Rakkur
A new way of trading has emerged in the form of a digital money. The actual product is to be unnamed in this broadcast, but this currency is now being used to purchase things from a growing number of internet businesses and even local businesses. Sending money to people becomes as easy as sending an email. Further, additional organizations are springing up which act as middlemen who trade this currency for US dollars which they then send directly to the merchants and complete the exchange, allowing for this currency to be used as immediate payment to almost any retailer.
This idea and internet system of exchange offers us a unique opportunity to understand the dynamic nature of the market and how private companies can compete to offer the best possible product, even in the case of the production of money. Competition increases the quality and decreases the price of products while at the same time making them overall more desirable and easier to use. In this way, entrepreneurs must offer better products than other entrepreneurs in order to attract the limited number of customers. Money is a good just like any other good and can be improved under a free market of it’s exchange, but money has very special and specific properties which does set it apart.
Money is nothing more than the most commonly traded good on the market. It is an item which facilitates exchanges; it makes it easier for us to trade and cooperate. When a certain good is accepted by a majority of people for both buying and selling, numerous exchanges become possible that might not have occurred without a common medium of exchange. Money is a device which allows for much better ways for people to exchange value with each other, and through money both prices and economic calculation become possible.
For instance, if all I had to trade was a ham sandwich and all I wanted to receive was a gallon of water, I would have to find someone who is both A) demanding a ham sandwich and B) supplying a gallon of water. With money, indirect exchange becomes available and I can trade the sandwich for money and then money for the water. What’s more is that I can find out specific information about those goods as prices emerge. Prices relate the supply and demand of different goods to everyone in the economy allowing for people to make rational decisions about the most important use of our scarce resources. As prices go up, people realize that those goods are more scarce and tend to buy less of them or find alternative means. As prices go down, we know that there is an abundance of those resources and we can enjoy them and use them to achieve more of our ends.
Further, money allows me to divide up very large exchanges into smaller ones or vice versa. If I have a piano, it’s not worth a whole lot if I chop it up and sell little pieces of it. Instead, I can trade the piano for money and use the money to buy those smaller purchases. It would be completely impossible to run a business without being able to divide up costs and income. How would I ever be able to track the costs of 12 employees, my monthly supply of goods, and rental/ownership fees on my building if I am unable to tally up those costs and see them in a clear sum? How would I weigh that with the income I receive from the products I sell? How would I divide up the wages to give to my employees? Surely they would not accept pizzas or birdhouses or component parts of large screen televisions for their weekly pay.
Money is chosen by people for certain characteristics. Digital money meets several of these criteria well when compared to gold:
1) It is easily recognizable. Gold was known for being very easy to spot. It’s distinct color and properties made it stand out and therefore was trusted by merchants. Digital currencies can be certified by third parties and utilize very specific computer protocol in their use and application, making it easy to identify them.
2) It is not easily duplicated. Gold cannot be reproduced using other forms of matter and must instead be harvested from the ground. In this way, it can’t be easily duplicated. If the money can be easily made by people, the tendency will be to overproduce this good. If something like a banana was made currency, people would quickly plant banana trees to reap the harvest of new money and eagerly spend it in the market place, flooding the market with new money and causing prices to go up. Digital currencies can be programmed to reduce if not eliminate the counterfeiting of the money, especially with hundreds of computers communicating with each other all at once to update the log and records of the currency and exchanges.
3) It is rare. Gold is rare such that only a certain amount can be harvested per year. The increase in the supply of it is restricted by the production necessary to harvest it and the finite amount of it, making it more difficult to grow like bananas. It’s rarity contributes to a large store of value over time, leading to more savings and investment. It also allows for lots of value to be stored in a small good, as a good which is high in demand and low in supply will always fetch a higher price in the market. Picasso paintings are an example: there are very few of them, and they are highly desirable thus expensive. Online currencies have the capacity to be set to a specific supply which does not change, which would make it rare.
4) It is portable. Gold has always held a lot of value for a small weight, making it portable and easy to transport a large portion of wealth. This portability is also necessary for exchange so that the seller receives the money for the product he sells. Notes redeemable for gold made it much more portable, and the problems of portability are almost removed entirely with online currency.
