Gold Money in a Digitalised World Economy

by Thorsten Polleit*

(1) What this paper is all about

The emergence of new technologies and their impact on peoples’ lives – the buzzwords are digitalisation and digital transformation – brings far-reaching change. In fact, it may even revolutionise the world’s current monetary system by giving people a free choice of
currency. Needless to say that such a development could turn out to be fairly disruptive, inducing economic and political change on a possibly grand scale: The propagation of new technologies among consumers and corporates – distributed ledger technologies (DLT) in particular – could ultimately pose a challenge to the prevailing state-controlled fiat currency architecture.

At the very heart, a free choice in currency and its concomitant competition among currencies, if let loose, would presumably also affect the state as we know it today and with it the established economic and political-social order. – The purpose of this paper is
twofold. First, it wants to explain that a free market in money is nothing to fear, that it is the ‘natural order of money’ and as such highly desirable from an economic and socialethical viewpoint. Second, the article attempts to outline that a free market in money is practicable and feasible, and that the idea of a free market in money has already gained quite some ground in recent years.

Right at the start I should emphasise that a free market in money is the direct result of what Ludwig von Mises (1881 – 1973) termed the sound money principle: “[T]he soundmoney principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.” And further: “It is impossible to grasp the meaning of the idea of sound money if one does not realise that it was devised as an
instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.”

This paper has been structured as follows: It starts with some fundamental insights into monetary theory (2). To make a case for afree market in money, the economic and ethical deficiencies of today’s fiat currencies will be highlighted (3). Against this backdrop, the functioning of a free market in money will be outlined and its potential for development will be illustrated by (i) latest moves in various US federal states to officially treat gold and silver as money and (ii) recent attempts to provide a digitalised gold trading and payment system (4). After some remarks about the economic and social-political consequences a return to a free market in money might entail (5), the article concludes with some considerations as to whether a free market in money will (still) be possible (6).

(2) Fundamentals of Monetary Theory

Let us start with a simple question: What is money? Answer: Money is the universally accepted means of exchange, and as such, it is a good like any other. However, it money the most liquid good: It has the highest marketability of all goods. Monetary history informs us that precious metals, gold and silver in particular, have been the preferred means of money.

Why is that so? Well, a good that shall serve as money must have specific physical properties. For instance, the good in question must be scarce, homogenous, durable, transportable, divisible, mintable, and it must represent a relatively high value per unit. In basically all countries and civilisations, two commodities have been dominant whenever they were available to compete as money with other media: gold and silver. Money originated from the spontaneous actions in the free marketplace, as pointed out by the Austrian economist Carl Menger (1840 – 1921) in his landmark book Grundsätze der Volkswirthschaftslehre published in 1871.

Endowed with a minimum intelligence, people will sooner or later engage in a division of labour, resulting in a specialisation of production. To reap the fruits of a higher productivity of labour fully, trading becomes necessary. To make trading most convenient, people will take recourse to an indirect means of exchange. And the most commonly used indirect means of exchange will ultimately be voluntarily chosen as money. Menger also pointed out that money has developed from commodities such as precious metals. This idea was later (praxeo-)logically explained by  Ludwig von Mises, who put forward the so-called regression theorem.

Three additional monetary theory insights should be noted here. – First, the optimal number of monies in an economy is one – for if all people use the same money, the efficiency of economic calculation is optimised. That said, in a free market system there would be a tendency towards the emergence of a single money …

Read the full version here ->
Gold Money in a Digitalised World Economy (PDF)


*Thorsten Pholleit is Honorary Professor of Economics, University of Bayreuth (thorsten.polleit@uni-bayreuth.de). This paper was presented at the Annual Conference of the Center of Economic Research for Monaco (CEPROM), held at the Oceanographic Museum in Monaco, 5 – 6 December 2018, Monaco.

Was blieb von 1968?

von Karl-Peter Schwarz*

Keine Generation hatte es so leicht wie die der Geburtsjahrgänge von 1945 bis 1955, und keine wurde so gnadenlos gefordert und geprüft wie die Generation ihrer Eltern. Der Unterschied zwischen den Lebenswelten derer, die in der ersten Hälfte des 20. Jahrhunderts aufwuchsen, und jener, die in seiner zweiten Hälfte in die Welt gesetzt wurden, war enorm.

