Tuesday, May 3, 2016

Do We Need Entrepreneurs to Produce Money?

Michael S. Rozeff has a challenging post over at LRC.

In it he calls for entrepreneurs to produce money and chides Austrian school economists who call for gold or silver to be used as money.

But does money really need to be "produced" and does it have to be produced by entrepreneurs?

Rozeff seems to forget the teachings of Ludwig von Mises and Friedrich Hayek who taught us that money, namely gold and silver, emerged without out it being the plan of anyone. Sort of like the way language without a central planner, Hayek would say.

To be sure, there are miners of gold and silver, but are these mining operations a necessary part of money?

We know from history that, in American POW camps, cigarettes became a means of exchange, that is, money. Some additional cigarettes may have found their way into camps but there was no one "producing" and there was no need for such production for the cigarettes to remain money.

Austrian economists who call for a return to gold and silver may just be demanding that exchange be returned to the medium that was used before governments took control of the  printing of paper money.

But this does not necessarily mean they are against a free market in money. Hayek has made clear that a society should allow markets in money to emerge. This could possibly be through an entrepreneur who has hit on a fascinating medium of exchange, or it could develop without direct human guidance, the way gold and silver emerged, or quite likely, if left to free markets, gold and silver would reassert themselves as money that is exchanged on a daily basis.

Of course, an Austrian who is adamant that gold and silver must be the money does not understand free markets. However, an Austrian who is lightly advocating  a return to gold and silver as a means to get rid of government controlled money is not committing a grievous sin, if when further questioned he makes clear that ultimately free markets should determine the money.

It is more of a serious sin to state that it must be entrepreneurs who "produce" and create the money. That is not how gold and silver emerged as money and, in a free market, gold and silver could very likely emerge as daily money----even if all gold and silver mines collapse and the supply of gold and silver stays constant.

New production is not necessary for a money and neither is entrepreneurship,



  1. Unlike silver or gold, most other mediums of exchange are nondurable. For example, cigarettes have to be constantly replenished. Don't you need the entrepreneur to produce new cigarettes? And another entrepreneur to sneak them into the camp?

  2. Miners of gold and silver (and copper and palladium) produce a raw material with many uses. Mints take those raw materials and fashion them into rounds and other shapes of various sizes and qualities that are useful as money. I think Rozeff is referring to the minting process when he speaks of "production" of money.

    One interesting entreprenurial approach to money was made during the 1970s by Ralph Borsodi. He came up with the idea of a paper note (similar to the silver certificates that used to be the core of US currency), backed by a "basket" of commodities. He also sold a 1 oz silver round called a Globe, one of which I purchased back in the 70s, and which can be seen on the Ralph Borsodi Wikipedia page. Certainly such ideas would arise in a free market and face the tests of viability.

  3. I had the same impression of what Rozeff meant as did Dwight.

    Comment on the importance of separation of money and State:
    Government control of money: allowing governments to dictate what is used as money and then be the sole producers of that money may be more damaging to freedom than letting them control speech and firearms.

  4. There are a lot of factors that we need to consider here I think. How do we decide if there needs to be a redistribution of assets if we do go back to one way or another way of counting "wealth"?