• Private Coinage

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    This
    article is excerpted from chapter 7 of What
    Has Government Done to Our Money?

    The idea
    of private coinage seems so strange today that it is worth examining
    carefully. We are used to thinking of coinage as a “necessity
    of sovereignty.” Yet, after all, we are not wedded to a “royal
    prerogative,” and it is the American concept that sovereignty
    rests, not in government, but in the people.

    How would
    private coinage work? In the same way, we have said, as any other
    business. Each minter would produce whatever size or shape of
    coin is most pleasing to his customers. The price would be set
    by the free competition of the market.

    The standard
    objection is that it would be too much trouble to weigh or assay
    bits of gold at every transaction. But what is there to prevent
    private minters from stamping the coin and guaranteeing its weight
    and fineness? Private minters can guarantee a coin at least as
    well as a government mint. Abraded bits of metal would not be
    accepted as coin. People would use the coins of those minters
    with the best reputation for good quality of product. We have
    seen that this is precisely how the “dollar” became prominent
    – as a competitive silver coin.

    Opponents
    of private coinage charge that fraud would run rampant. Yet, these
    same opponents would trust government to provide the coinage.
    But if government is to be trusted at all, then surely, with private
    coinage, government could at least be trusted to prevent or punish
    fraud. It is usually assumed that the prevention or punishment
    of fraud, theft, or other crimes is the real justification for
    government. But if government cannot apprehend the criminal when
    private coinage is relied upon, what hope is there for a reliable
    coinage when the integrity of the private marketplace operators
    is discarded in favor of a government monopoly of coinage? If
    government cannot be trusted to ferret out the occasional villain
    in the free market in coin, why can government be trusted when
    it finds itself in a position of total control over money and
    may debase coin, counterfeit coin, or otherwise with full legal
    sanction perform as the sole villain in the marketplace? It is
    surely folly to say that government must socialize all property
    in order to prevent anyone from stealing property. Yet the reasoning
    behind abolition of private coinage is the same.

    Moreover,
    all modern business is built on guarantees of standards. The drug
    store sells an eight-ounce bottle of medicine; the meat packer
    sells a pound of beef. The buyer expects these guarantees to be
    accurate, and they are. And think of the thousands upon thousands
    of specialized, vital industrial products that must meet very
    narrow standards and specifications. The buyer of a 1/2 inch bolt
    must get a 1/2 inch bolt and not a mere 3/8 inch.

    “It
    is surely folly to say that government must socialize all property
    in order to prevent anyone from stealing property. Yet the reasoning
    behind abolition of private coinage is the same.”

    Yet, business
    has not broken down. Few people suggest that the government must
    nationalize the machine-tool industry as part of its job of defending
    standards against fraud. The modern market economy contains an
    infinite number of intricate exchanges, most depending on definite
    standards of quantity and quality. But fraud is at a minimum,
    and that minimum, at least in theory, may be prosecuted. So it
    would be if there were private coinage. We can be sure that a
    minter’s customers, and his competitors, would be keenly alert
    to any possible fraud in the weight or fineness of his coins.[1]

    Champions
    of the government’s coinage monopoly have claimed that money is
    different from all other commodities, because “Gresham’s Law”
    proves that “bad money drives out good” from circulation. Hence,
    the free market cannot be trusted to serve the public in supplying
    good money.

    But this
    formulation rests on a misinterpretation of Gresham’s famous law.
    The law really says that

    money
    overvalued artificially by government will drive out of circulation
    artificially undervalued money.

    Suppose,
    for example, there are one-ounce gold coins in circulation. After
    a few years of wear and tear, let us say that some coins weigh
    only .9 ounces. Obviously, on the free market, the worn coins
    would circulate at only 90 percent of the value of the full-bodied
    coins, and the nominal face value of the former would have to
    be repudiated.[2] If anything,
    it will be the “bad” coins that will be driven from the market.

    But
    suppose the government decrees that everyone must treat the worn
    coins as equal to new, fresh coins, and must accept them equally
    in payment of debts. What has the government really done? It has
    imposed price control by coercion on the “exchange rate”
    between the two types of coin. By insisting on the par ratio when
    the worn coins should exchange at 10 percent discount, it artificially
    overvalues the worn coins and undervalues new
    coins. Consequently, everyone will circulate the worn coins, and
    hoard or export the new. “Bad money drives out good money,” then,
    not on the free market, but as the direct result of governmental
    intervention in the market.

    Despite never-ending
    harassment by governments, making conditions highly precarious,
    private
    coins have flourished many times in history
    . True to the virtual
    law that all innovations come from free individuals and not the
    state, the first coins were minted by private individuals and
    goldsmiths. In fact, when the government first began to monopolize
    the coinage, the royal coins bore the guarantees of private bankers,
    whom the public trusted far more, apparently, than they did the
    government. Privately minted gold coins circulated in California
    as late as 1848.[3]

    Notes

    [1]
    See Herbert Spencer, Social Statics (New York: D. Appleton
    1890), p. 438.

    [2]
    To meet the problem of wear-and-tear, private coiners might
    either set a time limit on their stamped guarantees of weight,
    or agree to recoin anew, either at the original or at the lower
    weight. We may note that in the free economy there will not
    be the compulsory standardization of coins that prevails when
    government monopolies direct the coinage.

    [3]
    For historical examples of private coinage, see B.W. Barnard,
    “The use of Private Tokens for Money in the United States,”
    Quarterly Journal of Economics (1916–17): 617–26; Charles
    A. Conant, The Principles of Money and Banking (New
    York: Harper Bros., 1905), vol. I, 127–32; Lysander Spooner,
    A Letter to Grover Cleveland (Boston: B.R. Tucker,
    1886), p. 79; and J. Laurence Laughlin, A New Exposition
    of Money, Credit and Prices (Chicago: University of Chicago
    Press, 1931), vol. I, pp. 47–51.

    On coinage,
    also see Mises, Theory
    of Money and Credit
    , pp. 65–67; and Edwin Cannan, Money,
    8th ed. (London: Staples Press, 1935), pp. 33ff.

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