Mein Vater wurde fünf Jahre vor dem Ausbruch des Ersten Weltkriegs geboren. Er hatte als Kind den Zusammenbruch des Habsburger Reiches erlebt, als junger Mann den mörderischen Klassenkampf der Ersten Republik, den Aufstieg des Nationalsozialismus, den „Anschluss“ und Hitlers Krieg. Als er aus der Kriegsgefangenschaft zurückkehrte, widmete er sich dem Wiederaufbau und der Wiederherstellung der österreichischen Souveränität.

Ich wurde sieben Jahre nach Kriegsende geboren. Anders als er wurde ich nie verfolgt, musste nie um mein Leben fürchten, litt weder Kälte noch Hunger. Ich durfte studieren, was ich wollte, und fand – das war damals noch die Regel – mühelos Arbeit. Das Fundament, auf dem meine Generation ihre Zukunft aufbauen konnte, war solid. Westlich des Eiserneren Vorhangs waren die Jahre von 1950 bis 1973 ein goldenes Zeitalter. Bei einer jährlichen Wachstumsrate von vier Prozent verdreifachte sich das Pro-Kopfeinkommen. Der Fleiß und die Sparleistung unserer Eltern, der technische Fortschritt, das wachsende Humankapital und der weltweite Handel hob den Wohlstand in einem Ausmaß, das Europa zuvor nur nach den napoleonischen Kriegen erlebt hatte sowie zwischen 1870 und 1913, in der Ära des klassischen Liberalismus, der Stefan Zweig in „Die Welt von Gestern. Erinnerungen eines Europäers“ ein literarisches Denkmal gesetzt hat.

Die Mangelwirtschaft der Nachkriegszeit war rasch überwunden worden. Die Wirtschaft boomte, die Nachfrage nach Arbeitskräften stieg, mit ihr die Löhne. Bald zogen Waschmaschinen und Kühlschränke, Elektroherde und Staubsauger, Musikschränke und Fernsehgeräte in die Haushalte ein. Im Urlaub fuhr man mit dem Kleinwagen an die Adria. Der Eintritt in den Arbeitsmarkt befreite die Frauen von ihrer ausschließlichen Bindung an Haushalt und Familie und revolutionierte das Verhältnis zwischen den Geschlechtern (damals gab es erst zwei) mindestens so nachhaltig wie die Antibaby- Pille, die 1960 erstmals zugelassen wurde. Sogar Fernreisen und ein Studium im Ausland rückten für Studenten in den Bereich der Möglichkeiten. Wir hielten es nicht nur für selbstverständlich, dass es uns künftig immer besser gehen würde, sondern auch, dass uns das „die Gesellschaft“ schuldete.

Je mehr wir hatten, desto höher wurden unsere Ansprüche. Dabei ging es nicht um Materielles. Konsum war nicht alles, wir wollten auf ihn nicht verzichten, er war alltäglich geworden, denn Güter waren im Überfluss vorhanden. Aber das kleine Glück unserer Eltern, das Einfamilienhaus mit Garten, das Auto und Urlaub am Meer reichte nicht. Wir beklagten die politische Apathie unserer Väter. Fleiß, Verantwortung, Sparsamkeit und Verzicht, alles Werte, die der Wiederaufbau erfordert hatte, widersprachen unserem grenzenlosen Glücksanspruch. Wir wollten eine neue, von allen lustfeindlichen Beschränkungen befreite Welt. „We can’t get no satisfaction“ war unsere heimliche Hymne, totale Selbstverwirklichung und weltweite Verbrüderung waren unser Ziel. Auf dem Weg dahin war alles erlaubt. Die neue Kampfmoral schloss Kompromisse aus. Der Verstoß gegen die herkömmliche Moral wurde geradezu obligatorisch. Die Jugendkultur der sechziger Jahre, mit ihrem Kult der freien Sexualität, der Exzesse und der Drogen, war so egozentrisch wie romantisch. Rasch wurde sie kommerzialisiert. Die Änderungen in der Werteskala, im individuellen Verhalten und im gesellschaftlichen Handeln hatte weitreichende Folgen. Äußerlich betrachtet blieb die Konstitution der bürgerlichen Gesellschaft intakt. Aber die seidenen Fäden, die siezusammengehalten hatten, hielten dem Druck nicht mehr stand. Die öffentlichen Institutionen blieben erhalten, aber nach und nach ging ihre bürgerliche Substanz verloren.

