Many thoughtful people are more and more aware that industrial depressions are caused chiefly by faulty control of money and credit. Most “reformers,” or those who recommend measures to remedy this, turn to government for issue and control of money. It is my purpose here to briefly present an analysis and “cure” in the light of economic liberty.
It is hardly necessary to inform clear thinkers that legal monopoly and liberty are opposites. To genuine libertarians, there is but one way to delegate social functions, and that is freecompetition. If any individual or group believes they can perform any social function better than is being done, they should have the right and opportunity to prove it in actual operation, on their own responsibility and that of any who voluntarily join them. To erect through law a monopoly of any social activity is a sure way to promote graft and exploitation. This is the fallacy of communism, fascism, and all schemes involving government monopoly.
If, instead of arguing with one another, the various money reform groups would come out openly for freedom in banking, then each could go ahead with their plans with voluntary cooperators. Each one’s money would circulate among those who considered the plan sound and workable. But no one would be compelled to accept any other money than he wished. The better ideas and systems would win out, having been proven sound by actual operation. There might be failures at first, no doubt. But it is by free trial and error, with only experimenters and free co-operators getting “burned,” that satisfaction is finally achieved. This is the method of liberty. Many of those who now turn to governmental schemes for lessening man’s plight may soon find themselves hog-tied by government force and violence, as has been the lot of several people in the eastern hemisphere.
Money grew out of the need to get rid of the inconveniences of barter. Money is that wealth or media that is generally acceptable in the exchange of goods of services.
Money is of two kinds: commodity and credit money.
Commodity money is that which has its value inherent in itself—such as skins, cattle, corn or a gold piece.
Credit money is a promise of goods of specific quantity or quality, either “on demand” or at a specified time. All paper money is credit money. Credit money may be (in honesty, shouldbe) backed by, based on and redeemable in actual wealth or commodities. This is called commodity-backed money. Credit money based on government-debt is fiat or dishonest money.
A credit transaction is one in which an interval elapses between the completion of the exchange. In a credit transaction there is a complete exchange of the rights of ownership, an incomplete exchange of the goods in question. Since paper money is not wealth itself, the use of paper money means doing business on a credit basis.
Basis of Issue and Standard of Value
Money is inconceivable without both a basis of issue and a standard of value. One of the most misunderstood aspects about money is the distinction between the need for and nature of these two factors.
The basis of issue is some stable wealth like bales of cotton, bushels of wheat, ounces of gold, against which the money is issued and in which it can be redeemed, at the wish of the holder. The value of credit money is determined by the value of the wealth upon which it is based or secured, measured in terms of a standard unit of value.
The standard of value is some one thing, a unit of gold, like a dollar, ire, pound, etc. or a composite of things, of value by which the exchange value of other things is measured. The function of a standard of value is to serve as a yardstick for the measurement of values. Beside this it has no other influence on money. The substance of the standard need have no immediate connection with a monetary system.
As long as money is based on wealth and is sufficient in quantity to carry on the necessary exchanges, its value will remain on par with the (unit) standard of value, irrespective of the amount of money in circulation. The value of credit money is not determined by the amount of money in existence. It does not follow the law of supply and demand as any money reformers believe. It depends upon the value of the unit used as a standard, and mostly upon the wealth on which it is based and the likelihood of its redemption in that wealth.
Any money is good if it is actually redeemable by its issuer as stated on the note. Many monetary systems today are not based on redeemable wealth, but are based on government debt. They exist only by force of habit because their users do not understand the “system” and its faults. They would collapse if it came to a showdown, if the holders of money asked for redemption. And it is this debt-based or fiat money which governments inflate and devalue, both of which are breaches of contract and partial repudiation of debt. Under these conditions it is difficult to see how even in a partially free economy, financial collapse is not inevitable in many countries today.
(to be continued, with suggestions for inaugurating a free, wealth-based money system)
Speaking of the tax which the banker who has a monopoly levies upon all commerce, Bernard Shaw says “Only by the freedom of other financiers to adopt this system and tempt his customers by offering to share the advantage with them, can that advantage be [d]istributed through the community.” Only, observe. No other method will do it. Government monopoly will not do it. Nothing but laissez-faire, free competition, free money, in short, as far as it goes, pure Anarchism, can abolish interest on money. When Mr. Shaw will apply this principle in all directions, he and his anarchists will stand on one platform.
— Benjamin R. Tucker
 The original text reads “Aunit of gold, like a dollar” and “etc.Q.”
 Editor’s Note: Once a small group of us experimented to learn the essentials of a free money system and used a jar of homemade cold cream as a standard of value. Admittedly this was not “stable,” but one member made it available and it was acceptable to all of us for redemption of our scrip money. -M.J.L. [Mildred J. Loomis]