Philadelphia Reflections

Currencies Owned by Nations, or by People?

King Midas

Let's remember why this subject came up -- we essentially don't have a monetary standard, gold or anything else, although it seems likely a suitable monetary standard would lead to a better state of economic affairs. King Midas is thought to have invented the metallic-standard idea, and whether that is true or not, national currencies backed by gold are thousands of years old. No doubt, the Spanish galleon idea was a new slogan for an old idea which goes back at least as far as paper money. Consequently, people carried the gold coins around in purses, but still trusted the King to accumulate the gold and mint it into coins for them.

Gold Coins

History shows that kings regularly abused this intermediary role, by shaving the coins and other forms of short-weighting them. Meanwhile, kings felt they needed to accumulate funds for wars and other national purposes, and controlling the currency was a needed revenue generator. But the land was also used for aggressive national purposes, rewarding local chieftains for their loyalty, and substituting for the loan of mercenaries or other war materials. But when you give away land, you give away part of your kingdom, always a risky business. The more you think about history, the more convincing is the argument for gold, from the point of view of the king, if he is the middle-man. The argument for the individual citizen to surrender his gold to the King to parcel out to the citizens a second time is a little less dispositive. People have always grumbled about taxes and demanded more than protection in return for paying them. But pacifists have always resisted taxes disproportionately, arguing if we could become more peaceful, we might need fewer taxes. In a modern context, it is hard to imagine individual citizens making atom bombs, aircraft carriers and other means of winning wars. Less convincingly, the idea of a government using taxes to create state capitalism has been a second-best argument for governments to expropriate individual wealth. If it works at all, it has not proved itself in two hundred years of trying. Nevertheless, this line of thinking probably enlists significant leftist opposition to individual possession of physical wealth.

Industrial Revolution

Although the idea has provoked angry discussion for centuries, it is likely the opposition of leftists and the uneasiness of rightists would at best limit support to winning the agreement of a bare majority of the rest, probably only under convulsive circumstances, and probably only to a partial degree. The prospect of individual wealth possession, without forcible physical defeat, must content itself with sharing possession of the monetary standard with the government, until a partial test of the idea shows it has such economic advantages to trade and to peace, that further resistance is futile. The concept may possess such power, but it must overcome what is at present an unconvinceable opposition, and rest its case on unexpected success with creeping implementation.

The closest historical test would be the international experience with Spanish pieces of eight during the age of piracy. We do not have adequate history to use this period as a dispositive example, but it is certainly true that government was weak on the high seas And that national currencies regained dominance afterward when governments got stronger. It is also true the age of piracy was followed by the Industrial Revolution, or the Age of Enlightenment, or the French Revolution. A case could be made that any one of these consequences had roots in the Age of Piracy, but not a sufficiently powerful one to end debate. Here again, we must carry analysis as far as we can, but only expect to settle the question after experimentation with it. So, let's describe it more fully, to see where that gets us.

Originally published: Tuesday, January 10, 2017; most-recently modified: Thursday, May 16, 2019