Als mein Vater 1966 starb, hatte ich gerade erst begonnen, mich in dieser Welt im Umbruch umzuschauen. Im Oktober 1958 war Pius XII. gestorben, mit ihm wurde das Ancien Régime in der katholischen Kirche zu Grabe getragen. Im Verlauf der nächsten zehn Jahren veränderte sie sich beinahe bis zur Unkenntlichkeit. An die Stelle der tridentinischen Messe trat liturgisches Experimentaltheater. Nüchterne Volksaltäre wurden vor den prächtigen Hochaltären aufgestellt, denen die Priester nunmehr geradezu ostentativ den Rücken zuwandten, um den Bruch mit der katholischen Tradition zu verdeutlichen. Mit der „Pillen-Enzyklika“ Humanae vitae (1968) versuchte Paul VI., der mit der postkonziliären Krise nicht mehr fertig wurde, korrigierend einzugreifen. Die Progressiven riefen zum ersten Mal offen zum Widerstand gegen den Papst auf. Der Wind, der sich unter Johannes XXIII. erhoben hatte, schwoll zu einem Sturm an. Noch bevor sie die Hochschulen erfasste, hatte sich die Kulturrevolution in der Kirche festgesetzt.

Es ist merkwürdig, dass die zahlreichen Bücher, die 50 Jahre nach 1968 erschienen, das Zweite Vatikanische Konzil und die postkonziliäre Wende entweder gar nicht oder nur am Rande erwähnen. Als sie am dringendsten gebraucht worden wäre, verzichtete die Kirche auf ihre Rolle als Gegenbild und Korrektiv gesellschaftlicher Fehlentwicklungen. 1968 wurde die Zeitschrift „Kritischer Katholizismus“ gegründet, um „Theorie und Praxis in Gesellschaft und Kirche“ zur Diskussion zu stellen. Die kirchlichen Publikationen und Arbeitskreise dieser Zeit waren bald nur noch Durchgangsstationen auf dem Weg in den linken Radikalismus. Viele Achtundsechziger hatten sich in kirchlichen oder kirchennahen Vereinen – wie man damals sagte – „politisiert“. In den linksradikalen Zirkeln, denen ich mich als Student anschloss, waren Kinder aus katholischen, sozialdemokratischen und kommunistischen Familien etwa gleich stark vertreten. Zwar hatten viele Nazi-Eltern, aber der Generationenkonflikt und der Protest gegen das „Beschweigen“ der NS-Vergangenheit spielten für uns damals eine weit geringere Rolle ein als gemeinhin angenommen wird. In den siebziger Jahren sollte es der als Antizionismus maskierte Antisemitismus den jungen Rebellen sogar noch erleichtern, sich mit der Vätergeneration zu versöhnen. Das heute übliche Spektakel „Antifaschisten gegen Nazis“ ist viel jüngeren Datums, es geht auf die Kampagnen gegen Kurt Waldheim und die Regierung Schüssel zurück. 1968 gab es die Nazis noch. Als es sie nicht mehr gab, musste man sie neu erfinden.

Den Radikalen meiner Generation ging es nicht nur oder auch nur vorwiegend gegen das Erbe des Nationalsozialismus, sondern um den Sturz des imperialistischen Kapitalismus und die sozialistische Revolution. Was zu tun sei, um die Gesellschaft zu verändern, glaubten wir zu wissen, wir hatten schließlich Adorno und Marcuse gelesen, bevor wir begannen, uns an Marx, Lenin, Trotzki oder Mao zu orientieren. Die Neue Linke war überall in Europa eine Minderheit, besonders in Österreich, da war sie ein Import aus Deutschland und eine Quantité négligeable. Sie formierte sich Mitte der sechziger Jahre zuerst im sozialdemokratischen Milieu, darüber hinaus war ihr politischer Einfluss so gut wie bedeutungslos. Abgesehen von den Protesten der SPÖ-Jugend gegen die Blasmusik bei der 1. Mai-Kundgebung am Wiener Rathausplatz und der aktionistischen Ferkelei im Hörsaal I verlief unser 1968 weitgehend störungsfrei. Die so sehr gepriesenen Reformen der Ära Kreisky in den 1970er Jahren (Bildung, Justiz, Familienrecht, Fristenlösung, Entkriminalisierung der Homosexualität) waren nicht dem Druck der Neuen Linken geschuldet, sondern dem Social Engineering und den säkularistischen Bestrebungen der sozialdemokratischen Modernisierung. In anderen Ländern verlief das Jahr wilder.

