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Source link: http://archive.mises.org/13510/down-with-legal-tender/

Down with Legal Tender

August 9, 2010 by

It is no exaggeration to say that history is largely a history of inflation, and usually of inflations engineered by governments and for the gain of governments. FULL ARTICLE by F.A. Hayek


billwald August 9, 2010 at 9:40 am

Legal tender is only required for paying taxes. If you think government is inefficient, imagine paying taxes in chickens and eggs.

Allen Weingarten August 9, 2010 at 10:13 am

One can operate efficiently in the form of money, provided that money is fully redeemable in terms of chickens and eggs.

Gerry Flaychy August 9, 2010 at 6:33 pm

According to Mises theory, chickens and eggs would then be the money, say,like gold and silver, and what you call money would be called substitute of money.

J. Murray August 9, 2010 at 10:58 am

And taxes are theft. If you think government is inefficient, why suffer them taxing you?

You just hit on why we have legal tender in the first place: it’s the only way the lord can loot the pockets of the serfs.

Bala August 9, 2010 at 11:09 am

Actually, I think there is more to it. A lot of it became clear to me when the government of my country went about imposing various restrictions on business related payments to improve its ability to mop up taxes. For instance, businesses are not supposed to make regular payments in cash. In this manner, businesses are forced to route most of their payments through the banking system, something that allows government to know every detail of every payment made. This way, evading taxes becomes very difficult.

In other words, legal tender enables government to keep close tabs on all your transactions and thus ensure that it always gets to rob as much as it wants to.

Just look at it this way – If you could pay people in any thing, how is government to know how much you have earned and therefore how much to rob from you?

Eric August 9, 2010 at 11:32 am

Legal tender in the US is for more than just taxes. Just look at the statement on each FED note: All debts public and private.

Exchanges in legal tender also do not invoke a tax. I can exchange a twenty for 2 tens and I don’t pay sales or excise taxes.

I say AMEN to the title of this article.

Steven Farrall August 9, 2010 at 10:17 am

Excellent. Gresham’s Law is aloways misquoted by being edited. The full quote is (I have always understood) “Bad money drives out good IF IT IS AT THE SAME PRICE”. That is if, as Hayek says, there is a fixed rate of exchange. Some people use Gresham’s Law to illustrate how information assymetry can lead to pricing problems, but this is not the same as the bad money/good money argument.

Mike Sproul August 9, 2010 at 1:25 pm

Legal tender means different things:
1) The government declares it will accept its paper money for taxes. There’s nothing wrong with this. The taxes themselves might be evil, but that’s another matter.
2) The government declares that the baker must sell bread to the farmer for paper money that is not worth the bread. The government has just helped the farmer rob the baker. Bad.
3) The government delares that the baker must sell bread to the government for paper money that is not worth the bread. The government has just robbed the baker directly. Bad, but if the government uses that bread to back its paper money, it will increase the value of the paper money.

JGiles August 9, 2010 at 1:33 pm

What do you mean when you say, “uses that bread to back its paper money”? That the government claims that its paper money can be redeemed for bread, and enforces that claim? That’s exactly the same as #2, and it will increase the value of the money exactly as far as the bakers are robbed. Also, the bakers still won’t be able to spend all this paper money the government keeps giving them, because it’s only worth bread, and they already have bread; I mean, they’re bakers. They might as well just swap bread for things directly, which is presumably what they were already doing.

J. Murray August 9, 2010 at 2:28 pm

It also means that if the government backs the money in bread, the money goes bad in a week.

Mike Sproul August 9, 2010 at 3:13 pm

But in case 2 it’s the farmer who has the bread, and the money is the government’s liability, not the farmer’s. In case 3 the government actually takes possession of the bread. The government can then redeem its money in that bread, or swap the bread for something of equal value, which is could also use to redeem its money.

Presumably, the bread is either eaten or sold within a week

Jerryhorse August 9, 2010 at 3:07 pm

Honestly, the article as edited was quite disjointed. If one wants to edit Hayek, one should be careful to complete thoughts and not jump, as it were from one topic to another. Trying to make valid arguments contained in three complete chapters by Hayek in 7 pages or so, left me with an empty devalued paper print out of what I should have left in cyber space.

Clinton Lovell August 9, 2010 at 4:42 pm

This is all the product of using the liability-expansion method of currency inflation. If we switched over to the equity-expansion method we would accomplish two (2) critical goals at the same time:
(1) our currency would have a real exchangeable value that was based upon a future command upon real consumption tied to the private-sector economy; and
(2) we could immediately replace the taxation method of financing government with the investment-income method, thus: (i) all government spending would be exogenous to the private-sector economy; and (ii) no naked deficit spending would occur again; and (iii) recessions would no longer be possible as a host of predicate causal recessionary business cycle factors would be permanently eliminated from the market structure; and (iv) government would operate a permanent surplus within the near-term window (12 to 16 years in my calculations).

My point is that you can have the argument or you can have the solution. I’m from the Chicago/Austrian/Lovellian School – I prefer the solution and with the time saved argue about something much more important (women, alcohol, drugs, gambling, etc.).

Dweebston August 9, 2010 at 10:46 pm

Something tells me that our government, whichever administration reigns, would never suffer a surplus. I’d be interested to know more about your liability-expansion currency inflation, but I can’t see how government spending, however the funds are generated, is ever completely exogenous to the market. Government either competes for resources or competes for “buyers” in the form of subsidied consumers. I’m thinking lower-middle class private schooling, which competes with “free” schools for consumers, and the Medicare/ Medicaid monopsony. I’m sure better examples abound. In any event, even if your currency scheme can eliminate the business cycle, it still leaves the corpulent public bureaucracy. Again, interested if skeptical. I’ll dredge google, but would you link a site?

Dweebston August 9, 2010 at 10:51 pm

The secret’s in the name.

Paul Edwards August 9, 2010 at 4:46 pm

I find Hayek’s language here, particularly the use of the word “create” odd:

“Some of the early foundations of banks at Amsterdam and elsewhere arose from attempts by merchants to secure for themselves a stable money, but rising absolutism soon suppressed all such efforts to create a nongovernmental currency.”

It is almost as if Hayek viewed the emergence of a non-governmental money as something that elements of the free market would or could put a conscious effort to plan and instigate, and also that it is not the free market that originates money in the first place – as explained in the money regression – only later, to be commandeered by the state.

vc August 9, 2010 at 8:20 pm

“The laws of a country ought to be the standard of equity, and calculated to impress on the minds of the people the moral as well as the legal obligations of reciprocal justice. But tender laws, of any kind, operate to destroy morality, and to dissolve, by the pretense of law, what ought to be the principle of law to support, reciprocal justice between man and man — and the punishment of a member who should move for such a law ought to be death.” – Paine

El Tonno August 11, 2010 at 6:53 am


The US Federal Reserve decided last night to extend its $1.55 trillion programme of quantitative easing in an attempt to rejuvenate an economic recovery that the central bank admitted was turning out “more modest” than it expected.


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