MONEY

Another central justification for the existence of the State is the need for a stable and universal monetary system. In the absence of any general system for determining price and value, the argument goes, economic activity grinds to a standstill, since all that is left in the absence of cash and prices is self-sufficiency, barter and/or an inefficient command economy of some kind.

If the government stops defining and promulgating the money supply, the argument goes, money would cease to exist, and the economy would collapse. Every group would come up with their own definition of money, and at the mall, you would have to try to negotiate with people who were using diamonds, gold, shark teeth, salt, spices, DVDs and goodness knows what else as cash.

Our economic life would thus become an endless runaround of attempting to match a variety of currencies to a variety of products; the value of our salaries would be diminished – or perhaps eliminated – by the amount of labor that it would take to find someone who would accept our “currency.” Furthermore, given the enormous multiplicity of “currencies” in a stateless society, we would never be sure whether or not we were being ripped off in some manner, as someone tried to convince us that 12 shark’s teeth were in fact equal to our bag of cinnamon – and horror of horrors, we might get home and find out that those shark’s teeth were in fact fakes!

(I hope that we are far enough along in our understanding to recognize an “Argument from Apocalypse” when we see it!)

Like so many arguments against a stateless society, the above approach can be defined as the “idiot kindergarten” argument. In this view, society is composed of largely retarded adults, who find it impossible to cooperate for mutual advantage, but instead run around like chickens with their heads cut off, grabbing and snatching at whatever value they can, eyeing each other with suspicion and hostility, and probably eating glue and stuffing plasticine up their noses.

The essential thing to understand about money is that cash is just another product, exactly like an iPod, a car or a telephone line.

A telephone line is designed to facilitate communication in a “many to many” scenario – anyone who pays to access it can talk to anyone else who has paid to access it. From the standpoint of the consumer, a telephone line is an “invisible” medium for the exchange of conversation, from anyone, and to anyone.

In the same way, money is an “invisible” medium for the exchange of value in a market system.

Money is only required because people wish to trade – I do not generally set a “market price” for the vegetables that I grow for my own consumption in my backyard. (Although my time certainly has a form of “price” of course…)

Money reflects the degree of actionable demand for goods and services – actionable because we all may want a Lamborghini, but very few of us actually have the money to purchase one.

Quite literally, money is a way of measuring apples versus oranges. How much of my economically productive time is a dozen oranges worth? How many oranges is a dozen apples worth? In the absence of money, the only alternative is direct trade, which is horribly inefficient, for the obvious reason that if I want to trade apples for oranges, I have to find someone who wants to trade oranges for apples.

Like any commodity, money has a price – and this price is called “interest.” If I want to rent a car, rather than buy it, then I do not have to outlay the entire capital cost of the car, but rather I can borrow the car (which really means borrowing the capital cost of the car, since someone else has to have already paid for it) and pay a rental fee.

In the same way, if I want to borrow money, then I have to pay a “rental fee,” which is interest, which equals the amount that I am willing to pay in order to have something sooner rather than later. “Interest” exists because time is the most precious commodity that we have, because it can never be replaced, and without it we are nothing.

I can save for 20 years in order to buy a house outright, but there is no particular value in that; it is true that if I take this approach, I have saved myself a loss of money and interest, but so what? I have only exchanged paying interest for paying rent on some other place to live – both of which are forms of non-recoverable income. Whether I hand my money to a bank or a landlord is immaterial.

If we are afraid that a stateless society will not be able to create or sustain any form of objective monetary system, then what we are really saying is that human beings will refuse to cooperate, even if their lack of cooperation means a complete collapse of the economic system, and the entire basis of their high living standard.

We can easily imagine that in the absence of cash, economic wealth and growth would collapse by probably 95%. Let us say that the average annual income of a developed economy is about $35,000 a year – when we reject a stateless society for fear that it cannot sustain a monetary system, we are really saying that human beings would accept an annual drop in income from $35,000 to $1,750 rather than cooperate with each other.

