Practical Anarchy Part 6 - Money

Another central argument used to justify the existence of the state is the need for a stable and universal monetary system. In the absence of a central system to determine price and value, economic activity comes to a standstill, as in the absence of cash all that remains is self-sufficiency, bartering, and gifts.

Thus, so the argument goes, without a government, the economy would completely collapse. Everyone would create their own system of currency and none of them would be universally valid. At the mall your purchasing power would devolve to trading gold, silver, shark teeth, DVDs, clothing, and whatever other crazy ideas people come up with. Our economic life would consist of running around, constantly determining the relative value of goods for other goods. Our salaries would be tremendously diminished, or even eliminated, by the amount of effort needed to find someone able to accept our products who possessed products we wished to buy. We would never be sure if we were being ripped off, and heaven forbid that day we return home to find the 12 shark teeth we traded for just that afternoon were fakes!

Argument from apocalypse much?

Like many arguments against anarchism, this can be described as the "idiot kindergarten" argument. The argument basically says that people are so completely selfish and stupid that they are unwilling and unable to find solutions to problems that benefit themselves and those around them. This world view sees the entire planet as full of adults who pick their noses and can't wipe the spit off their own chins without someone pointing a gun at them to make them do it.

As far as cash, the essential thing to understand about it is that there's nothing particularly special about it. Like ipods, eggs, cars, and t-shirts, cash is just another product.

CURRENCY AS PRODUCT/SERVICE

A telephone line is a means of communication from many people to many people. Anyone who pays to have access to these telephone lines can call anyone else with access. From the perspective of the consumer, a telephone line is an "invisible" means of communication from anyone to anyone.

In the same way, money is an "invisible" medium of exchange in a market system. Money is only necessary because people wish to trade goods. Gardeners do not tend to set a market value for the vegetables they wish to eat themselves.

Money is literally a means of comparing apples to oranges. How much of my economically productive time is one orange worth, and how much of my economically productive time is one apple worth? By having this third product against which other products can be judged, the value of apples and oranges can be judged relative to one another. The addition of money increases the value of both the apples and the oranges, as the apple seller can sell his apples to anyone. He may then purchase oranges with that money, rather than seek out an orange seller who happens to desire apples. The incentives to have a universal monetary system are enormous.

Like any commodity, money has a price, and this price is called "interest." If I want to rent a car rather than buy it, then I need not possess enough money to purchase the entire capital value of the car, but rather borrow the car and pay a rental fee.

In the same way, if I "borrow money," I pay a rental fee, which is interest, which is equal to the amount I am willing to pay in order to possess an object sooner rather than later. "Interest" exists because time is the most precious commodity we have, as it can never be replaced and without it we are nothing.

I can save for 20 years to buy a house outright, but there is very little value in that. It is true that by taking this approach I have saved myself a great deal of money in interest, but so what? I have only exchanged paying interest for paying rent wherever I lived for those 20 years. Both the rent and the time are non-recoverable resources. Whether I hand my money to a bank in interest or a landlord in rent is immaterial, so why not purchase the home now and achieve the best of all worlds?

If we are afraid that a stateless society cannot produce some sort of objective monetary system, then what we are saying is that human beings will refuse to cooperate, even if their lack of cooperation means a complete collapse of their economic system and the entire basis of their high living standard. Even the most pessimistic observer of humanity must admit that humans behave in selfish ways beneficial to their survival. To claim that humans will not cooperate when cooperation is so self-serving contradicts all empirical evidence regarding human behavior.

THE ANARCHIST CREDIT CARD

In the absence of a monetary system we can easily imagine the economy shrinking by 95% (or more) compared to what it is today. If we figure the average income in developed countries is around $35,000, and we claim that people will refuse to cooperate for their mutual best interest, what we're saying is that people would rather take a $33,250 pay cut than sign up for a private currency program. This is the difference of living in a home with food, water, and electricity, as opposed to living in a shack with a broken outhouse and no heat. Can we really imagine anyone would not sign up for a program that guaranteed a 20 fold increase in income? Imagine receiving this letter from your local monetary business.

Dear [you],

We have a very exciting offer for you! If you agree to sign up for the Anarchist Credit Card (ACC), and agree to use it for at least 80% of your consumer purchases, we will deposit $700,000 into your ACC account every single year, free of charge, for you to spend as you see fit!

We will also only charge you 1% interest per year!


Would that be an offer that would interest you? A 20 fold increase to your income every year for only 1% interest? Well that's exactly what this business would offer you. Given the tremendous incentives to participate in a market economy, we can rest assured that all but the insane would leap at this opportunity.

WHAT ARE WE TRYING TO SOLVE?

