Another question from @simonr916
Without the state, how will money work?
I’m not an economist so this is genuine musing here but the monetary system, as it currently works, relies upon states to under-write and guarantee currency, set interest rates and control supply. I have no idea how this whole system would work in a libertarian world.
This is a relatively simple one.
In the beginning of society trade took place by way of barter. If I wanted your pig and you wanted my goat, we would agree and simply swap. If we agreed that your pig was worth more than my goat, I might have to throw in a chicken or two to close the transaction.
The problem with such a system is that it is very inefficient.
If I want shoes and I have hens and you have shoes but want turnips then we can’t trade directly. I have to find a third party who will trade hens for turnips before I can get the shoes I want.
When people can’t trade for directly what they want, they will trade for items that have a larger potential trade audience. E.g. If you offer singing lessons, you would rather exchange them for corn, which many people will want, rather than quantum physics lessons, which have a much smaller market.
Over time certain trade goods gain the status of currency. Everyone will trade for them and everyone will accept them. In many societies the trade goods that gained the status of currency were precious metals like gold and silver. These had the benefit of being durable and divisible and relatively easy to store. Nobody was forced to accept them in exchange but almost everyone did.
Economies have functioned for thousands of years, using precious metals as money.
One of the modern problems with precious metals is that for large transactions they can be quite cumbersome and dangerous to move around. The solution was to store the precious metals in private bank vaults and instead transport around and deal with certificates of ownership.
The gold could stay secure in the vault and you could buy for example a house by simply transferring the ownership certificate to the gold in the bank vault.
Any private bank could hold gold deposits and issue their own certificates of ownership. Referred to as Bank Notes. Ownership entitlements could of course also be transferred by cards, cheques, etc.
This is how money would work in a libertarian system and how money worked for most of human history.
The state changed the free market system in three main ways:
1. Granting itself a monopoly on the issuing of bank notes in the USA in 1863 in the United Kingdom in 1844
2.By breaking the link between currency physical trade goods, i.e. gold. This happened as recently as 1971 when the United States totally abandoned the Gold Standard
3. Allowing Fractional reserve banking. This gives the bank a legal right to issue more notes than there is gold in the vaults.
A libertarian society would revert back to the system used in the free market from the dawn of the first trading nations up until the time of these three catastrophic state interventions.
For further reading on money and banking try:
The Mystery of Banking – Murray Rothbard
The Theory of Money & Credit – Ludwig Von Mises
