-How do you think the free market would handle money, if there were no government intervention of any kind?
One of the most destructive attributes of government is its routine practice of using force to create monopolies in the marketplace. This is the unfortunate reality each of us has encountered when trying to establish utility accounts for a new residence. Unlike other goods and services, where there are a plethora of service providers to choose from, utility companies enjoy a state-sanctioned monopoly where residents are forced to use only those companies which have been given a contract by a local government.
Unlike other services where consumers can simply opt out of purchasing, individuals rely heavily on access to water, gas, and electricity. Choosing not to purchase these necessities is not an option. However, when there is only one game in town providing services essential to daily life, there is no recourse or mechanism in place to ensure quality assurance.
Even if every resident were to complain about their electric company there would be no incentive for these companies to improve since there is nowhere else for the consumer to go. These companies do not have to rely on quality services when they receive the same compensation regardless of consumer satisfaction.
While the government monopoly over the utility industry is an experience to which almost all Americans can relate, few realize that the government also has a monopoly over our monetary system.
Currently, the federal government has sole control over the creation and distribution of the United States dollar. While many Americans view central control over currency as a legitimate government power, this is simply because most cannot fathom an alternative reality.
In the late 1970s, Friedrich A. Hayek posed a question that no other economist had thought to ask in the nearly two thousand years since the study of economics was established: what if private entities issued money instead of the state?
Hayek began to dig deeper into his own inquiry. The gold standard was supposed to keep the government in check by preventing it from printing money it could not physically back with the gold, silver, or other precious metals stored in state reserves. Additionally, tying the dollar to a specific amount of gold helped determine the precise value of each dollar.
When the gold standard was abandoned during the progressive era, all hope of government restraint was abandoned with it. Absent the gold standard and with the help of the Federal Reserve, the government was able to increase the quantity of our money supply whenever it was deemed necessary or in the best interest of the “public good.”
Without limits to how much new money could be printed, inflation became an inevitable consequence that would manifest itself in the long-run. Unfortunately, many politicians dealing with public pressure in the midst of a financial crisis are worried solely about appeasing their constituents in the short-term, even if that means buying into economic policies that will create more harm later on.
Hayek often noted that even though the gold standard had worked relatively well in promoting government restraint, the state always found a way to rig the game and change the rules because it had the sole authority to do so.
While Hayek has given us a clear picture as to why government monopolies over monetary policy fail, many are still left wondering what money would look like in a truly free society where the free market is able to function without government barriers.
One of the most wonderful aspect of the free market is that nothing is necessarily off the table when it comes to solutions. By allowing competition, consumers are able to decide which products and services work and which don’t. Those products that do not meet expectations will fail and those that satisfy consumers will prosper; it is that simple.
The same is true of money.
However, today an overwhelming majority of consumers have no experience when it comes to experimentation with competing currencies and the government’s control over monetary policy has made it impossible for individuals to really know what works and what doesn’t.
Without insight into how and why certain monetary decisions are made, most individuals will not know what makes a currency “good” and what makes it “bad.” Unfortunately, government does not have the greatest track record when it comes to transparency which means most individuals will never gain access to this information.
Additionally, without competing currencies an individual has nothing to measure the dollar against. Without other options available, there is no way of knowing which currency is ultimately the best choice for consumers.
In a truly free market, competing currencies of all origins would be tried and tested and only the strongest would remain, just like any other product or service on the market. A currency tied to something other than a precious metal might fail when it is discovered that there is no standard in place to control its creation, while a currency backed by silver or gold might flourish a gain positive reputation among its users.
Competing currencies would also increase accountability measures. If something went horribly wrong with an experimental currency, the blame would lie with the private issuer. Currently, a dissatisfied individual would have a hard time trying to hold a government entity, or a private entity like the Federal Reserve, accountable for complaints over the rate of inflation. When you belong to the state, you are above accountability, or so has been the case throughout history.
In spite of the government’s current control over physical money, some tech-savvy individuals have begun experimenting with alternative forms of currency over the last few years. Cryptocurrencies, while not backed by gold, are still limited in quantity. In the instance of Bitcoin, Individuals must put in time and work in order to “mine” new Bitcoins. Additionally, there is a set amount of Bitcoin, once that limit is reached no more can be mined. While Bitcoin has its setbacks, unstable volatility being one of them, it is a glimpse into what competing currencies might look like in a free society.