Legal tender (government established currency) is a major form of governmental regulation of business. I’d like to explore the possibility of a modern progressive society without legal tender. Is it realistically possible, or is this form of regulation absolutely necessary for a society as large as ours. I know in Atlas Shrugged they use gold for currency in Galt’s Gulch, but they are such a small group. Could any precious metal/gem actually be used as common currency in this society with billions of people? The farthest down that path that I can tread is the precious metal/gem growing in value as it is more widely spread (more people use it as currency). Other ideas?
Legal tender (government established currency) is a major form of governmental regulation of business. I’d like to explore the possibility of a modern progressive society without legal tender. Is it realistically possible, or is this form of regulation absolutely necessary for a society as large as ours. I know in Atlas Shrugged they use gold for currency in Galt’s Gulch, but they are such a small group. Could any precious metal/gem actually be used as common currency in this society with billions of people? The farthest down that path that I can tread is the precious metal/gem growing in value as it is more widely spread (more people use it as currency). Other ideas?
The idea of some sort of commodity being used as money is not uncommon, and historically has been the founding currency of every economy. Soon after the commodity gets too burdensome to use in everyday transactions, banks and markets create fiduciary media, which REPRESENTS the commodity with a slip of paper, which can be redeemed in that commodity. And eventually the government of that economy will eventually see the potential power it can gain by regulating that money, and so they procede to do that, and after a long series of regulations, it usually ends up where the government controls a central bank and they issue legal tender in fiat (not backed by anything) currency. So to answer your question, modern societies were built on commodity currencies, but might evolve into fiduciary media. And if we value freedom we should keep governments out of our money supply and let the market go where it wants.
Also, your question seems to stem from most people’s misconception that money has to be in big quantities. The beauty of money is that no matter what quantity you have of that money in the economy, it doesn’t change the amount of REAL (actual) goods and services you have in that economy. For example, lets say a small town economy has 1000 units of currency, and they make 2000 equal value goods. Each good will sell for .5 units of currency, notice that the small amount of currency doesn’ matter to the economy. Now lets say that same economy has 1000000 units of currency, all that happens is that the prices rise in relation to the goods, so that each good now costs 500 units of currency. Now that may seem pricey but really its not because money is no longer scarce.
Great post nimble! To anyone interested in monetary policy, I’d recommend Murray Newton Rothbard’s “What Has Government done to our Money?” It’s about the nature of money as a commodity, just like any other commodity, whose purpose is to mediate exchange, and the various methods government uses to control the economy through the money supply.
As nimble says, it is a common misconception that it matters how much money there is in an economy, because it does not change the amount of real goods. Aside from legal tender being a way for the government to initiate force, it allows them to give economic advantage to their preferred citizens. When they print money, it goes through the Fed to the member banks, and the member banks can then lend it to whomever they want. Of course, the increase in the money supply creates inflation, but inflation does not take effect immediately, it takes the market time to adjust. When the first debtors receive their loan from the FDIC member bank, they gain an economic advantage, while the rightful owners of money see their wealth diminish in value.
>>>Edited to remove superfluous quote–please don’t quote the entire post directly above yours–JMeganSnow<<<
I think legal tender laws are pretty much essential to modern commerce, and this would be unchanged in a capitalist society. What are you planning to do when someone to whom you owe money decides not to accept your $10000 of gold and demands the equivalent value in silver instead? Is it really practical for people to have to draw up a contract explicitly stating what goods will be accepted as payment every single time a debt is incurred? Why not just have legal tender and avoid these problems - its a lot easier for everyone and no rights are violated.
I think legal tender laws are pretty much essential to modern commerce, and this would be unchanged in a capitalist society. What are you planning to do when someone to whom you owe money decides not to accept your $10000 of gold and demands the equivalent value in silver instead?
I trade my gold for silver and give it to him. In time, a standard currency evolves that all people will accept. That’s how the first currency came into being. There were no laws saying you had to accept gold or silver in exchange for goods. First a few people agree on a medium of exchange and it spreads, pretty quickly actually.
Aside from the economic and historical fact that private currency will work, there is the ethical issue of force and rights. What gives a government the right to force you to accept something you may not want, be it coins or scraps of paper or whatever, in exchange for your rightful property?
I trade my gold for silver and give it to him. In time, a standard currency evolves that all people will accept. That’s how the first currency came into being. There were no laws saying you had to accept gold or silver in exchange for goods. First a few people agree on a medium of exchange and it spreads, pretty quickly actually.
Yes, but there is nothing which stops something from demanding repayment in something very hard to get (“I’ll have my $2 billion paid in the form of original Da Vinci paintings please”), and then suing you for nonrepayment when you fail to settle. Obviously this is unlikely to happen, but even in smallerscale cases (“I want silver not gold”) its just pointlessly annoying - theres no good reason to not just nominate one substance as being the default currency which has to be accepted unless the two parties agree on something else.
What gives a government the right to force you to accept something you may not want, be it coins or scraps of paper or whatever, in exchange for your rightful property?
If you really dont want to accept the default currency, youre perfectly free to draw up a contract stating that repayment has be made in the form of X. Noone is forcing anyone to accept anything - its just a ‘default value’ to make things easier.
The burden of justification is really on those who oppose legal tender, because as far as I can tell, abolishing it just creates a lot of potential problems while providing no benefits whatsoever.
Perhaps I don’t fully understand what a legal tender law says then. I thought they said that a purchaser can force a seller to accept the tender in exchange for the seller’s goods. Can anybody clarify what if this is right, or if it’s not, what a tender law actually is?
As you say, you can write contracts, so you can fix the form of repayment upon issuing the liability, thus solving your first problem.
Another issue is that, according to Objectivism, this isn’t a valid function of government, as it doesn’t have anything to do with justice, prevention of violence, or defense. Also, the government has to pay to enforce the law, which only creates more tax coercion.
>>>Quote edit again. Welcome to the forum, MRNfan, btw. Why not post an introduction if you haven’t already? We love to hear about our members.–JMeganSnow<<<