Classical Liberalism’s 700-Year Fight Against Monetary Oppression
The following is from a speech given by Larry White on September 24, 2016 at the Atlas Network’s annual Liberty Forum in Miami.
Let me welcome you all to the capital of Latin America. And when I say capital, I mean that much of the financial wealth of Latin America is held with banks and fund managers across the street, here in Miami. And therein lies a lesson in the results of unsound money.
But seriously, I am very pleased to be this year’s Leonard Liggio lecturer. I thank Atlas and especially Brad Lips and Alex Chafuen for the honor.
I knew Leonard Liggio for 40 years. I first met him in the fall of 1974 at the “Libertarian Scholars’ Conference” in NYC. I last spoke to him on the phone in 2014, when he was ill but still hopeful of recovering and resuming his travels to conferences on behalf of Atlas.
Because state abuse of coinage is so ancient, it was a leading-edge issue on which the ideas of economic liberalism began to form.
I want to tell one story about Leonard before I turn to my topic. While I was in college, I somehow became responsible for organizing an extra-curricular evening lecture that Leonard was to give on our campus. The topic was the historical background to the civil war then raging in Angola. The lecture was scheduled to last one hour. Leonard had no notes with him. But that’s not the best part. As we walked to the lecture hall, Leonard turned and asked me, “Should I start the history around 1400, or 1900?” As though I knew something about Angola’s history. I improvised a reply: “Why don’t you start around 1400, and try to get to 1900 within the first 20 minutes, then bring it up to the present?” He said okay, and proceeded to do just that.
I want to talk this evening about the tradition of classical liberal thought on sound money. Don’t worry, I won’t start around 1400. That’s too late. I will start around 1350. I do, however, have notes.
Classical Liberalism and Money
How do the principles of classical liberalism apply to money? Pretty much as they do to wheat. They call for allowing users and suppliers of money to interact in a market system free of state privileges, free of legal restrictions other than those against fraud and theft, and free of discretionary regulatory controls.
But money is more important than wheat, and I don’t say that in a spirit of gluten intolerance. Some of you may recall the Simpsons episode where Homer drops a peanut that disappears between the cushions of his sofa. Fishing for it, he finds a $20 bill. “Aw, twenty dollars?” he says, “I wanted a peanut.” Homer’s brain immediately tells him: “Twenty dollars can buy many peanuts.” “Explain how!” Homer demands. His brain answers: “Money can be exchanged for goods and services.”
As the commonly accepted medium of exchange, money is the good on one side of every transaction. State disruptions to the supply of money, or to the demand for money, boggle not just one market but the entire economy. Historically, one of the oldest abridgements of economic freedom is the state’s monopoly over the mint. It goes back to ancient times, because as soon as merchants developed the technology of coinage, mint monopoly could provide a major source of revenue. Because state abuse of coinage is so ancient, it was a leading-edge issue on which the ideas of economic liberalism began to form.
The scope for private institutions to supply money grew during the middle ages as commercial banks provided a better money than the royal mints. But today it is heavily circumscribed by laws and regulations. You and I are restricted in how we can spend and transfer the money we own. The little freedom that remains is under attack. For example, the Harvard economist Kenneth Rogoff has a new book titled The Curse of Cash, in which he calls for abolition of $20 and $100 bills because — hold on to your seat — criminals use them. Not to be outdone, Prof. Narayana Kocherlakota, who stepped down last year as president of the Federal Reserve Bank of Minneapolis, published an opinion piece earlier this month calling for the federal government to “abolish currency and move completely to electronic cash.” There are similar moves afoot in Europe.
Aristotle’s Nicomachean Ethics introduced into Scholastic thought the idea that money is so useful that it actually promotes society’s well-being.
And those are just the intellectuals. The actual regulators at the U.S. Treasury Department’s Financial Crimes Enforcement Network are scarier still. They not only abridge the financial privacy rights of Americans, they pressure governments around the world to adopt the intrusive U.S. “know your customer” rules if they want to do business with any U.S. banks.
I was fortunate that Leonard Liggio helped to direct my reading in the history of money, and the history of liberalism as it relates to money. In particular he drew my attention to work by the early French scholastic writer Nicole Oresme, from the 1350s, and to the works of the 20th century economic historian Raymond de Roover. (Has anyone else here experienced the majesty that is de Roover’s article “What is Dry Exchange?”) In an autobiographical essay, Leonard recalled having talked for “hours with de Roover over beer” after a meeting of the monthly Mises circle in New York at which de Roover had come to give a presentation.
Early Christian Views of Money
De Roover, by the way, famously debunked the “fairy tale” (his words) that the Christian scholars of the middle ages, the Scholastics, subscribed to a cost-of-production theory of the “just price.” Instead, for most, the “just price” was simply the prevailing market price, absent collusion or emergency. (Since Alex Chafuen is here, I thought I’d throw in a good word for the Scholastics.)
Some of the earliest Christian thinkers up to 1225, however, took an actively hostile view toward money. One reads that the Franciscan and Dominican religious orders, founded 1209 and 1216, initially refused even to handle coins. For them, money was either sinful as such, or at least posed a temptation. Then Aristotle’s Nicomachean Ethics was rediscovered and disseminated across Europe. It introduced into Scholastic thought the idea that money is so useful that it actually promotes society’s well-being. But Aristotle’s writings on money were highly equivocal. The philosopher, as the Scholastics called him, had declared on the one hand that money had naturally arisen as a convenient measure of value, but on the other hand that it “exists not by nature but by law.”
The Radical Views in Oresme’s “On Money”
Thomas Aquinas didn’t have all that much to say about money. The key early Scholastic work on money was by Nicole (or Nicholas) Oresme (c.1320–82), a French bishop, who drew on his teacher Jean Buridan. F.A. Hayek once