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The Morality of Money, 2: Natural and Forced Money

By Thomas Van (bio - articles - email) | Nov 14, 2016

It is easy for us in the twenty-first century to take for granted that our money has no value whatsoever other than as a medium of exchange, and that it works as such simply because our governments imbue it with value—hence the term “fiat money.” If money derives its value solely from the dictates of the State, then it hardly matters what it is made of—whether paper, ones and zeroes, or good intentions.

But as in so many other matters moral and technological, we in the contemporary West are in an unprecedented situation with regard to money, far removed from the experience of most societies throughout history. Indeed, in The Ethics of Money Production Hulsmann suggests that a major reason Catholic thought on money production has been forgotten or undeveloped is simply that the pre-modern Popes and scholastics only had to deal with the making and alteration of coins, and while their statements on coinage have important implications today, they “do not exhaust the problems we confront in the age of paper money” [p.4]. Regardless, if we are to avoid simply taking the current monetary regime for granted, we will have to examine why money comes to exist in the first place.

A barter economy is by nature extremely limited as to the number and type of exchanges which can take place. To use Hulsmann’s example, if a carpenter needs to buy ten pounds of flour and all he has to exchange is a chair, he needs to find someone who has both ten pounds of flour and a direct personal need for a chair. Even if he finds such a person, so satisfying the need for a double coincidence of wants, it may be that to him, the chair is more valuable than ten pounds of flour. It is not practical for him to divide the chair into numerous pieces for the purposes of exchange, nor indeed would broken-off pieces of a chair have any value to either party.

This problem is solved by the emergence of indirect exchange. If there is some good which is considered useful by many people in the community—say leather—the carpenter can easily use that good to buy flour, for even if the seller has no direct need for leather he will easily be able to exchange it for whatever it is that he himself needs.

If a medium exchange becomes widespread enough across a society because it is widely useful, durable, and easily divisible (among other characteristics), it can be called money. We may describe it as “commodity money” because it is just that: a commodity whose value in exchange derives originally from its value in consumption. The scholastics, Hulsmann notes, recognized this, calling money a res fungibilis et primo usu consumptibilis: a thing that is fungible and primarily used in consumption.

Note that the money emerges through voluntary cooperation among the members of society and is chosen solely because it satisfies the needs of exchange better than the alternatives. Money that emerges voluntarily in this way has been called “natural money.” There have been all kinds of currencies throughout history, but developed economies have for various reasons almost always ultimately settled on precious metals. What is important, however, is not the particular good chosen as a medium of exchange, but that it is emerges as such through the voluntary cooperation of individuals because it serves their needs best.

In contrast to natural money, Hulsmann refers to fiat money as “forced money.” It is by definition less satisfactory or it would not require force to keep people from turning to other alternatives. While it is true that commodity monies have often been manipulated, debased, marked or otherwise co-opted by governments throughout history, forced money owes its very existence to violations of private property.

This is no exaggeration, for as Hulsmann brings home, there is not a single historical example of paper money emerging spontaneously and voluntarily as a medium of exchange.1 Governments have forced creditors to accept paper in place of gold or silver, or, in most cases, actually made the use of gold and silver illegal, using the police and courts to eradicate what Hulsmann notes were “monies in use since biblical times” [p. 55]: as in 1933 and 1934, when Franklin D. Roosevelt criminalized the possession of monetary gold, or in twelfth-century China, when the ruler introduced paper money by force.

Hulsmann cites a number of Catholic social teachings that ought to be kept in mind when examining the question of natural vs. forced money. While not holding it to be absolute, the Church has taught that “the inviolability of private property”2 is the fundamental principle of a just social order (Rerum Novarum 11, 15) and “a guarantee of the essential freedom of the individual” (Mater et Magistra 111).

Not only that, but Pope St. John Paul II taught that “the right of association is a natural right of the human being, which therefore precedes his or her incorporation into political society” (Centesimus Annus 7), and reaffirmed the teaching of Pope Leo XIII that “if [the State] forbids its citizens to form associations, it contradicts the very principle of its own existence” (RN 51). Pope Leo only allowed the State to prohibit associations that are “evidently bad, unlawful, or dangerous to the State” (RN 52), and associations for the production or use of certain currencies are not evidently any of those things.

We may well ask whether forced money, which would not and could not exist without a fundamental violation of both private property and freedom of association, is compatible with a Catholic vision of the common good.3


1. Not only that, but no writer prior to the advent of paper money suggested that the commodity money of his time was inadequate for exchange or argued for the economic necessity of state-imposed currency.

2. Hulsmann observes of the Popes: “They upheld this notion knowing full well that property owners are often bad stewards of their assets. They upheld it even in the cases in which the owners do not, as a matter of fact, use their private means to promote the good of all society. And they upheld it in those cases in which the owners did not even have the slightest intention to pursue the common good.”

Quadragesimo Anno 47: “The right of property is distinct from its use. That justice called commutative commands sacred respect for the division of possessions and forbids invasion of others’ rights through the exceeding of the limits of one’s own property; but the duty of owners to use their property only in a right way does not come under this type of justice, but under other virtues, obligations of which ‘cannot be enforced by legal action.’ Therefore, they are in error who assert that ownership and its right use are limited by the same boundaries; and it is much farther still from the truth to hold that a right to property is destroyed or lost by reason of abuse or non-use.”

3. Hulsmann wisely cautions that advocating natural money does not mean advocating a “gold standard”—it means advocating whatever standard or multiple standards are voluntarily chosen by people in society. It just happens that in most times and places, people have chosen precious metals like silver or gold to use as money.

Previous in series: The Problem of Money Production
Next in series: Money, Banking and Inflation

The Ethics of Money Production may be purchased in hardback from its publisher, the Mises Institute, at a third of the Amazon price, or, like all of the Institute’s publications, downloaded for free as a PDF or ebook.

Thomas Van is an administrative assistant and writer at A jazz pianist with a music degree, he often takes the lead in our commentary on the arts. See full bio.

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  • Posted by: Thomas Van - Nov. 15, 2016 11:49 PM ET USA

    garedawg: Yes, it is now legal again to own monetary gold, but the initial criminalization and seizure was necessary to effect the monetary "regime change." Of course, nobody should be compelled to accept this or that currency.

  • Posted by: garedawg - Nov. 15, 2016 9:10 AM ET USA

    People in the US are allowed to own gold and silver. However, if they walk into a store, they cannot compel the store to accept their gold.