I'd like to play a little game! I'm going to introduce to you a fantastic idea I have for a monetary system in our new anarchist society, one supported by economists all over the world! I think it's brilliant, you tell me what you think.

I think we should have one business with a monopoly on the right to print money, and that business can print as much money as it wants whenever it wants. This business should use its money printing capacity to raise an army, purchase thousands of guns, nuclear warheads, tanks, and other weapons, and use these weapons to shoot anyone who attempts to print a competing currency. This business would further use these weapons to enslave the population, extracting their goods and services, and using the guarantee of these goods and services as collateral to take out loans from banks, a debt which will be paid by the children of these slaves. The money acquired from the banks will then be used to purchase more weapons to invade foreign countries and add to the slave population.

I think this would be a fantastic idea! Don't you?

What? It's corrupt and evil for money to be promulgated in this manner? You think if this is what the anarchist monetary policy is you want nothing to do with it?

Oh... well... then how do you feel about the Federal Reserve?


Government predation on the economy is one of the most terrible aspects of statism, yet people defend it blindly. The overprinting of money, which is used to bribe special interests, results in inflation, or the loss of the purchasing power of currency due to an increased amount of monetary units compared to the number of goods and services in the country.

If I wanted to start my Anarchist Credit Card company, and my business plan involved guaranteeing that my customers would have to pay 5% more for all of their purchases every year, and that that was the basis of my profit, investors and lenders would laugh me out of the room. "Who would sign up for such a vampiric credit card?" they would shout, and pass the proposal around the room for a chuckle.

It's ironic that those very same investors defend the virtues of the statist currency system without ever noticing the rank contradiction. It is the strangeness of the world that only the anarchist can see.

"PROTECTION" MONEY

The reason why statist financial systems always grow into collapse is because of the fundamental error at their root. To illustrate, let's look at mafia protection money.

The reason why mafia protection schemes "work" is because the costs of enforcement are far less than the rewards of intimidation. If you demand a restaurant owner pay you $1,000 per month for "protection," but you need only pay your thug $100 to threaten him, then the economic benefit is clear. The thug's wages are paid for by his victims, and the massive profits go to the leaders.

The limitation on the profits of the mafia is the balance of power between the thugs and the restaurant owners. If the mafia predation becomes too great, the restaurant owner will leave her shop and move elsewhere. Alternatively, if hiring security guards, or another mafia, becomes cheaper than paying the thugs, they can choose one of those options. There is a maximum amount the mafia can charge their victims before they start to lose out themselves.

Governments are not subject to such "restrictions." Moving out of Brooklyn is one thing; moving out of the United States is something else, due to the time and expense involved (particularly with modern immigration laws). Furthermore, moving to another country does not solve the problem of "protection money," as you will be taxed no matter where you go. Citizens are also unable to hire security guards to defend themselves against the government, as they would be completely outgunned by the police and military.

As time goes on, governments become less and less reliant on direct taxation, as their ability to print money and take out loans (thus taxing future generations) diminishes the need to please the current taxpayer. To return to the mafia, we can see that our mob organization will continue to grow beyond its "roof" if it can establish the following:

1. The restaurant owners could never leave.
2. The restaurant owners could never defend themselves.
3. The mafia could take out loans for future "protection" profits.
4. The mafia could print as much money as it wanted - whenever it wanted - and would never face any "counterfeit" competition.
5. The mafia was well-paid to collect its protection money.

These requirements met, the mafia would grow like a gigantic cancer, gradually engulfing the society in which it resided. The short term gains would be tremendous, and the long-term pains quite distant, likely not to occur in the lifetime of those running the mafia. To expect the mafia to behave in a fiscally responsible way would be to expect a 20 year old man to plan for retirement when he's been told he has two weeks to live.

It is perfectly obvious now that governments are nothing more than the most successful criminal organizations in the world. They use their massive profits to fund propaganda, thus appeasing their victims and labeling their actions as virtuous. Can you understand why continuing to support this method of monetary policy is complete and utter madness? Is it so surprising that as the government grows so does financial instability and stock market chaos? The government can not provide a society with any sort of stable currency. Let's talk about how we can build one.

STABILITY

One of the greatest - and most unnecessary - challenges of modern statist society is the near inability to know what the future holds for economic stability. The interests rates rise and fall according to the whims of the leaders; more money is printed, and then less money is printed; the government uses more, then less, of available capital in terms of loans; bonds are issued with varying interest rates, and so on.

In industries, the business environment can be even more random. Government regulations change, tariffs rise and fall, import restrictions change, union rules come and go - and the endless possibility of government subsidies keeps many a dying business around long after it should have expired.

