The Policy of Property Integrity: Money and Banking

The law is simple, but it leaves nothing for politicians, bureaucrats, or cronies to exploit.

Policy prescriptions based on causal-realist analysis are deceptively subtle and, therefore, many people fail to grasp their potency. This may result from previous conditioning that programs most individuals to either assume that a government program is required to study and manage a situation or, by design, the variables are so complex that it is not worth their time to try to figure it all out. In either case, the lack of clarity leaves room for cunning individuals and political entrepreneurs to capitalize on the situation.

Take, for instance, money and banking. Causal realism concludes that money should be a market-chosen commodity developed through an evolutionary process of property exchanges. Historically speaking, the commodities most often selected, when left to voluntary choices in an unhampered market, are gold and silver.

Therefore, the policy prescription, also incorporated into the United States Constitution, is for governments to purchase gold and silver at market prices and coin the metals into money according to fixed weights and measures. This service provides people with relative certainty about the commodity’s authenticity and readily facilitates trade within the political jurisdiction of the currency’s issuance.

Of course, it is natural for people to want a safe place to store their monetary metals and even to carry or use warehouse receipts for the sake of convenience. Thus, paper or digital money substitutes, also known as fiduciary media, can also enable commerce as a representative of the commodity money held at a bank or other financial institution.

Under a strict property-based legal regime, banks would be prohibited from issuing fiduciary media that did not represent a determined quantity of the designated commodity, such as the weight and fineness of gold or silver. The amount of fiduciary media issued by a financial institution would, of necessity, need to always equal the demand deposits held in inventory. Issuing a warehouse receipt for money that is not held in deposit would constitute the crime of fraud.

However, the simplicity of this approach for a market-chosen, government-certified commodity money affords no opportunity for political manipulation or favoritism. Sound money imposes fiscal discipline upon politicians and other political actors and, therefore, elaborate propaganda campaigns are issued to justify deviation from the principles of political economy.

Bankers and other fiduciary service providers also support the idea of being able to issue money substitutes beyond what is held in inventory because it offers increased profit opportunities from selling loan contracts and collecting interest payments. It is not surprising, then, that bankers often form alliances with politicians to cooperate on shaping public narratives on the need for regulatory frameworks that erode a sound monetary regime in favor of fractional reserve banking, credit-based money substitutes, and custodial ownership arrangements that erode property rights while also imparting economic uncertainty from the variability of the money supply.

The policy prescription under a causal realist political economy is always to protect private property and the free exchange thereof via voluntary contracts. Politicians and other politically connected actors have an interest in undermining the direct implementation of a property-centric common law. Money and banking is just one area in which to observe this phenomenon.