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The issue of how the money supply should be regulated is very much in the Georgists1 minds, as articles in their publications show. They usually take a gold-standard point-of-view and that position has been covered rather well. This article will consider that policy to be authoritarian and unworthy of a free people.

To begin, there are two points of view in assessing money. One can think of the value of the world's products in terms of money. The discussion of inflation is usually conducted in such a frame of mind. We say that the price of goods have been rising in terms of money. The other point of view is to think of the value of money in terms of the world's products. Such a point of view would say that the value of money is declining. The politicians would prefer the former view because prices and wages are apparently set by companies and unions. Since the government controls the money supply, the latter view would put the blame on the government.

Let us think of money in terms of goods and services. That is, let us think of the price of money. The price of anything depends on its supply and demand so we must consider these two factors. On the supply side, we have the government and the banks. On the demand side, we have the number of transactions that people want to make. The obvious aim is to balance the supply of money to the demand so the standard of value would be a constant in terms of the world's products.

Of course such balancing tactics are not even attempted, The Canadian government, like most governments, has been increasing the supply of money far faster than the increase in demand. If we use the Gross National Product as an indication of the business to be done using money, the following figures tell the tale. In 1967 the GNP increased 3.1 per cent (in 1957 dollars) and the money supply increased 14 per cent. In 1968 the GNP increased 4.7 per cent (in 1957 dollars) and the money supply increased 13.7 per cent. Not only do these figures show that the supply and demand of money is not balanced, but the amount of imbalance is not even consistent.

This is where the gold standard people and the writer part company. They usually consider the supply and ignore the demand. Why would a particular change in the supply of gold (and money) be necessarily proper for the change in the supply of goods and services? If the money supply was fixed and the demand increased, the price of money would increase, Creditors would benefit and debtors would suffer.

There is little doubt that gold is the best commodity standard of value because it is hard to corrode, can be divided into small portions, represents a large value in a small space, etc. The question is whether any commodity can be used as a standard of value. The price of any commodity can be manipulated by governments and the recent history of gold is a story of considerable manipulation by governments. Indeed, governments have been so active in buying and selling gold, without any thought to the interests of their citizens, that gold may be the poorest commodity in which to house one's fortune in spite of its excellent physical properties.

Certainly a gold standard trill inhibit a government from debasing its currency. But who sets the par value? If the value is set by the legislature, the legislature can change; the par value. If the par value is set by the constitution, the government can change the constitution. That is, a gold standard nay inhibit or delay the debasement of the currency but it cannot prevent this event.

It is apparent that the whole idea of governments controlling money is suspect. The history of money is a history of governments putting less gold in the coins, changing the banks' reserve ratio, changing the price of gold, etc. It is a history of mismanagement and downright dishonesty. The whole idea of a properly controlled currency is based on the quicksand of the assumption that governments will do the right thing. History shows that they have a propensity for doing the wrong thing.

The above discussion should lead one to search for a monetary system free from the control of governments and any other forces for that matter. That is, it would be a competitive, free-enterprise system rather than a socialist system. The supply of money would be regulated by the forces of the market rather than by the wishes of some government head. If anyone tried to capture the money market, it should be free enough so that someone else could enter it and undo the manipulators. In short, one should consider the de-nationalization of the money business.

The de-nationalization of the money business seems even more strange to most people than the de-nationalization of the education business that we discussed in the January, 1972 issue. People realize that private-enterprise schools exist but they do not realize that private-enterprise money has and does exist. In his "Uncle Sam, The Monopoly Man" (Arlington House), William C. Wooldridge tells about many examples of private-enterprise money. For most of Alaska's history, they were using private money and it took government action to force the people to use government money. The Canadian Tire Corporation gives out pieces of paper that are redeemable in merchandise. Legally, they may or may not constitute money, but economically they do the same Job in a CTC store when you want a hammer or a saw. After reading Wooldridge's chapter on money, one can only conclude that private-enterprise money is normal and government money can only work if the government forces people to use it.

