Legal tender laws do not exist in a genuinely free market.
by James Leroy Wilson
April 30, 2009
Imagine the Old West. Private detective agencies were formed to guard railroad trains and stagecoaches, and to track down suspected train robbers.
Except, I'm talking about an alternate-universe Old West. In this version, these detectives were extremely ruthless, often more so than the criminals they went after. They would shoot first, ask questions later. Instead of just hunting down train robbers, they would massacre the families of suspects.
The tactics did the trick. Robberies dropped dramatically. But civilized communities were still horrified by the behavior. Contrary to the people's will, U.S. Marshalls were told by superiors to leave the detective agencies alone. And state laws were passed protecting these agencies, so sheriffs could do nothing.
After one group of detectives did unspeakable things to an innocent woman and her children, however, one angry mob caught and summarily executed them. Word spread to other towns, and soon other mobs were turning against detectives in many places.
And this was just unacceptable to the largest detective agencies. They asserted they had the right to murder the people at will, but that the people had no right to get justice in return. Their arguments were based on "progress" and the "general welfare." After all, without the detective agencies, criminals would have their way and interstate commerce would shut down. They persuaded Congress to protect them.
Congress set up 12 regional branches of a Private Detective Reserve System. When any detective agency in the area feared mob revolts against detectives, the closest regional branch would dispatch as many detectives as necessary to pacify the mob. It didn't matter which private detective agency the regional branch would save; all area private detective agencies were part of the system, and all were entitled to be "bailed out" with reinforcements if necessary.
So local detective agencies continued to murder, rape, and steal in the name of fighting crime.
Question: did the fact that Congress intervened to set up the Private Detective Reserve System prove that the free market had failed?
Or would you say that the free market was not given a chance to work?
A free market pre-supposes the rule of law. That is, the prohibition of aggression, coercion, theft, and fraud. Therefore, the dystopian nightmare described above is not and could not have been the result of the free market. In a free market, the first detectives who committed a crime would have been prosecuted, not protected. And detective agencies who knew how to do their job without committing crimes would have replaced the criminally violent ones.
Unfortunately, our financial system developed much along the same lines as above. The bank was once considered a warehouse where people could keep their gold or other precious metal for a fee. The paper receipts they were given by the bank began to circulate in the economy as a paper substitute for the gold money itself. This tempted the bank to issue more receipts as loans than it actually had in its vaults. Sometimes, the people lost trust in the bank and a "bank run" would ensue where everyone would try to get their gold back, and only a few could.
The Federal Reserve System was set up to protect these fraudulent banks from bank runs. Even today, when the Federal Reserve paper dollar is money, banks have just one-tenth of their total deposits in paper and coin for people to withdraw.
Money is "created" by the Federal Reserve Board more by computer entries than by the printing press, and each additional dollar it creates makes each existing dollar slightly less valuable.
The Fed creates money to purchase government debt, and to give it to banks for people to borrow during a recession.
Moreover, the Federal Reserve dollar is legal tender - individuals are compelled by law to accept them as payment.
So the people are forced by the government to accept increasingly depreciating dollars - and the depreciation was itself caused by a government agency. (Anyone who thinks the Federal Reserve Board is not a government agency is mistaken.) When the government adds more money into circulation, and especially if and when it taxes the resulting price inflation, it is essentially stealing property from individuals.
Unfortunately, the vast majority of supposed advocates of the free market have taken the role of the Federal Reserve for granted. One would hope they may be able to see my alternate-universe example of the government protecting murderers as a violation of the free market. But they have a blind spot when it comes to government control of banking and the money supply. Such "free market" advocates would allow private banks to loan money they don't have, and then print more money to bail out the banks when need be. This is government-sanctioned theft just as surely as there was government-sanctioned murder in my alternate universe.
So the distortions and evils caused by government control and creation of money cannot be attributed to the free market. In a real free market, the government would prosecute murder, not protect and encourage murderers. And in a real free market, money would be defined by the market and valued by the market, not monopolized and depreciated by the government.
Any time the government makes legal tender laws and controls the money supply, there's no telling how the private sector may behave. But their irresponsible actions and mistakes cannot be blamed on the free market, because without a free market in money, there is no free market. A real free market might see several currencies in circulation at any time, with paper receipts representing gold, silver, gallons of gasoline. Or, mega-chain store coupons could circulate. The possibilities are endless, and a firm could individually weigh and accept in payment various forms of money according to its own needs. But when one form of money, the Federal Reserve dollar, is legal tender, and the Federal Reserve can create infinite amounts, there is no end to the demand for them. The acquisition of dollars is the only consideration, and this becomes synonymous with greed. There are no checks and balances in the system, which competing currencies would provide.
A free market in money might seem like a surreal world to you, but it's not that far removed from your experience. If you have more than one credit card and clip coupons from various stores, a free market in money would only take this one step further. And these competing currencies will see prices fall instead of rise. The more kinds of money are allowed, the more freedom and human flourishing there will be.
About the Author:
James Leroy Wilson is the author of Ron Paul Is A Nut (And So Am I). He blogs at Independent Country and writes for DownsizeDC.org. Opinions expressed here do not represent the positions of DownsizeDC.org.
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