To put it another way, if I were willing to pay you $33,250 a year – the difference between living in a mud shack and living in a comfortable home, between near starvation and having more than enough food, between plumbing and an outhouse – in order to cooperate with other human beings, would you say “no”?

Of course not.

If human beings do not possess enough rational self-interest to accept a 20 fold increase in their income simply for the sake of participating in some reasonable monetary system, then philosophy, medicine and society of any kind would be utterly impossible, and you would not be able to read this, because you would have said to yourself that the effort of learning how to read is not worth it.

I apologize if I am hammering the point perhaps too hard, but another way of understanding this is to imagine the following scenario.

THE ANARCHIST CREDIT CARD

Let us say that you make $35,000 a year, and one day, you get a letter in the mail from the Anarchist Credit Card Company:

Dear [You]:

We have a very exciting offer for you! If you agree to sign up for the Anarchist Credit Card (ACC), and agree to use it for at least 80% of your consumer purchases, we will deposit $700,000 into your ACC account every single year, free of charge, for you to spend as you see fit!

We will also only charge you 1% interest per year…

Would that be an offer that just might interest you? $700,000 of free money every single year, just for signing up for and using particular credit card?

Well, this is exactly the anarchist offer!

Given the massive incentives involved in participating in a voluntary monetary system, we can be certain that all but the insane will leap at the opportunity.

Entrepreneurs who can offer people an immediate and permanent 20-fold increase in their income will not find any shortage of people willing to sign up for their services.

Thus, we can be absolutely and completely sure that a stateless society will have a stable and beneficial monetary system.

We can now spend some time examining how it might work.

WHAT PROBLEM ARE WE TRYING TO SOLVE?

It is always fascinating to see what Ayn Rand used to call the “blank out,” which occurs when people defend the existing statist system of currency.

Government predation upon the economy through its monopoly on currency is one of the most savage and destructive aspects of a statist society.

The overprinting of money, which is used to bribe existing special interests, results in inflation, or the loss of purchasing power that results from too many dollars chasing too few goods and services.

If I wanted to start a credit card company, and sent out a business plan to investors informing them that my goal was to ensure that consumers paid 5% more per year for all their purchases, and use that as the basis for my profit, they would laugh at me as insane and ridiculous! “Who would sign up for such a vampiric credit card?” they would chortle, and probably send it around to each other as a joke.

Then, these very same investors will run across an anarchist, and end up defending the existing statist currency system, without even noticing the rank contradiction.

This is the true strangeness of the world that only the anarchist can see.

Inflation is a brutal attack upon the poor; deficit financing is also a staggering predation upon the unborn, the financial equivalent of a farmer securing a loan by pledging his unborn future livestock.

The reason that statist monetary systems always grow to collapse is the simple financial equation that lies at their root.

The reason that Mafia protection schemes “work” is because the costs of enforcement are far less than the rewards of intimidation. If you ask a restaurant owner for $1,000 a month in “protection,”

but it only costs you $100 a month to pay a thug to threaten him, the economic benefit is clear. In effect, the thug’s wages are directly paid for by his victims, and the vast profits go to the thug’s leaders.

The limitation in the profits of organized crime is the balance of power between the thugs and the restaurant owners. If the Mafia predation becomes too great, the owners will simply sell their restaurants and set up shop elsewhere. Alternatively, they can hire their own security guards to protect their restaurants, thus starving the Mafia out of business – or hire their own thugs to threaten the Mafia thugs in return. (In “The Godfather,” for instance, a young Corleone decided to kill a thug rather than pay him.)

However, governments are subject to no such “restrictions.” Moving out of Brooklyn is one thing; moving out of the United States is quite another, due to the time and expense involved.

Furthermore, moving to another country does not solve the problem of taxation, because “protection money” will be violently extracted from you no matter where you end up living.

Furthermore, citizens cannot hire security guards to protect them against the police and the military, since they are so outgunned. Thus the limitations of evasion or retaliation simply do not exist in a statist society.

In addition, governments become less and less reliant on direct and immediate taxation over time, since their ability to print money and take out loans against future taxation diminishes the need to please the taxpayer in the short run.