Nobody pretends that the Canadian dollar is backed by gold in Ottawa. In economics classes they usually tell you that money circulates because people have faith in it. That may be the attitude of the child when he receives a coin to buy an ice cream cone. However, the bankers, international investors, etc. who can Judge the merits of money, hardly depend on faith. If they think that Canadian dollars are inferior to Swiss francs, the knowledgeable people will not accept Canadian dollars at face value and, as a result, neither will ice cream vendors.

No, the backing of the dollar is not faith but force. Governments forbid people from creating money and they declare their own money to be legal tender. You must accept it as payment for all debts. If you win a civil suit in court, the payment awarded will be in dollars, not gold, Swiss francs or CTC coupons. The backing of the dollar is the power of the government. The police and the armed forces (small though they may be) with their atomic weapons (if they still have any) constitute the real backing of the Canadian dollar. Without that backing of real force, we would probably be quoting prices in grams of gold or Canadian Tire hammers.

What would happen if we removed the monetary chains? Initially, there may be no reaction because the idea is too radical for most people to contemplate. Canadian Tire would continue to put out their merchandise coupons. Eaton's and Simpson's might decide to do likewise. The Wellings Mint (Malton, Ontario), which produces gold medals, etc., might go into the gold coin business. In that business the company produces coins for the owner of the gold (1 gram would be a fairly convenient size) and the owner pays for this service in gold. Wooldridge tells about a Mr. Bechtler in North Carolina who did this in the l830's when the US mint in Philadelphia was more slow and more expensive in doing the Job of making coins than was Mr. Bechtler. The kinds of institutions that may create money and the forms it may take are as diverse as human imagination.

Suppose that we had no armed-forces-enforced government money on the scene. What would you do if you were presented with a strange piece of money. Surely you would ask yourself whether this piece of metal or paper made a definite promise and whether the maker was reliable. If a bartender gives you a coin that says it is good for one beer, all you need to know is whether the bar owner is honest and whether he usually has a stock of beer. Such coins with definite promises from local Merchants would circulate freely in the local area as they did in Alaska. Similar coins from Canadian Tire would circulate wherever their stores were located. One would expect that the public would become so accustomed to being suspicious of money that a government note good for one dollar (What is a dollar?) would receive little respect.

One would expect that some kinds of money would become more respectable than some other kinds. The notes with the highest national prestige would be traded in the money markets and their relative values would be quoted in the dally press. Merchants would put up signs saying that they will accept certain kinds of money Just as they now announce that they accept certain credit cards.

The question remains: What will present the makers of money from overproduction? You must see that only their credit stands between them and bankruptcy. It there is suspicion that the bar cannot redeem those one-beer tokens, everyone will soon be in the bar. If it is suspected that the bar is in financial difficulty, all of its creditors will want to be paid at once. It is absolutely necessary for the bar to appear to be solidly behind those tokens or it will soon be out of business.

But you still say: Suppose that a money maker is foolish or crooked? What protects the public? Indeed, what protects the public from bad debts of any kind? What protection do we have from the car dealer who does not have a competent, honest service department to back up the warranty? What protects the student from the college which promises education and then allows revolutionaries to disrupt classes?

It seems to the writer that people will be naturally suspicious of free-enterprise money. On the other hand, people tend to trust that a college will deliver education. People tend to trust a warranty until it is proved worthless.

The money maker must try to persuade people to trust him with the means to buy an education, a car, and everything else. If his product circulates widely, he will also be under the scrutiny of the money market people. It will be difficult for a prominent money maker to get into trouble without everyone being aware of his situation very early in the game.

Certainly some money makers will become bankrupt but it is suggested that this is less likely than are the bankruptcies that we have every day in other fields. And remember, governments have been cheating us for centuries and there is very little that the individual can do about it.

A Socialist would say that money is too important to be left in the hands of the open market. A free-enterpriser would say that money is too important to be left in the hands of the bureaucrats. The issue is freedom. At present we must accept the government's money whether it is rapidly depreciating or not. Under a gold standard, we would be forced to accept gold whether it was manipulated or not. Under competitive, free enterprise, the individual could choose the kind of money in which he would put his trust. Controlled money is one weapon for controlling people.