Money is a tool.
Absent an understanding of what money is and why it's different than currency, it's easy to come to the hasty and erroneous conclusion that money and banks should be abolished outright when considering the absurdity known as the Federal Reserve. To be fair, it IS true that the banking industry is corrupt given that it exists as a spread over a central bank which steals from everyone by counterfeiting currency and circulating it as a loan, the interest on which gets repaid through the expropriation of the the income tax.
This isn't a failure of money or banking in general, though. Let's not throw the baby out with the bathwater. This is a failure of government and central planning, and of its replacement of money with a monopoly on the circulation of fiat currency. So what is money, exactly? Traditionally, money is any scarce, non-perishable medium of exchange which:
- Arises naturally out of a barter economy.
- Is valued for that which can be obtained in exchange for it rather than for that which it can be used.
- Isn't consumed in its use or exchange.
- Follows the regression theorem.
The use of scarce, rivalrous means as money occurs naturally to make things more convenient. Money is a time saving device. Without money, the double coincidence of wants is extremely uncommon, which makes trade more burdensome, which incentivizes theft. The existence of money therefore also reduces theft and violence.
Examples of money include gold and silver.
Currency isn't money.
Money is heavy, though. It's burdensome to carry around with you. Depending on how much you have, storage may require a lot of space.
Currency solves this problem. Traditionally speaking, banks are supposed to be warehouses for gold and silver, and warehouse receipts for stored money are supposed to be currency. When you store your money in a warehouse, you receive a receipt in exchange. The receipt can then later be redeemed for the money. By storing your money in a warehouse for safekeeping, you can hold and exchange the receipts as though they were money because the holder of the receipt can always redeem it for the money stored in the warehouse.
This is great because receipts are much easier to carry around than gold and silver.
The problem which arises is that these receipts can likewise be used to bid scarce, rivalrous resources away from others. This means that there's a tempting incentive for warehousers to counterfeit receipts for gold and silver that doesn't exist. However, in a free market environment, the disincentives for doing this far outweigh the incentives. If word got out that a warehouser was STEALING RESOURCES FROM PEOPLE by counterfeiting warehouse receipts, everyone holding receipts for that warehouse would withdraw their money, and that warehouse would go out of business.
Problem solved.
Monopolizing the money supply.
Absent market competition to provide the best customer service, the disincentives for counterfeiting money don't outweigh the incentives. This is why the treasury and the federal reserve are so problematic. Once upon a time in the not so distant past, paper "dollars" were warehouse receipts which could be redeemed for gold and silver.
Guess what happened!
The benevolent gods known as "government" counterfeited warehouse receipts for which there was no gold and silver, and eventually couldn't make good on demands to redeem those receipts. So what did they do? They seized everyone's gold in what was Orwellianly dubbed a "recall" and threw people in rape cages for resisting. But hey, maybe it was an honest mistake. Maybe these men and women calling themselves "government" just got confused and couldn't tell the difference between what belonged to them and what belonged to everyone else. You know, kind of like how burglars mistakenly confuse the property of others for their own when they're "recalling" televisions and jewelry.
From money to fake warehouse receipts.
Anywho, by making it impossible for anyone wishing to forego a trip to the gulag to compete with them, the men and women calling themselves "government" could constantly reduce the amount of gold and silver that one would receive in exchange for a receipt until they eventually decided to just not redeem the receipts at all. This decision is euphemistically referred to as the end of the gold standard.
They didn't have to worry about being driven out of business by competing warehousers, nor did they have to worry about being victims of the type of violence they inflict on others, thus their perceived disincentives for manipulating the currency supply weren't powerful enough to outweigh their perceived incentive to do so. Without the limitations which would have existed in a market environment by virtue of competition for customer satisfaction, the men and women calling themselves "government" were subsequently able to prohibit the use of actual money while securing for themselves a monopoly on the circulation of nonredeemable receipts in money's stead.
This is how fiat currency was born.
The fallout.
Here's the kicker: these receipts are "loaned" into existence on the promise that people who aren't even born yet will pay back the debt through the income tax. This is the underlying method by which the individuals calling themselves "government" fund whatever deficits are left after they finish counting up what they steal through taxation. For example, social security. For example, roads. For example, war.
You get the picture. Central banking is literally transgenerational, forced redistribution of wealth from the young to the old. It's an intergenerational pyramid scheme.
The result has been nothing short of completely destructive: police state, welfare state, global war, transgenerational debts, genocide, democide, torture, war on drugs, destruction of the nuclear family, regulatory barriers to entry in every conceivable industry, rapid consumption of every conceivable resource, rapid accumulation of pollution - the list goes on. This is chaos. Government IS chaos. It wouldn't have been possible to fund any of this absent the theft carried out through the central bank. And lest we forget, central banks are a feature of socialism; NOT free markets. This is what happens when you don't have a free market in money. Resources get wasted and people get killed.
That's why more socialism isn't going to fix the problems created by socialism.
The solution.
Ending the prohibitive barriers to exchange created by the physical aggression and coercion of men and women calling themselves "government" is the ONLY thing that's going to fix the problems created by the men and women calling themselves "government".
In the words of Thomas Sowell, when someone removes a cancer, what do you replace it with?
If people are free to choose their own mediums of exchange instead of having nonredeemable warehouse receipts forced onto them and their children under threat of coercion, humanity will see an era of prosperity completely unrivaled in all of human history.
Crypto-currencies could potentially solve this problem, and there's nothing the men and women calling themselves "government" can do to stop it.
About the Author
I'm Jared Howe! I'm a Voluntaryist hip hop artist and professional technical editor/writer with a passion for Austrian economics and universal ethics. You can catch my podcast every Friday on the Seeds of Liberty Podcast Network.