Power and Market: Government and the Economy

The common, erroneous phrasing of Gresham’s Law (“bad money drives out good money”) has often been used to attack the concept of private coinage as unworkable and thereby to defend the State’s age-old monopolization of the minting business. As we have seen, however, Gresham’s Law applies to the effect of government policy, not to the free market.

The argument most often advanced against private coinage is that the public would be burdened by fraudulent coin and would be forced to test coins frequently for their weight and fineness. The government’s stamp on the coin is supposed to certify its fineness and weight. The long record of the abuse of this certification by governments is well known. Moreover, the argument is hardly unique to the minting business; it proves far too much. In the first place, those minters who fraudulently certify the weight or fineness of coins will be prosecuted for fraud, just as defrauders are prosecuted now. Those who counterfeit the certifications of well-established private minters will meet a fate similar to those who counterfeit money today. Numerous products of business depend upon their weight and purity. People will either safeguard their wealth by testing the weight and purity of their coins, as they do their money bullion, or they will mint their coins with private minters who have established a reputation for probity and efficiency. These minters will place their stamps on the coins, and the best minters will soon come into prominence as coiners and as assayers of previously minted coins. Thus, ordinary prudence, the development of good will toward honest and efficient business firms, and legal prosecutions against fraud and counterfeiting would suffice to establish an orderly monetary system. There are numerous industries where the use of instruments of precise weight and fineness are essential and where a mistake would be of greater import than an error involving coins. Yet prudence and the process of market selection of the best firms, coupled with legal prosecution against fraud, have facilitated the purchase and use of the most delicate machine-tools, for example, without any suggestion that the government must nationalize the machine-tool industry in order to ensure the quality of the products.

Another argument against private coinage is that standardizing the denominations of coin is more convenient than permitting the diversity of coins that would ensue under a free system. The answer is that if the market finds standardization more convenient, private mints will be led by consumer demand to confine their minting to certain standard denominations. On the other hand, if greater variety is preferred, consumers will demand and obtain a more diverse range of coins. Under the government mintage monopoly, the desires of consumers for various denominations are ignored, and the standardization is compulsory rather than in accord with public demand.79

• 79See Herbert Spencer, Social Statics (New York: D. Appleton, 1890), pp. 438–39. For historical examples of successful private coinage, see B.W. Barnard, “The Use of Private Tokens for Money in the United States,” Quarterly Journal of Economics, 1916–17, pp. 617–26; Charles A. Conant, The Principles of Money and Banking (New York: Harper & Bros., 1905), I, 127–32; and Lysander Spooner, A Letter to Grover Cleveland (Boston: Benjamin R. Tucker, 1886), p. 79.