The Unyielding Grip of Government on Monetary Control

A Personal Revelation

One of the most impactful intellectual awakenings of my younger years was brought about by Murray Rothbard's "What Has Government Done to Our Money?" (1963). Rothbard casually suggests that private markets are fully capable of generating money without any assistance from the government. He proposes that under a comprehensive monetary reform, private mints could compete in offering this commodity along with all related services. Government intervention, he posits, is not necessary.

This claim was so startling that it led me to delve deeper into the subject, leading to the discovery of a vast body of literature on the topic. Historically, money emerged from the market economy itself, organically evolving to meet the needs of commerce. Any commodity that was universally valued and could be divided into consistent units with a stable value could serve as money. There was no need for government intervention except as an observer.

Government's Monopoly on Money

However, history tells a different story. Every government has a strong motivation to monopolize the commodity known as money. This monopoly allows them to tax their citizens, reward compliant industries, build close ties with bankers, and inflate the currency at their discretion through various methods depending on the technology of the time.

While we can imagine primitive tribes or pre-colonial native populations using rocks and shells as currency, is there a modern instance where private coinage became normalized? Economist George Selgin, in his often overlooked scholarly work, provides an extensive study of the private coinage industry in the UK during the Industrial Revolution.

The Case of Private Coinage in the UK

Selgin's book "Good Money" is a beautifully presented work featuring color photographs of some of the most attractive coins ever minted. The historical narrative is endlessly captivating. At the onset of the factory system, the Royal Mint was indifferent to the need for small denomination coins of silver and copper for small businessmen to pay their workers. The Royal Mint only minted large denominations in gold for substantial business transactions.

Between 1700 and 1813, a sophisticated industry focused on coinage evolved out of the frustration of not being able to pay workers. Old button factories were repurposed to produce coins of various weights and sizes based on copper and silver. These coins were used to pay workers and were widely accepted by merchants.

The system functioned well and could have continued indefinitely. The new industry resolved the coin shortage and fostered healthy competition among numerous producers of new money. All coins were designed to be resistant to inflation and verifiable according to standard weights and measures. This was a full-fledged industry of private coinage, operating in one of the most advanced and industrious societies of the time.

The Government's Intervention

Unfortunately, the Royal Mint eventually took umbrage at this. Driven by the perennial need of governments to control the money within their jurisdiction, Parliament passed a series of acts in 1812–1813 to monopolize the function of the mint and make the Royal Mint the sole legal producer. The entire industry was swiftly dismantled. This case clearly demonstrates that the monopolization of money is not a result of market forces but is imposed by the government. It has always been this way.

The Advent of Digital Currency

The digital era gave rise to new attempts to privatize money, stemming from a very real problem of financial verification (exposed in the 2008 financial crisis) and the need to use money without intermediaries. Bitcoin, which was launched in January 2010, was the result. Over the next seven years, its adoption surged, spurring the creation of new private methods for settling transactions and accepting credit cards. Bitcoin posed a serious challenge to nationalized money.

However, just as in 1813, governments were not pleased. The code of Bitcoin was deliberately throttled to prevent the new private money from scaling, leading to a fork in the transaction chain and general chaos in the industry, even as Bitcoin itself continued to grow in value. Governments responded by taking control of the on-ramps, off-ramps, all exchanges, and then imposing heavy taxation and reporting requirements on all dealings. Currently, the crackdown is in full swing, with websites and wallets being shut down and top investors being investigated and even facing criminal trials.

Just like in 19th century Britain, we are witnessing another tragic case of government intervention stifling a promising new industry in the interest of maintaining a monopoly on power, the first condition of which is always to control the money of the realm.

Reflections and Future Possibilities

Reflecting on my initial surprise at the realization that free enterprise could effectively manage money as a commodity, it's clear that this thought had never crossed my mind because it had always been otherwise. However, upon further thought, it becomes apparent that there are numerous situations where market forces invent money as a means of moving beyond primitive barter arrangements.

Every prison has its own form of money. It used to be cigarettes but now is more commonly canned fish or some other valued good. The only reason this is not common in society at large is that governments do not want it this way.

One characteristic of government management in modern times has been periodic reforms that invariably end up worsening the system. The next major monetary reform is likely to be the globalization of a central bank digital currency with track-and-trace capability and the power to turn money on and off at political whim. To make this possible, the government now needs to eliminate all competition, just as they did in 1813.

All this meddling with money is not in the public interest. It serves the government's interest and that of its industrial partners in banking and finance. A complete denationalization of money is the solution to the entire problem, but achieving this will require dislodging the government from its obsession with controlling the economic forces of the entire realm. This is an age-old problem and perhaps the greatest challenge of all ages.

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