Thus we can see that the Mafia would only continue to grow if they could somehow establish the following situations:

1. The restaurant owners could never leave.

2. The restaurant owners could never defend themselves.

3. The Mafia could take out legal loans against future “protection” profits.

4. The Mafia could print as much money as it wanted – whenever it wanted – and would never face any significant “counterfeit” competition.

5. The Mafia was well-paid to collect this protection money.

This situation would result in a cancerous growth in the size and power of the Mafia, because the significant imbalance between short-term gains and long-term pains would be so great that the deferral of immediate profits would never occur. We may as well expect a single and childless young man who knows that he has only two weeks to live to spend one of those weeks planning and investing in his retirement.

Of course, it is entirely natural and inevitable that the government defines its own actions as virtuous, and the exact same actions as evil and criminal if performed by others. Printing money is an essential and virtuous government function; the private printing of money is the evil act of “counterfeiting” – although both are the creation of fiat currency out of thin air for the private profiteering of particular individuals.

If you’re in the mood for a bit of intellectual fun, it is always enjoyable to try out the following approach when arguing for an anarchist society: describe how you think an anarchist society should run, but smuggle statist principles in, just to see if people notice the substitution.

In the case of currency, I would say something like this:

“The way that I see currency working in a stateless society is that one particular private agency should have the right to print as much money as it wants, whenever it wants – and it should use this power to pay for an army that it would then use to shoot anyone who tried printing competing currencies. This agency should have the right to create debts for people who have not even been born yet, and to charge whatever it wants to the citizenry as a whole, using the future income that will steal from them as collateral for spending in the here and now!”

Naturally, people are shocked and appalled when I propose such a system. They consider it corrupt and evil for money to be created and promulgated in this manner, and immediately respond with myriad examples of the endless and immoral consequences of my proposed system.

Then, they inevitably defend the Federal Reserve…

The “shock treatment” of this sudden reversal has at least the potential to jolt someone’s conscience into a kind of desperately-needed rationality, and help them finally see the savage amount of propaganda that has been inflicted on them.

MONETARY ASPECTS OF STATELESS MONEY

It is impossible to know for certain how money will work in a stateless society, but I can at least tell you what I would prefer as a consumer.

STABILITY

One of the greatest – and unnecessary – challenges in existing statist societies is a near-complete inability to know what the future holds in terms of monetary stability. The interest rate goes up and down according to the whims of the leaders; more money is printed, and then less money is printed; the government scoops up more, then less, of available capital in terms of loans; bonds are issued with a variety of interest rates, and so on.

In particular industries, the business environment is even more random. Regulations swell and change; tariffs rise and alter; import restrictions grow and fall; union rules come and go – and the endless teasing possibility of government subsidies and contracts keeps many a faltering business around long after its natural expiry date.

Thus, the first guarantee that I would require from anyone wishing to enroll me in a monetary system would be stability. I do not want to have to worry about whether my money will be worth less next year, or whether its value is going to fluctuate in any substantial manner.

PORTABILITY

There is a reason that people tend to travel with credit cards, rather than with gift certificates for specific stores and restaurants. Since gift certificates are not as portable, they would have to carry a significant stack of them to spend money from place to place.

When traveling abroad, credit cards are generally preferable to cash, because they do not have to be converted, and are less convenient to steal.

In the same way, gold has been a common currency throughout history because it is rare, portable, strong enough to last (but soft enough to mould), universally valued, easily dividable, and does not lose value when it is split, like a diamond.

Thus, to get my business, any particular currency would have to offer portability.

The cost savings for monetary systems tend to take the form of a bell curve – when a currency is not very portable, like a gift certificate, it remains very cheap to produce and consume. When a currency becomes somewhat portable, it operates in a kind of limbo – it is much more expensive

than a gift certificate, but not as cheap as a currency that is very portable, which has economies of scale working for it.