Doch weder die Berliner Krawalle, noch der Pariser Mai haben die kulturelle Wende herbeigeführt, die mit dieser Jahreszahl assoziiert wird. Wer das Gegenteil behauptet, verkehrt Ursache und Wirkung. Nicht die Linksradikalen haben die Gesellschaft verändert, sondern eine Gesellschaft in Veränderung franste zeitweilig an ihren linken Rändern aus. Im Pariser Mai gelang es den Studenten zwar ein paar Wochen lang, sich mit den Arbeitern zu verbünden, aber die Wahlen im Juni stärkten die Gaullisten. Die Arbeiter hatten bald verstanden, dass die radikale Studentenbewegung nicht aus Arbeitslosen und hungernden Intellektuellen bestand, sondern aus den verwöhnten Fratzen der Bourgeoisie.

Marcelo Brodsky - 1968: The Fire of Ideas Street Level Photoworks
Marcelo Brodsky – 1968: The Fire of Ideas Street Level Photoworks

In Deutschland kam ein solches Bündnis nicht zustande. Der SDS löste sich nach dem Attentat auf Dutschke 1968 auf. Aus der Konkursmasse ging die Baader-Meinhof-Bande hervor, die sich „Rote- Armee-Fraktion“ nannte. Im „roten Jahrzehnt“, den „bleiernen Jahren“, bildete sich eine rege Sympathisantenszene, auf die sie sich stützen konnte. Prominente Linksintellektuelle, unter ihnen Jean-Paul Sartre, Hans-Magnus Enzensberger, Erich Fried und Heinrich Böll, schlossen sich ihr an. Klammheimlicher Sympathie erfreute sich die RAF in namhaften deutschen Medien, in denen sich das Deutungsmonopol der radikalen Linken rasch durchsetzte. In der Nachfolge des SDS entstanden leninistische, trotzkistische und maoistische Sekten, die zeitweilig Zehntausende an sich banden, aber fast ebenso rasch wieder verschwanden, wie sie sich gebildet hatten. Das kurze „rote Jahrzehnt“ implodierte bereits Ende der 1970er Jahre.

Seither haben viele ehemalige Achtundsechziger umgedacht und sind heute weitgehend immun gegen sozialistische Anwandlungen. Andere ordneten sich in den Mainstream der linken, linksliberalen und grünen Parteien ein. Sie legten den „revolutionären Kampf“ zu den Akten, bewahrten sich jedoch ihren Antikapitalismus und den Hass gegen Familie, Nation und Religion. Aus Marxisten wurden „Kulturmarxisten“. Diese Metamorphose begünstigte Karrieren in Schulen und Hochschulen, Medien und Kulturindustrie. Bis heute verteidigen viele alte Achtundsechziger ihr Deutungsmonopol und ahnden jedweden Verstoß gegen eine „political correctness“, die um immer neue Denk- und Sprechverbote erweitert wird. Sie sind die Hüter des neuen Konformismus. Längst treten sie nicht mehr für die Diktatur des Proletariats ein, aber zentrale Forderungen, die Marx und Engels 1848 im „Kommunistischen Manifest“ erhoben, sind auch die ihren: „starke Progressivsteuer“, „Abschaffung des Erbrechts“, „Zentralisation des Kredits in den Händen des Staats durch eine Nationalbank mit Staatskapital und ausschließlichem Monopol“, „öffentliche und unentgeltliche Erziehung aller Kinder“. Ihr festes Vertrauen in den starken Staat und in den Primat der Politik als Vehikel einer permanenten Revolutionierung der Lebenswelten, zu der auch die Förderung der Massenmigration gehört, macht sie zu natürlichen Verbündeten der globalen Eliten und der zentralistischen Bürokratien in den supranationalen Institutionen. Was die Moderne „Wandel“ nennt, nämlich „das immer schnellere Marschieren auf dem gleichen Weg in die gleiche Richtung“ (Nicolás Gómez Dávila), macht ihr Wesen aus. Was sie eint, ist die Anmaßung des Wissens, die arrogante Annahme, besser als alle anderen Bescheid zu wissen, wie die Geschichte zu einem guten Ende geführt werden könnte. Doch stellen wir uns einmal vor, die Achtundsechziger hätten samt und sonders öffentlich Abbitte geleistet und der Kulturmarxismus wäre uns erspart geblieben. Wäre unsere Welt dann wesentlich anders? Gäbe es dann keine progressive Besteuerung mehr, kein Monopol der Zentralbank, keine permanenten Eingriffe in die Eigentumsrechte? Würde die Moral der Marktteilnehmer plötzlich den Versuchungen inflationärer Geldpolitik standhalten? Würde das Gesundheits- und das Bildungswesen privatisiert werden? Würden die traditionellen Familien die Patchworks ersetzen? Würde es weniger Scheidungen und weniger Abtreibungen geben? Würde die Geburtenrate steigen? Würden Selbstbestimmung und Selbstverantwortung an die Stelle sozialstaatlicher Gängelung treten? Würden sich die Kirchen wieder füllen? Für die kulturellen Veränderungen, die in den 1960er Jahren einsetzten, gibt es in der Geschichte zahlreiche Parallelen. Es ist wohl eine historische Gesetzmäßigkeit, dass die rasche Akkumulation von Reichtum und die damit einhergehenden Begehrlichkeiten jüngerer Generationen das gesellschaftliche Gleichgewicht zerstören und einen fortschreitenden Verfall der überkommenen Ordnung bewirken. Das Ende der Römischen Republik ist so ein Beispiel, die Erosion des Ancien Régime im Frankreich des 18. Jahrhunderts ein anderes. Nie ist es gelungen, das Rad zurückzudrehen und den Status quo ante wiederherzustellen.