Living and observing activities in a statist society and understanding the hazards, if I were a customer of a monetary business, the first requirement I'd demand of them would be stability. I don't want to worry about my money being worth less next year, or that my buying power is going to fluctuate in any substantial manner.

PORTABILITY

There's a reason why people prefer credit cards to gift certificates - credit cards are convenient and work just about everywhere - gift certificates work at one place. When traveling abroad, credit cards are more convenient than even cash, as they do not have to be converted and are less convenient to steal.

In a similar way, gold has been a common currency throughout history because it is rare, portable, durable, moldable, universally valued, easily dividable, and does not lose value when it is split.

Thus, to get my business, any monetary company would have to offer portability.

Localized currencies, like gift certificates, are cheaper to produce than universal currencies, but face the significant disadvantage of being unusable in wider economic transactions. Should your electric company reside in another city and thus not share your local currency, you would be forced to spend additional time and energy opening another account with another currency to pay your electric bill.

In the case of localized currencies, the easiest solution would be for your bank to analyze your spending habits and proactively purchase local currencies to facilitate the payment of your bills. Since local currencies are cheaper to produce by local monetary companies, they may charge lower prices if you use their currency, thus giving you an overall discount. If you have a 5% discount for using "Store X Dollars," and the bank charges you 1% for the service of stocking up on Store X Dollars, everyone gains in the transaction. You save 4%, the bank gains 1%, and Store X sells merchandise.

It is important to remember that inconvenience breeds entrepreneurs. If there is a way to make your life easier, and someone can profit from it, it will come into existence. Perhaps my account with my bank involves five different currencies. Obviously my bank will not wish to deal with my deposits of five different currencies every paycheck, nor would my employer wish to pay me in such a way. Thus my bank may issue me a means of paying with a "transparent" currency that will simply apply to the most beneficial currency for that transaction out of my funds. This will likely take the form of a debit or credit card, just as such cards are used with multiple currencies in international trade today.

The greatest thing about this system lies not only in the benefits to businesses to have their own currencies with which they can offer discounts, but in the competition of these currencies. If any one currency becomes useless, weak, or unpleasing to customers for any reason, people will simply stop using it. Banks will have many currencies they can trade with, and businesses will have much to gain by cooperating with banks to make transactions cheap and efficient for their mutual customers. Your economic well-being will not be affected by acts of Congress or the rise and fall of your nation's currency, as your currency "investment" will be diversified, as many do with stock portfolios, though all of your purchases will still be made with a single convenient credit card. There is no reason why a single organization need have a monopoly over all the funds in the entire society. Indeed, it is a detrimental idea, except for those with control over that monopoly.

SECURITY

If the criteria for stability and portability/universality were met, my next consumer question would be: how safe is my money?

Security is always a delicate balance between convenience and safety. If any online transaction required you to type 10 unique passwords, each 255 characters long, such transactions would be effectively unhackable, but utterly impractical, for the same reason people don't put 20 locks on their doors or walk around in chainmail. I would personally not require my currency be completely secure, but simply secure enough for my preferences.

Some people are carefree, some are cautious, and some are utterly paranoid. The paranoid always wish to shift the costs of their paranoia to the carefree, while the carefree resent paying the extra costs imposed by the paranoid. Thus any effective supplier would likely have varying levels of security to satisfy the varying desires of clients.

Carefree people may want no security measures at all, thus paying very little for their participation in the monetary system. The paranoid may require voice and fingerprint identification to access their money, as well as retina scans and motion cameras activated by specific dance sequences. The beautiful thing about the free market is the obsession with attracting customers, which means providing exactly the features desired in their product.

One misconception of the free market is that the primary purpose is profit. This is true to an extent, but it is by no means the whole story. Any firm which overcharges will inevitably be undercut, which is why profits even at successful companies are usually only a few percentage points. Thus we can be confident we will have just the right amount of currency systems in our society - not so many that economic interaction becomes burdensome and cumbersome, but not so few that the lack of competition allows profits to inflate.

The current statist system is marked by inflation, and much of the expenses in maintaining the dollar lie in enforcing against counterfeiting. It is likely that between these you are paying an extra 10% for the "privilege" of participating in the state monetary system. Imagine a society where everything you buy costs 10% less than it does today, your money does not depreciate under your mattress, you have better security systems, guaranteed stability, portability as you desire it, and additional discounts at companies who's currencies you use. Compared to what we have today, this monetary system is practically free. If it were anything less than free, maybe due to your personal security costs, perhaps it could be paid for if you are willing to submit to occasional advertising when you use an ATM.

The possibilities are endless.

BANKRUPTCY?