For instance, it might be valuable for the retailers in my geographical region to offer me a form of subsidized currency that I could only spend in their stores. This already occurs in used-books stores; you can either take cash or credit – and the credit is much more lucrative, because the store owner gains the additional value of knowing that you will buy only from him.

However, localized currencies face the significant disadvantage of being unusable in transactions that require wider economic reach. It is unlikely that the company that provides your electricity resides in your county, in which case your “local dollars” could not be used to pay your electricity bill, which would cost you additional time and energy to pay the bill from a different account, using a more universal currency.

In a stateless society, your bank could also analyze your spending habits and proactively buy particular currencies. If you spend $100 a month at Store X, it could buy 100 “Store X dollars” a month, getting a 5% discount, since Store X can book its unspent consumer dollars as an asset and guarantee of future earnings. The bank may charge you 1% for this service, but you would still be 4% ahead.

We must remember that inconvenience breeds entrepreneurs. In a stateless society, an obvious service would be a “transparent” way of paying your bills using the most advantageous currency available. I might have bank accounts with five different kinds of currency – and thus my bank would provide bill payments in a universal format; I would not need to know all the details, but the bank would complete my transaction using the most advantageous currency. In this way, I might have different kinds of money, but that difference would be largely invisible to me, except for the savings I would receive. (Note that these different currencies would also be a disincentive for invasion, as mentioned above.)

Would it be cheaper for me to participate in a currency that would be accepted on the other side of the world? That is very hard to predict ahead of time, because there would be significant cost savings in a universal currency, but there would be significant costs as well. It is hard to imagine that a Chinese food seller would be interested in offering currency-based discounts to a teenager in Zimbabwe, and so the local incentive to provide subsidized currency would be diminished. On the other hand, the significant amount of technical resources required to run any currency would not have to be duplicated.

Of course, since inconvenience breeds entrepreneurs, it is certain that a number of enterprising souls would come up with a framework for running currencies that could be populated with any number of specific currencies, just as websites almost never write their own “shopping cart” code from scratch, but rather populate existing frameworks with their own products and prices.

This approach could very easily overcome the problem of duplicate investments in technical currency frameworks – this, combined with a transparent abstraction layer for bill-paying in multiple currencies, would create an enormously efficient and user-friendly currency system – or systems, to be more precise.

SECURITY

If the above two criteria were met, my next consumer question would be: how secure is this currency?

Security is always a delicate balance between usability and safety. Any online transaction could require you to enter 10 unique passwords, each 255 characters long, which would then be virtually unbreakable – the problem is that no one would use it, for the same reason that very few people put 20 locks on their front door, and walk around like some sort of apartment superintendent, their key rings clanking like a suit of chain mail. It certainly is an inconvenience to be robbed, but it is also inconvenient to spend 20 minutes opening and locking your door every day.

I would not require that my currency be perfectly secure (if this were even possible) – I would prefer that this security at least match my preferences and requirements.

Some people are carefree; some people are cautious, and some people are downright paranoid. The paranoid people always prefer to shift the costs of securing their money to the carefree people; in the same way, the carefree people resent paying for all the extra security features that the paranoid prefer. Thus, any effective supplier of a monetary system would very likely have different levels of security and precautions, and would charge the appropriate costs for each level.

Carefree people might choose to have few if any security features at all, and thus pay the least for participating in a monetary system. On the other hand, the paranoid might require voice and fingerprint identification, as well as retina scans, specific dance moves and obscure Urdu phrases in order to complete a transaction. All this specialization is part and parcel of the inevitable entrepreneurial obsession with providing the most possible value in every conceivable situation, in order to avoid leaving even one thin dime of potential profit on the table.

Of course, a central purpose of the free market is not to create profit, but rather to eliminate it, or at least make it as small as possible. Any firm which overcharges will inevitably be undercut, which is why profits even in successful companies are generally no more than a few percentage points. Thus we can be sure that there will be just the right number of currency systems in a free society – not so many that economic interactions become complicated and cumbersome, but not so few that a lack of competition will allow profits to inflate.

