Chapter V

HOW WOULD MONEY BE produced in a free society? Let us first observe that the fact that the quantity of money is irrelevant for the wealth of a nation must not be confused with the ideal of stabilizing the quantity of money. The latter ideal is in fact a spurious ideal and does not follow from the aforementioned fact. There is nothing wrong with increases or decreases of the quantity of money. The point is that such increases or decreases should not be mistaken to benefit society as a whole. Right and wrong in monetary policy does not concern the question: To which end should the quantity of money be modified? Rather, it concerns the question: Who has the right to modify the quantity of money? And in a free society, the obvious answer is: all producers of money have the right to produce more money, and all owners of money have the right to use their property as they see fit.

In a truly free society, the production of money is a matter of private initiative. Money is produced and sold just as any other commodity or service. And this means in particular that in a free society the production of money is competitive. It is a matter of mining precious metals and of minting coins, and both mining and minting are subject to the competition emanating from all other market participants. In selling his product, the money producer competes with all other people who own money and seek to buy the same goods that he desires. And in buying factors of production, the money producer competes with the producers of chairs, theater performances, telephones, carpets, cars and so on. In a word, in a free society the production of money is constrained within fairly narrow limits, limits that are determined by the willingness of other members of society to cooperate with our money producer rather than with someone else.

What kind of money would prevail in a free society? Theoretical considerations and historical experience all point to the same answer: A free society would use precious metals as money. Payments would be made in coins made out of gold, silver, platinum, copper, or whatever other substance would combine scarcity with the physical advantages of these metals. By contrast, paper money has always been fiat money, that is, it has always been imposed by the coercive power of the state. It is not the money of the free market, but the money of a partially enslaved society.