What would happen if a particular monetary company went bankrupt? Would all of its customers lose their life savings?

The standard cliché here is the "bank run," a common reference often seen in movies set in the Great Depression where customers rush to their local banks seeking withdrawals having heard of its imminent bankruptcy.

Of course, this vision is always negative towards banks, rather than the Federal Reserve, which was in charge of the currency for the entire nation. In the same way, if a foreign enemy were to bomb farms in the Midwest, it is doubtless the greedy capitalist grocery store owners would be blamed for their resulting price increases.

Let's say that some monetary organization begins to run its business badly. What would happen?

If I were to invest in a monetary company, the first thing I would expect of the leaders is an investment of 80% of their savings in their own currency to be verified by external audits. This would guarantee a tremendous interest on their part to be cautious and responsible. The moment any of the company leaders began exchanging their currency, I, as an investor, would be made aware and could investigate the situation.

If the asset/debt ratio of the company went beyond a certain very conservative number, I would require in my contract an immediate sale of the company. How would this sale help me? Well, if someone wished to buy a distressed currency company, they would only wish to do so in hopes of acquiring the existing customer base. In other words - they would offer additional benefits to the current customers in order to retain their business - fee holidays, cash bonuses, etc. In order to keep me from withdrawing my money from the currency system, I would have to be paid to accept the increased risk.

Thirdly, I would demand that any fiscal losses I suffered be paid for out of the bank accounts and assets of the owners of the currency company (in addition to any insurance I purchased). If I wound up losing 20% of my funds because of their business mistakes, I'd make certain they made zero cents on the dollar. This is in stark contrast to modern corporate CEOs, who can send their investors' money down the toilet and suffer no legal or financial consequences whatsoever.

Fourthly, I would demand the right to withdraw my money at any time.

These all established in my investment contract, let's trace the sequence of events should a currency system ever suffer financial difficulty.

As mentioned above, the board of directors and managers of a monetary business would be made immediately aware of any problems, and would furthermore be keenly aware of the disaster awaiting their business should the information be made public.

Since an anarchist society is all about preventing problems rather than curing them, managers and investors would be hyper-vigilant in protecting the financial soundness of their organization. The success of all voluntary business is founded on trust and credibility - the moment either becomes compromised, the business is in trouble. Competitors will always be looking for weaknesses to lure customers away, thus managers and investors would put every conceivable check and balance in place to make certain their credibility was maintained.

Let's say all this fails, and one day, Monetary Company XYZ encounters real financial difficulties.

Well, when any company in a free society encounters financial difficulties, it is either because it is no longer desired by the customers, or it is being poorly run. If a company is being poorly run, it can either reform itself from within, or it cannot.

If XYZ CAN reform itself from within, then bankruptcy will not result. There will be some firings, some cutbacks, some dropped business, but not bankruptcy. Customers likely would not even notice.

What if XYZ CANNOT reform itself from within?

In any free market society there will always be businesses sniffing around expressly looking for poorly run companies to improve and profit off of. These "raiders" would undoubtedly notice the problems this company was suffering and attempt to buy it out.

Raiders are faced with the dilemma of whether to announce the status of the business or not. Announcing the declining health of the business would lower the price to purchase it, but may drive the customer base into a panic, which would defeat the purpose of buying it. Thus, if I were a "raider," I would announce the difficulties faced by XYZ but guarantee its customers protection if I am allowed to purchase the business. Clearly many customers would clamor in support of the buy-out, which can only work to my advantage.

As a raider, there would be one significant threat to my plan - other monetary companies. Company ABC, on hearing of the difficulties suffered by XYZ, would offer great incentives for XYZ customers to switch their currency provider to ABC. There would be so many businesses hoping to "rescue" the panicking customers of XYZ that every last one of them should find a business meeting their desires.

Now of course it's always possible that the situation doesn't pan out as the customers hope. Perhaps my raider company cannot deliver on the protection originally offered. Perhaps Company ABC must raise its rates to cover all the benefits offered to the newcomers. I fail to see how this is particularly tragic, however. Anyone who offers you "free" money does so with an announcement of implicit risk. Choosing which company to be your monetary provider is no different from choosing a stock, a house, or a horse in a horse race. All financial investments have risk. The stateless society simply offers you many more options, and none of them are forced upon you.

In short there is no conceivable situation where an individual might wake up one day and find their savings completely wiped out. There is so much profit in customer retention that any weakness would be met with a literal stampede of entrepreneurs. Considering how many state-run currencies HAVE destroyed life savings through obscene inflationary spending, I would joyously take the anarchist alternative. If currency failure is something you fear, anarchism is by far the best solution.

Thanks for reading! Have a nice day!