The majority of economic transactions in a free society will be performed electronically, because the transaction costs are far lower – however, cash will always be necessary, for a variety of reasons. The price of cash transactions, being higher, will be reflected in a lack of discounts – or a surcharge – in the price, which will discourage but not eliminate these kinds of interactions. It also seems likely that cash will not carry a guarantee of restitution in the case of loss or theft, in the way that electronic currency would, unless there was a way to electronically associate cash with a particular individual.

At the moment, it may seem that electronic transactions are subjected to a surcharge, while cash transactions are not – however, this is not the case at all.

Credit card companies do charge a few percentage points per transaction, while cash can get you certain kinds of discounts at computer stores, but in reality the exact reverse is true.

If I were one of these raiders, I would face a very difficult balancing act, which is that it would be advantageous for me to leak the problems XYZ was experiencing, in order to drive down the value of the company and pick it up for less money – however, such a leak would also create a panic among the customers, which could largely eliminate the value of the company.

Thus, my best strategy would be to leak the problems at XYZ – and simultaneously offer a guarantee to existing customers that their currency would be protected, as well as some sort of incentive or bonus to retain their allegiance. I would be willing to put all of this in writing, of course, in a binding contract, which would take effect the moment I got control of the company.

This would cause a temporary dip in the price of XYZ, thus allowing me to gain control of it more cheaply – and would at least help alleviate the fears of existing customers by providing a binding guarantee to retain the value of their money.

However, as a raider, I would be facing significant competition from another source – other currency companies.

Company ABC, on hearing about any possible problems with XYZ, would immediately take out full-page advertisements, offering significant bonuses to any XYZ customers who transferred their money to the ABC Company. There would be so many “lifeboat” companies offering to rescue XYZ

customers at par or greater that such customers would doubtless be able to walk to shore!

It could be the case that whatever solution any individual customer chooses might not pan out – in other words, a raider might offer a five percent bonus to currency holdings, and then fail to deliver it, falter in his execution, and customers might end up having to pull out at eighty or ninety cents on the dollar.

Color me cold, but I cannot see the innate tragedy in such a situation. Anyone who offers you “free”

money does so with the implicit – though perhaps unspoken – background of risk. If I decide to leave my money in a troubled company, in the hopes of gaining five percent more, and I end up getting ten percent less, it is hard to see how that is significantly different from investing in a stock or a bond – or a horse, for that matter.

Thus, there is no conceivable situation in which currency customers would wake up one day to find their savings utterly wiped out – there is so much profit in customer retention, particularly in currency situations, that a literal stampede of entrepreneurs would attempt to insert themselves into the equation, to the benefit of the existing customers.

COMPARED TO WHAT?

Doubtless there are ten thousand churning minds out there at this very moment, chanting their heated way through every conceivable possibility that might result in financial ruin for customers of the XYZ Currency Company. And perhaps such a possibility exists – but again, this is an argument for anarchism, not against it.

Any farmer can fail to produce crops at any particular time – this is a natural reality and risk of farming, or indeed of any human endeavor.

Since any farmer can fail to produce crops, the only way that we can guarantee – as best as possible

– the continual supply of crops is to have a large number of farmers. If we only have one farmer for the entire world – to take an exaggerated example – then the moment that the inevitable happens, and that farmer fails to produce crops, worldwide starvation inevitably results.

This distribution of risk is an essential part of any rational strategy to reduce danger. If you are only ever allowed to buy one stock your whole life long, then you may do very well, but you also may do very badly. Diversification is the key to minimizing risk.

In the same way, when we have a State monopoly on currency, and we accept that currency organizations can fail from time to time – and certainly there is no shortage in history of examples of States corrupting and destroying their currencies – we have truly all of our eggs in one very precarious basket.

If we are truly concerned about currency failure in a free market system, then the worst possible solution we could come up with would be to create a violent monopoly over a single currency. If we are concerned about farm failures, then obviously the solution is to have as many farms as economically possible, so that those that fail can be shored up by those that succeed.

In other words, if currency failure is not a problem, then a stateless society is the best solution.

If currency failure is a problem – then a stateless society is the best solution.

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