Money: Support Your Local Counterfeiter

Davis Keeler | From the October 1977 issue

The great advance of western political philosophy, at least since the time of Vlad the Impaler, has been the acceptance of the notion that society is better off being oppressed by a single great criminal so powerful he cannot be resisted, than to be oppressed by a normal assortment of petty crooks who could be kept off with a vicious dog.

In economic matters this has led us to accept the notion that the offense of counterfeiting is committed only by the emission of worthless currency by a private person. Each element of the offense must be proved, and if the rascal can convince a jury that he is a public entity (i.e., a duly-annointed criminal monopolist) then they are bound to acquit, no matter how grievous his mischief.

Of course, since as von Mises tells us, money is anything merchants will accept as money, there is no reason you can't have private persons issuing their own banknotes at whatever the market will value them. This was done rather extensively during the 19th century, both here and abroad. Outside of the United States the best known of these were the Scottish banks, whose sound management of private money is credited with the industrialization of that otherwise very unpromising country.

The variety of private note issue did not, as the running dog apologists for statism assert, result in economic chaos. Since most people are fairly competent in handling their own affairs, they had no unusual difficulty sorting out good credit bank notes from the dubious issues, discounting the various private bank issues along a market price continuum, just as we today value corporate securities, private mortgages, commodities, etc., through the free market's marvelous price mechanism.

But since one thing leads to another, the State's monopoly on counterfeiting has been extended to cover the issuance of good bank notes as well as bogus ones.

For good measure the State, through the Legal Tender Act, requires that the people accept its monopoly money (the pun was unintended) so that we now find that the occasional losses suffered by private note holders during all the "bad old days" of free note issue pale to insignificance beside the annual losses forced upon people by the State monopoly money.

But monopolies, as we know, are very hard to maintain. In the free market they are entirely unstable and invariably short-lived. They are maintainable for any time only with legal protection, and even then it requires constant recourse to the gendarmes to prop them up against the inexorable force of rational self interest.

The State's monopoly on the issue of bogus money is no exception.

As all of us who grew up listening to "The F.B.I. in Peace and War" on our Atwater-Kent know, the feds will swoop in through the kitchen window with tommy guns at the ready if you so much as try to take a wax rubbing of a dollar bill. (Substitute Efrem Zimbalist, Jr. and silly putty if you're younger; the idea is the same.)

A couple of times a year you will see stories in the newspaper of the feds busting a counterfeiting ring. The story will usually explain that the bills can be spotted by the fact that the picture of Hamilton is upside down, or some such clue for the sharp-eyed.

An interesting observation on all this was made by a friend in the printing business who remarked that you never hear about a counterfeiting scheme that involved anything near the state of the printing art. New presses and techniques can do marvelous work, and the equipment is widely available, but you only hear about counterfeiters who have been using old Xerox machines and magic markers.

From this my friend concluded that either (1) anyone who has access to good printing equipment is incapable of contemplating counterfeiting or, (2) there may be a lot of funny money in circulation.

The government hasn't helped the situation by the deterioration in the quality of its own product. (Of course I might be wrong about this; I have just assumed all the bad printing I have seen was Treasury work—maybe it wasn't.) For another, citizens are not encouraged to report dubious money they find in their change. If they're lucky the government simply seizes the notes and they are out the money. If they're unlucky they may have some long ego-threatening talks with gimlet-eyed T-men.

Of course, there could be counterfeiting even in a free market. In Scotland, for example, if a customer brought in a bogus note, the bankers would give him a new one and apologize for the inconvenience. At the same time in England, where there was a State monopoly on note issue, possession of a counterfeit note was a hanging offense.

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But a fresh breeze blows. Uberwirtschafter F.A. Hayek, who formerly defended the notion that government had a legitimate function in the provision of money, has now recanted and announced that money should be a wholly private enterprise.

Hayek's conversion is welcome not only because it is always gratifying to see truth received but as well because it is one more case refuted of the claim that we must have a State—an institution of coercion against peaceful persons—in order for society to function. In this sense the argument for private money is like the argument for private roads and schools and courts. By showing people that the State is unnecessary for some heretofore-thought-essential social function, you show that the burdens of supporting this great criminal are not man's inexorable lot.