payment of government officials ALONE poses all kinds of problems. With what currency should we pay them? Wheat or gold? Silver, maybe? Payments would constantly have to be micro-managed with changes in the economy. Contracts would have to list what currencies will be accepted as payment.

Even with hundreds of governments doing their best to isolate their people from the rest of the World, through trade barriers, national currencies, and massive fences to stop immigration, businesses from across the World manage to trade with each other in only three or four major currencies.

That is largely due to national (intra-national, even) currency. Not in spite of it.

I believe it's incredibly unlikely that banks would accept a single currency, preferring to print and distribute their own currencies. It's tough to say because real-world examples are hard to find, since paper money was only widely used once governments began to print it up.

But all that regards trade between individuals and companies, not taxation. Objectivism is against taxation. The government could very easily suggest private contributors to send their donations in a single currency (likely gold).

From what I understand Ayn Rand thought the most likely form of voluntary taxation was one in which the person either agrees to pay the fee or does not, recieving services accordingly. Even assuming this system came about, this fee would have to be standardized in some manner.

I suppose what it comes down to, for me, is whether or not a government can reasonably function without a national currency. I doubt it, but it's certainly possible.

[softwareNerd]

I suppose what it comes down to, for me, is whether or not a government can reasonably function without a national currency.

I think you're misunderstanding the responses. Government can and may decide that its fee-schedule and fines are denominated in one particular type of money. In addition, it might decide that one particular one is used to denominate these sums, while it accepts a few other too, at the current rate of exchange, but that would simply be a convenience which a person can acheive via a two-step transaction.

[Minarchist]

I think you're misunderstanding the responses. Government can and may decide that its fee-schedule and fines are denominated in one particular type of money. In addition, it might decide that one particular one is used to denominate these sums, while it accepts a few other too, at the current rate of exchange, but that would simply be a convenience which a person can acheive via a two-step transaction.

You're assuming that a particular currency will gain widespread popularity throughout the country. You also seem to believe that in such a society currency exchange is an easy process, basing that belief on how easy it is currently.

I'm not entirely against the idea, merely because it's hard to predict how standardized currency would become. However, it can be demonstrated, through a variety of different industries, that businesses don't always standardize too heavily. I'm inclined to believe the same thing would happen in regards to currency.

But you've all given me food for thought, certainly, and I'm going to look for some real-world anecdotes. Thanks for the replies.

[softwareNerd]

You're assuming that a particular currency will gain widespread popularity throughout the country. You also seem to believe that in such a society currency exchange is an easy process, basing that belief on how easy it is currently.

I'm not assuming anything -- except that the reasons for the standardization around few few types of money that occurred in the past, will occur again. It is in the nature of money that people want to use it to trade with the widest possible set of potential trading partners. This has always driven people to gravitate to very few types of money, in economies going back centuries. It is so much in the nature of money, that the value of money rises above its underlying value, just because it is money.

I'm not entirely against the idea, merely because it's hard to predict how standardized currency would become. However, it can be demonstrated, through a variety of different industries, that businesses don't always standardize too heavily. I'm inclined to believe the same thing would happen in regards to currency.

Acceptance by others is an important fact that makes something money. If something I have is not acceptable by even (say) 20% of the people with whom I deal, that is not going to be good money for me. I can always prefer my own brand of car which needs special wheels. However, if you want to look to an analogy for money you should look to file formats in areas that everyone wishes to use and use with the convenience, unquestioned acceptability of cash. Universality -- within one's economic context -- is of essence when choosing money. Indeed, one does not accept money because one values it as such (in the sense of "use value"), but because it is the thing you think others will readily accept. Edited May 1, 2010 by softwareNerd

[2046]

Do you think that money only came into general use because the government came in and said "Okay, everbody use this"? The reason why the State monopolized money historically is because it helps them to tax and rule over their subjects, not because people wouldn't know how to solve the "double coincidence of wants" problem without them. You will always only have one or two commodities that emerge as a general medium for virtually all exchanges.

[Jake_Ellison]

From what I understand Ayn Rand thought the most likely form of voluntary taxation was one in which the person either agrees to pay the fee or does not, recieving services accordingly. Even assuming this system came about, this fee would have to be standardized in some manner.

A government must enforce the law in a geographic area, no matter if the victim of a crime contributed to it or not. Ayn Rand did not advocate for a police force or a court system that protected rights only based on whether the victim paid his taxes.

(She may have mentioned that it might charge for contract enforcement, at some point in a Q&A session, but she certainly wasn't referring to protection from criminal activity.)

But that makes no difference really, the government does have to receive money from people. The best solution would be to accept contributions in precious metals only (whether it's through a direct deposit in special offices or through banks, it doesn't matter). That would solve the problem.

However, the government itself turning into a bank, and issuing its own money, even if for limited use, would be a bad idea, since it could once again allow it to become an inflationary monster, with both its employees and its contributors, who have to use the currency, as its victims.