Gegen Ende des Zweiten Weltkrieges lauschte ein chinesischer Mandarin dem leidenschaftlichen Vortrag eines linken belgischen Abgeordneten über die Französische Revolution. Am Ende schüttelte er den Kopf und sagte: „Ja, die Französische Revolution war ein großes Ereignis, aber sie ist immer noch zu neu. Man muss abwarten, wohin sie führt, um sie verstehen und beurteilen zu können.“ Der Mann hatte recht. Erst Jahrzehnte später, im Lichte der Katastrophengeschichte des 20. Jahrhunderts und ihrer Folgen, ließ sich die Französische Revolution verstehen und beurteilen. 1968 ist erst 50 Jahre her.


Der Journalist *Karl-Peter Schwarz wurde 1952 in Villach (Österreich) geboren. Er arbeite viele Jahre als Korrespondent für die Frankfurter Allgemeine Zeitung (FAZ). Karl-Peter Schwarz ist heute pensioniert. Er kann aber das Schreiben einfach nicht lassen -> https://kairos.blog/

Is Small still Beautiful? A Swiss Perspective

By Henrique Schneider*

Small polities have different advantages. Because of their smallness, they can be more efficient; this allows them to be alert to opportunities. Because of their social tissue, small polities have the advantage of self-regulating through bonding and bridging, i.e. through social capital, rather than through bureaucracy. Social capital increases with its usage and is a resource for implementing novelties based on alertness. The third factor that contributes for small polities being at an advantage is competition – in its economic and political sense. There is a cautious note, however: not all small polities can mobilize these factors.

Is Small still Beautiful? A Swiss Perspective

Switzerland consists of 26 states, which are called cantons. Each canton enjoys ample autonomy, for example in setting its own taxes – all taxes in Switzerland are primarily local and cantonal – or making its own laws. In Appenzell Innerrhoden, for example, there is no law that has not passed a popular vote. Note the distinction: Not laws that have been made by representatives of the people, as it is the case in Germany or France; nor laws that have been tacitly accepted by the people if no referendum is called against them, as it is the case on Switzerland’s national level. In Appenzell Innerrhoden, all laws must be explicitly approved by the people …

Read the full article here -> Is small still beautiful?


*Henrique Schneider is a Swiss economist, HoD at the Swiss Trade Association and engaged in adult education.

Vernon Smith Prize – new deadline: 11/30/2018

Note: To further reach out to young individuals and increase their chances to win we have extended the deadline of our Essay Competition by 11 days. New deadline is November 30, 2018.

Vernon Smith Prize 2018
11th International Vernon Smith Prize 2018 – Call for Papers!

