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[An MP3 audio file of this article, read by Floy Lilley, is available for download.]
Studying Jörg Guido Hülsmann's latest book, The Ethics of Money Production, is a vastly enriching experience. After building his case for natural money on the inviolability of an individual's right to his own property, he then shows us how the state has spent the last 400 years usurping this right for the benefit of a privileged few through its protection of fractional-reserve banking.
It is the state's insatiable appetite for revenue, he argues, that is the motivation behind the various monetary schemes it imposes on us, which on an international level begins with the classical gold standard and runs through today's paper-money agreements. Although he doesn't discuss the current economic crisis directly, his observations provide a much-needed correction to government's "do something" approach.
In this essay, I will touch on some of Hülsmann's more salient points, beginning with the origin of money.
Natural Money versus "Forced Money"
We know that in a barter economy the division of labor is primitive because trade is limited by the double coincidence of wants. A carpenter who needs shoes finds a shoemaker who needs a chair, and they enter into a mutually acceptable trade. But trade is also limited by the makeup of the goods themselves — how will the carpenter acquire a small amount of flour with the chair he has built?
Over time, market participants devised better ways to trade. Certain consumer goods were found to be highly marketable and possessed physical characteristics conducive to trade, such as homogeneity, divisibility, and portability, and came to be acquired not for consumption but to serve as media of exchange. Such goods are called money; more than that, they are natural monies because they originated through the voluntary cooperation of acting persons.
The production of natural money is ethical because it involves no violations of property rights and is the corollary of a completely free society in which private property is inviolable. The economy of such a society, Hülsmann tells us, may then be called a "free market," which would likely harbor a variety of natural monies. With this understanding, the claim that the culprit of the current crisis is the free market puts its proponents in the awkward position of having to show causality from something that doesn't exist.
Natural monies come and go; they exist because they satisfy human needs bett...
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