The Ethics of Money Production: Chapter 9

Chapter 9: Legal monopolies

1. It is noted, that this chapter does not apply to economic monopolies, that arise in a free market and are by itself harmless. Whether they are the best supplier of their product can be tested at any time by competition. Legal monopolies are by definition protected from it.

This monopoly makes the privileged products cheaper to get than competing products, which become in turn more expensive. Thus a forced inflation and deflation is produced, to the benefit of the producer and detriment of the producers and users of alternative products.

2. A monopoly can be granted to a specific metal, for example to gold. But gold is not very practical for daily use (too small coins) or easy to spread among a large population, especially during the transition. Therefore, gold currency in theory often means gold substitutes in practice. They may be fully covered by in the beginning, but they are extremely easy to turn into fractional reserve certificates. Inflation looms on the horizon.

3. A monopoly on coins or banknotes, by itself won't have overly large inflationary effects. The users of money have still the freedom to price money as they see fit and can exchange money according to their new value, or sell old coins for their real metal content or avoid banknotes and use only coins. This limits the income of the counterfeiters. That is why these monopolies were always employed with legal tender laws.

4. Why are these monopolies so persistent and widespread? It is often said, that they are the privilege of the state, but that is not an argument. That the state is a naturally trustworthy institution can be considered as true or not; but it is notable, that today's politicians do not risk their lives as the kings of old did for their subjects. Even then, a trustworthy state is not a justification for a monopoly - other people and organizations can be trustworthy as well.

The negative effects of monopolies are very well known to the economical profession. As long as the producer of money is honest, there is no need for such a privilege. But as soon as he gives in to the temptation, a monopoly hinders people from using other monies. Such a fraud, says Oresme, is "absurd and repugnant to the royal dignity". A monopoloy prevents people from using their own property and amounts to theft.

There is also the claim, that all money belongs really to the state and it can be therefore freely manipulated with. Hülsmann responds with an argument from the Bible, which I will not repeat here. For those of us of a less biblical bent, let me try: if the state is the owner of all money, it shall dispose with it in any way desired. However, if the citizens of the state are forced to use this money, no matter how it is treated and mistreated, they are in this regard slaves of the state and cannot be considered 'free'. any pretense of "state is your servant" democratic illusions must be put aside. The state may act in the "common good", whatever that means; it may also do with its subjects as it finds convenient. Besides this, any incidental theft it may involve (on the top of being a monopoly), the arrangement may be a fraud - this doesn't appear to be common knowledge, it is not publicly argued, that all money belongs to the state and the people are merely its (temporary) carriers, not allowed to choose alternatives.

A better argumentation would be certainly welcome at this place.