The 11th International Vernon Smith Prize for the advancement of Austrian Economics is an essay competition sponsored and organized by ECAEF – European Center of Austrian Economics Foundation, Vaduz (Principality of Liechtenstein). We are calling for papers! This years’ topic:

Obscured by Fake News:
The Politics, Morals, and Limits
of Genetic Engineering

Although, Genetic Engineering is a seminal achievement that can be used for life saving drugs, improvements of the environment and GMOs could even help feed the world, many consider this innovation an untested and dangerous intrusion into nature that needs to be regulated or even outlawed by politics. However, where are the limitations of scientific research?  Should we regulate academic freedom and outlaw certain results? In an increasingly distracted age, these are certainly among the most crucial questions about how to preserve and strengthen our free society.

Biotechnological procedures, including genetic modification have been employed successfully in the course of millennia for the making of vital medicines or for selective breeding to generate much of our daily foodstuff. We have used these techniques also in refining plants, in the production of alcoholic beverages, cheeses or for manufacturing garments. And yet, Biotechnology in general and especially Genetic Engineering are subject to controversy, widespread misinformation, and remain shrouded in mystery, characterized by vague apprehensions and common superstitions.

Whereas in conventional breeding methods only more or less the same species can be crossed with each other, Genetic Engineering deals with the isolation, characterization, and recombination of genetic material. Although, this new development has endured the extensive rigor of scientific method, together with academic peer-review concluding empirically in support of the new science, the application and commercialization of genetic engineering innovation in the food system from a business perspective are worthy of debate and have policy considerations. For many, Genetic Engineering is a seminal achievement that can be used for life saving drugs, improvements of the environment and GMOs could even help feed the world. Others consider it an untested and dangerous intrusion into nature that needs to be regulated or even outlawed by politics.
We invite papers on this topic addressing not only the socio-political relevance and the moral implications of Genetic Engineering. But also the implications of possible regulations and even limitations of scientific research on the whole.


First Prize: €4,000


Second Prize: €3,000


Third Prize: €2,000


All entries need to meet the following requirements:
1: Entries may be submitted by individuals of up to 30 years (in 2018).
2: Entries may not exceed 12 pgs.; 1.5 space; left/right margins no less then 1 inch; including a full bibliography and a 1/2 page summary
3: Entries must be submitted in English in electronic form (pdf) to krl@ecaef.li and must include a current CV with DoB.
4: Entries must be received on or before November 30, 2018.
5. It is mandatory that all prizewinners participate in the award ceremony in Vaduz.

Prizes are not transferable and will be awarded on the basis of originality, grasp of subject, and the logical consistence of the argument. An international jury will judge the essays and the winners will be invited to present their papers at a special event in Vaduz, the Principality of Liechtenstein on February 4, 2019.

Vernon Smith Prize 2018
Vernon Smith Prize 2018 – Call for Papers

Money: From the Not So Wild West to the Federal Reserve

By Terry L. Anderson*

“This short paper by Terry L. Anderson (Hoover Institution, Stanford University) will be presented at the Opening Dinner for the III. ECAEF/CEPROM Jacques Rueff Memorial Conference on “Concurrent Currencies: Curse or Cure?”. December 5, 2018 in Monaco. For a detailed program, please visit ceprom-conference-monaco-2018

“The real world is a special case with which economists seldom deal.” This statement always brings a laugh because it is so true. Economists are notorious for making assumptions and drawing conclusions that do not comport with the way the world works. As a result, economic theories result in policy conclusions that often call for government intervention to correct assumed market failures. Famous examples include explanations for why lighthouses would not and could not be built privately and why beehive services would be underprovided privately because orchard owners would free ride on pollination services.

After decades of promoting these conclusions, however, both the fable of the lighthouse and of the bees have been debunked by evidence from the real world. Nobel laureate Ronald Coase showed that lighthouses were built and operated privately through contracts between lighthouse and ship owners, and Steven N.S. Cheung found that apiarist and orchardists contract for pollination services and honey production.

Perhaps there is no better case of economic reasoning leading to unnecessary governmental intervention than the notion that governments must have a monopoly on the provision of money. So the argument goes, without that monopoly Gresham’s law would prevail—bad money would crowd out good money—money would not have a stable value, and multiple forms of money and currency would make transaction costs prohibitive.

Friedrich A. Hayek’s reasoning in his treatise on “denationalization of money” debunked the myth of government monopolization of the money supply. As a result, that myth should be placed in the dustbin along with lighthouses and bees. Because Hayek provides the debunking logic, my goal in this short paper is to provide examples how money and currency evolved on frontiers beyond the reach of government monopolies and to show how those same frontiers provided the backdrop for promoting the money monopolization myth.