5) It is divisible. Gold can be melted down and reformed into smaller quantities. It is divisible to the point that it no longer becomes possible to exchange it in that tiny form, but it does not lose value the more it is divided up or rejoined. Online currency is infinitely divisible, with the possibility of reducing it’s unit down to milli-units or micro-units or even smaller, and it also does not suffer from the problem of the costs of actually smelting a metal into multiple parts.
6) It is fungible. While the appearances of the gold coin itself may add to the value of the money due to aesthetic pleasure or other desirability, the gold itself is the same gold that is in every other coin or bar. When two coins that are exactly the same are mixed in the same bag, neither is worth more than the other when they come out. Grain is another example, where a pound of grain is the same as every other pound of grain in a silo. Online currencies are also fungible in that each unit of the money is the same as any other unit.
Of course, online currencies come with other concerns of security, inflation, the problem of offline exchanges, and the problem of a lack of widespread acceptance, but the market left unhindered can sort all of those things out. Private companies supplying different monies would likely offer perks to attract customers. They might guarantee certain transactions and pay back the money in full of people who are defrauded or stolen from. They might put certain protocols in place to reduce the possibility of theft and then present their impeccable track record to potential customers. It would even be possible that a people free to choose what money they prefer might see multiple monies competing all at once, in the same way we see multiple credit cards accepted by vendors today. In a free market, people who like a company’s money are free to trade with it, while the monies which constantly lose value and falter will be discarded and fall into disuse.
However, The Federal Reserve currently holds a monopoly of currency, disallowing any competitors from entering into the market place. Legal tender laws make it illegal to trade with competing currencies, and people who pay their workers in alternative money are eagerly pursued in courts. Recently, Baron von NaughtHous was placed in jail for producing and selling an alternative money based on silver. The introduction and production and exchange of alternative, non-State decreed money is banned, and it is very easy to understand why.
When the Federal Reserve controls the money supply, they may easily create money at will. With this monopoly, the government and central bank have the capacity to print their own money to cover their own purchases and debt. Those who receive this newly created money gain an advantage as the purchasing power of the money currently in circulation transfers value to the new money, allowing those who spend the money to buy goods at the original, low price. However, as the new money circulates through the economy and the recently increased supply is found out by the market, prices adjust upwards to represent for the actual and real supply of money. Those who did not have the privilege of printing their own money end up paying the inevitable higher prices. This is the real process of inflation: thievery carried out by the upper class as value is vacuumed away from the productive through the printing of new money.
To allow for competition in money would effectively eliminate this inflationary privilege. Let’s imagine two competing money producers: ripoff-dollars and sturdy-dollars. Let’s further imagine that ripoff-dollars were massively printed and their supply increased, and prices denominated in rip-off dollars would of course go up. If the supply of the competing currency of sturdy-dollars stayed the same, prices denominated in it would also stay the same or even go down in relation to the prices denominated in the inflated money. Imagine if the price of a cup of coffee went up from 3 ripoff-dollars to 6 ripoff-dollars to 20 ripoff-dollars while the price of the same cup of coffee stayed constant at 3 sturdy-dollars all this time. People would instantly recognize the benefit of selling their ripoff-dollars and buying sturdy-dollars, and the owners of ripoff-dollars would lose customers and likely go bankrupt.
Since competition is made illegal by government decree and no other currency allowed in the market, the Federal Reserve enjoys a legal monopoly by being the only money producer around. It’s owners can print money as much money as they want with little resistance. Competition of monies would reveal their scam, as prices would likely fall rapidly under a stable money instead of the constant and sometimes massive price increases we see today. The effect that continually lower prices on most goods would have on the well being of the poor would be an instant and daily improvement.
The privatization of money would certainly lead to an increased standard of living for all those who engage in trade within that framework, and online currencies are only one example of a multitude of different types of money which may emerge and aid us all in our path towards prosperity. This competition can only occur when violence is not aimed at those who produce and compete, as is currently being done against people who dare to introduce a competing money.