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AGgressive Metal
Administrator
USA
1937 Posts |
 Posted - 04/23/2010 : 17:31:46
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A conceptual article based on FA Hayek's essay by the same name.
Dear Realcents;
As you know, we currently exist in a nation and a world where legal tender laws reign supreme. It is illegal for businesses to contract in gold. All taxes, fines, etc must be paid in FRNs. Businesses cannot turn away FRNs and only accept Euros or silver or whatever. These legal tender laws serve to prop up a currency by necessitating that everyone use it, thereby creating artificial demand for what would otherwise be finely ingraved, though largely worthless, paper.
Imagine, then, a world in which fiat currency remained, but there were no legal tender laws. Would chaos reign as you tried to find the right mix of Mexican Pesos and Brazilian Real to buy your Subway sandwich? I seriously doubt it, as in a truly free market, order is always maintained by the price system and good money drives out bad, not the other way around. More likely, it would be a situation like Medieval Europe, where there were not explicit legal tender laws, but for simplicity sake people generally used the coin of the realm - trading with money-changers when they moved to new jurisdictions. However, in the modern era of electronic global exchange, this would not be necessary, since you could have debit card accounts in multiple currencies which would all automatically convert to US dollars when you bought something at the store. Thus, all prices could be in USD and you could pay in USD, yet still have 3 or 4 or 50 different currencies in your account that you are drawing out of.
Now, you ask, what advantage is gained by owning more than one currency if it is still just fiat? I will tell you. If central banks are forced to compete, they will not inflate too much because if they do, people will simply use other currencies and thereby render that particular bank powerless; a central bank only has relevance for so long as people accept its paper promises. So a currency hierarchy would rise up based on reputation, governmental backing, gold reserves, interest rates, etc. This currently happens today in the forex trading markets, but not to the same degree that it would if everyone was involved. Also, rapid swings would be less likely, since there would be non-stop arbitrage taking place to set prices. But the greatest advantage would be the checking of inflation due to the presure such a system would put on central banks.
Also, what about taxes? Most likely the government would stick exclusively to US dollars, but even if you decided not to hold any, conversion would be very easy at tax time due to the well-developed electronic systems that would exist.
And of course in the absence of legal tender laws, everyone would be free to use gold, silver, copper, and privately issued currencies as well. Store credits, community tokens, merchant association credits, etc would all be negotiable as well. Organic trade and commerce would flurish and more local business would occur. Major banks would create hedged portfolios of currencies and metals that you could save/invest in if you didn't want to stay in 100% US dollars.
Think this sounds implausible? Well, politically it is at the moment, but legal tender laws are actually a modern invention with some exceptions (ancient China, for ex.). In the US colonies, private tokens, Spanish Reales, French Livre, Dutch shillings, British Pounds, State-issued pounds/dollars, bank tokens, merchant tokens, tobacco, and various other forms of money all circulated freely. My friend whose relatives were killed by Indians in the 1700s has a written inventory of the possessions they left behind which was recorded by the local militia - it included Spanish dollars, French Livre, and several others I can't remember.
So, is this just a theorhetical model that will never happen in real life again? Most likely we will not have full-blown "free-money", to use the term like FOFOA uses the term "free-gold" (see: FOFOA blog) anytime in the forseeable future. However, we can begin the process of erroding the private Federal Reserve's choke-hold on commerce inside the US by bartering using bullion coins, foreign coins, privately minted coins, and foreign currencies amongst ourselves. Everytime you buy something with silver or Euros or copper bars, you are cutting the government out of the process and making society more free. Now I am not saying to avoid taxes - there is a tax on almost everything these days - but it is a satisfying act of rebellion to buy, sell, or trade outside the Federal Reserve System. Some entities that push this concept too far recieve the wrath of the Federal government, specficially the Liberty Dollar. But there is no law against trading a stereo for a 20 Euro note, or a basket of corn for a silver dollar. Soooo, try it! The only thing you have to lose is your loyalty to a corrupt and disgusting fiat money monopoly!
-AGgressive Metal
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And he that hath lyberte ought to kepe hit wel / For nothyng is better than lyberte / For lyberte shold not be wel sold for alle the gold and syluer of all the world.
-Caxton's edition of Aesop's Fables, 1484 |
Edited by - AGgressive Metal on 04/23/2010 17:54:43 |
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Choice in Currency - A Way to Stop Inflation
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