Frontier for entrepreneurship

Frontiers, be they geographic or technological, are the domain of entrepreneurs who observe different constraints and act on those observations to produce new institutions, new production techniques, and new products. Cattlemen organized into associations to prevent the tragedy of the commons by closing the range to newcomers, barbed wire was invented to more precisely define and enforcing property rights, and closer monitoring of cattle breeding improved the quality of meat. On the technological frontier, intellectual property is protected through secrecy and contracting, cell phones replace telephones, and computerization of supply chains reduces inventory costs.

Because entrepreneurs are always on the lookout for ways to reduce transaction costs, it is not surprising that the frontier of the American West led to many different forms of money and currency. Here are several examples.

American Indians

“Wampum clearly had value as a trade item between the various Native peoples before European contact. But it was later on after European settlement of America that wampum began to be used like currency.”

Similarly, other items were used in trade among American Indians. When Lewis and Clark spent the first winter of the Corps of Discovery in the Mandan camps in what is now North Dakota, their blacksmith made trades axes with the Corps’ medallion stamped into them. The axes were traded for food, horses, and other items needed by the expedition. One of the axes traded among Indians, so much so that it preceded the Corps, arriving in the Nez Pearce camps in the Northwest. Clearly the trade axes had intrinsic value, were a store of value, and were readily accepted in trade—all characteristics of money.

Fur Traders

“Beaver pelts were central to the early Canadian trade economy. The centrality of the trade was underlined by the Hudson’s Bay Company introduction of the Made Beaver currency, which first standardized prices in terms of coat beaver pelts, and later allowed hunters to keep the value of their pelts in Made Beaver tokens. Other entities, including the North West Company, also issued tokens in exchange for pelts.

A 1733 Standard of Trade for the Fort Albany HBC post outlines the cost of various items in beaver pelts. For example, one beaver pelt could buy either one brass kettle, one and a half pounds of gunpowder, a pair of shoes, two shirts, a blanket, eight knives, two pounds of sugar or a gallon of brandy. Ten to twelve pelts could buy a long gun, while four pelts would purchase a pistol. The HBC produced brass Made Beaver tokens in the 1860s, and continued to exchange pelts for tokens until 1955.”

Mining Camps

Watch almost any western movie and you’ll see scenes of miners paying the bartender for drinks with a “pinch” or “thumb” of gold dust from the miners poke sack. These methods allowed the shopkeeper or bartender to reach into a miners poke sack with his thumb and forefinger or with his thumb to take as much gold dust as he could acquire on his fingers. Not surprisingly, saloon owners preferred hiring “ham-handed” bartenders.

The following stories illustrate the color of this era: “A story is told of one enterprising bartender who would ‘accidentally’ spill small amounts of his pinch on the barroom floor during the course of transferring the gold dust from the poke sack to the cash drawer. Several times during his shift he would step out the back door to a mud hole where he would muddy the soles of his boots. Then he would re-enter the bar and walk back and forth, picking up the spilled gold dust. Next, he would scrape the mud off his boots on a conveniently placed bucket. It was said that on a good Saturday night he could pan out a hundred dollars worth of gold.”

“The first Catholic mass in Virginia City was held on All Saint’s Day, on November 1, 1863. The mass was celebrated by Father Joseph Giorda, a Jesuit priest who was unfamiliar with the cost of goods and services in the area and the value of gold dust used to pay for them. During mass, Father Giorda received contributions of gold dust from the members of the congregation that had gathered. After the mass, he sought to pay the fees of the stable that had housed his team of horses for two days. He was shocked by the $40.00 bill for the horses’ room and board and said that he did not have enough money to pay it. When asked to examine the gold dust that had been donated to him during mass, he was relieved to be informed that his congregants had been quite generous, as the amount of weight of the dust was worth several hundred dollars.”

A far less well known form of currency was script issued by mining and logging companies. Script was essentially a printed IOU issued by the mining company, mostly coal mining, to workers to provide them with a medium of exchange between pay periods. Script was originally printed cards or scraps of paper, evolved into metallic tokens with many of the physical attributes of official coins.

A far less well known form of currency was script issued by mining and logging companies. Originally printed cards or scraps of paper, evolved into metallic tokens.
A far less well known form of currency was script issued by mining and logging companies. Originally printed cards or scraps of paper, evolved into metallic tokens.

The use of coal company scrip eliminated the need for the coal company to keep a large amount of U. S. currency on hand. Each mine had its own scrip symbols on the tokens, and these tokens could only be used at the local company store.

The transaction costs of coupon scrip eventually encouraged the increased use of metal scrip. This medium became cheaper overall than coupon scrip, in spite of metal’s higher initial costs, largely due to the invention and development of the cash register after 1880.
Script was redeemable for goods or services sold at the company store, making it a form of credit or a demand deposit which would be accounted for by reducing the amount of other currency due to the worker on payday. In many mining camps, scrip circulated more freely than U.S. currency making it the “coin of the realm.”

Because mining camps were so isolated with low population densities and far from commercial centers and because their longevity was uncertain, it was difficult to attract outside investment. This created a lack of infrastructure made up for by the mining companies that were in a better position to estimate demands for goods and services. As a result stores in mining towns were usually owned or run on behalf of the coal companies.
Lyrics to songs claiming a worker “owed my soul to the company store” exemplify criticism of script and hence of this form of private money. A paper by Price Fishback, “Did Coal Miners ‘Owe Their Souls to the Company Store’? Theory and Evidence from the Early 1900s,” however, debunks this myth and illustrates that company stores and the script issued to workers was a very competitive business. The relationship between companies and miners was a contractual one in a competitive environment. As such, the payment package implicitly included payment in script and prices at the company store. Because the script was a form of private money in a competitive world, the company had an incentive to maintain a stable value for the script currency.

Using Hayek’s ideas in the “Denationalization of Money,” let me elaborate on what constitutes a stable value of currency and why private providers—mining companies—would have an incentive to maintain that stability. Stable value implies that a unit of currency can be exchanged for a bundle of goods at the same exchange rate over time. Suppose that a company thought it could increase its profits by raising prices at the company store. This would reduce the value of its script and discourage workers and others from accepting it. In essence this would violate the wage contract. Alternatively, suppose that productivity of workers increased thus increasing the value of their marginal product and their wages. Companies would issue more script, and the demand for goods at the company store would increase putting pressure on store prices, thus reducing the value of the script. To keep the value of currency stable, the company would have to increase the quantity of goods available which it could do because of the increased productive capacity of the company.

The Road to the Fed

So if private money on the frontier was so good, why did it have to give way to nationalization? The same frontier that fostered competitive private money ultimately led to its demise. In particular, the “war of the copper kings” in Butte, Montana—“the richest hill on earth”—pitted William Clark, Marcus Daly, and Augustus Heinze against one another over control of the copper mining industry.
Their “war” engulfed financial giants including J. P. Morgan, a bitter enemy of Copper King Heinze. When the latter ventured into Morgan’s territory—the canyons of New York City—he met his match.

With Heinze’s bank on the brink of failure, the privately managed New York Clearing House, controlled by Morgan, refused to bail him out. The failure of Heinze’s bank started the Banking Panic of 1907. The panic led Congress to appoint the National Monetary Commission, which recommended creation of the Federal Reserve System in 1913 as a lender of last resort and firmly ensconced governmental monopolization of the money supply.

Conclusion

As the saying goes, “the rest is history” regarding the potential for monetary competition. Just as the mining camps of the American West unleashed the entrepreneurial spirit to “invent” new forms of money and currency, the modern-day electronic frontier can unleash entrepreneurial cyber-currencies. The challenge, as it was in the American West, will be whether cyber-entrepreneurs can answer Hayek’s call for “denationalization of money” by out-maneuvering government regulators.


*Terry L. Anderson is a native of Montana (USA), and received his PhD degree in economics from the University of Washington. In 1972 he began his teaching career at Montana State University, where he won several teaching awards. Anderson is one of the founders and the former executive director of PERC (Property and Environment Research Center), a think tank in Bozeman, Montana. He currently serves as a Senior Fellow at the Hoover Institution, Stanford University. Anderson’s extensive work and unique research focus helped launch the idea of free-market environmentalism and has prompted public debate over the proper role of governments in managing natural resources and the environment. Anderson’s research, has also focused on Native American economies and culture. He is the author and/or editor of numerous academic essays and thirty-seven books, among them several award winning publications. Only a few can be mentioned here, Free Market Environmentalism, The Not So Wild, Wild West: Property Rights on the Frontier, Self-Determination: The Other Path for Native Americans (2006), Tapping Water Markets (2012 or his most recent book Unlocking the Wealth of Indian Nations (2016).