Libertarian Experiments In Private Money — Part 2 Of “This Article Will Cost You Five ‘McElroys'”

October 28th, 2011   Submitted by Wendy McElroy

For part 1 of this article, introducing the theme of private currencies, click here.

Benjamin Tucker, the great 19th-century libertarian, argued that nothing was more important to freedom than destroying the monopolies created and maintained by the state. The most destructive monopoly and, therefore, the most important to destroy, was legal tender and the banking system. In stating the manifesto of his periodical, Liberty he wrote,

It [Liberty] believes that the first point of attack should be the power of legally privileged capital to increase without work. And as the monopoly of the issue of money is the chief bulwark of this power, turns its heaviest guns upon that.

Tucker viewed monopoly banking as his bête noire.

His focus came directly from the three prominent libertarians whom Tucker considered his mentors: Lysander Spooner, William B. Greene, and Josiah Warren. Their push for private currency must be understood in the historical context. The private issuance of currency and coins was a common practice in the late 18th and early 19th centuries. Many private issues were considered far more reliable than state ones. For example, during the Civil War, it was common for the payment of monetary obligations to be specified in Bechtler gold — a private mint — rather than in Union or Confederate currencies.

Two specific events sculpted the approach of individualist anarchists to the banking monopoly and private currency. James J. Martin commented on one of them:

Few instances in American history have created as much curiosity concerning economic and financial matters among amateurs and members of the general citizenry as the panic of 1837.… Banking abuses came under concentrated scrutiny and gave rise to many proposed radical remedies.

The other event was the Civil War, in which the North used the Legal Tender Acts and the National Banking Act of 1863 to finance its side of the conflict. Through these measures, Congress guaranteed the notes of authorized bankers and legally protected them from liability for debt. The act also established a national tax of 10 percent for all money not authorized by Congress.

The 19th-century libertarians responded to these events, fresh with the knowledge that private currency not only could work but had been working well for several decades. All three (Spooner, Greene, and Warren) championed private money. An overview of their views on currency offers a window into the 19th-century mindset on private currencies.

Lysander Spooner

The natural right to privately issue currency was of primary importance to the quintessential individualist anarchist, Lysander Spooner. Private currency was necessary to ensure justice to labor; therefore, private currency was viewed as a workingman’s issue, as a matter of the rights of labor against entrenched privilege. In his pamphlet “Poverty: Its Illegal Causes and Legal Cure” (1846), Spooner argued that men deserve the full fruits of their labor and the most likely way they could get it would be by each man becoming his own employer — that is, working for himself in some direct manner.

But to be a “self-employer” usually required access to the capital necessary to buy tools and otherwise establish a business. For many, monopoly banks charged prohibitive interest rates that shut them out of the very possibility of self-employment.

Even low interest rates, if fixed by law, denied credit to some laborers. For example, if the loan sought by a laborer seemed risky to a lender, then a fixed low rate kept that lender from charging higher interest to offset the risk. Thus, any control on credit and interest rates — even those that allegedly protected the laborer — actually disadvantaged workingmen. Putting credit under the control of a banking elite killed the ability of the poor to rise out of poverty.

Spooner’s solution was not merely the removal of restraints but allowing each individual to access capital through the issue of private currency. Spooner proposed a parallel banking structure in which currency would be an “invested dollar” rather than a “specie dollar.” That is, the dollar would be backed by “property of a fixed and permanent nature,” such as a house or set of tools, instead of being backed by gold or silver.

Spooner explained what he meant by an invested dollar in “A New System of Paper Currency” (1861):

The currency here proposed is not in the nature of a credit currency.… It constitutes simply of bona fide certificates of Stock, which the owners have the same right to sell that they have to sell any other Stocks.

In defending his unusual currency, Spooner attempted to demystify money by likening it to any other commodity in the market place. It was not a unique or mysterious good that required government to produce.

Perhaps we may conclude that money is simply property that is cut up, or divided, into such pieces or parcels as are convenient and acceptable to be given and received in exchange for other property; and that any man who has any property whatever that can be cut up, or divided, into such pieces of parcels, has a perfect legal and moral right thus to cut it up, and then freely offer it in the market in competition with all other money, and in exchange for any other commodity, that may there be offered in competition with, or in exchange for, it.

But what of government’s claim to produce the only legal tender? Spooner answered,

Government has constitutionally no more right to forbid men’s selling an invested dollar than it has to forbid the selling of a specie dollar. It has constitutionally no more power to forbid the sale of a single dollar, invested in a farm, than it has to forbid the sale of the whole farm.

William B. Greene

The individualist anarchist William Batchelder Greene is best known for his book Mutual Banking (1850) in which he promoted free banking along the lines proposed by the French radical Pierre-Joseph Proudhon.

Greene viewed monopoly banks as agents of “capitalism” — what we would call state capitalism today. In his book Equality (1849), Greene wrote,

Now the banks have everything in their hands. They make great issues, and money becomes plenty;… all other commodities become dear. Then the capitalist sells what he has to sell, while prices are high. The banks draw in their issues, and money becomes scarce … all other commodities become cheap. The community becomes distressed for money, individuals are forced to sell property to raise money — and to sell at a loss on account of the state of the market: then the capitalist buys what he desires.

Like Spooner, Greene viewed a monopoly on banking or currency as an assault on the workingman and the main mechanism through which American feudalism was maintained. Government-privileged banks were “nothing but conspiracies and combinations to defraud the public.”

Greene’s solution? A free “mutual bank” would issue currency to those who pledge mortgages in the amount of one-half of the property’s value. (In fact, Greene said that “anything that might be sold under the hammer may be made the basis for the issue of mutual money.”) All members of the bank would enter a contract to accept such currency, and no loans would be made to nonmembers. To prevent inflation, the mutual money would be tied to and track the value of a silver dollar. Interest charged would be sufficient to cover the operating costs of the bank, including wages, and no more.

Like Spooner, Greene also considered decentralized banking to be a direct challenge to state authority. In a later edition of Mutual Banking, he wrote,

Mutualism operates, by its very nature, to render political government, founded on arbitrary force, superfluous; that is, it operates … by substituting self-government instead of government.

Josiah Warren

Josiah Warren, the first American anarchist, was a hands-on activist who tested his principles by putting them into action. One of his ideas was that “cost is the limit of price,” which directly expressed the labor theory of value. By “cost is the limit of price,” Warren meant that profit should be based on the amount of time and labor that went into an exchange. Profit beyond the amount of time or labor constituted a form of theft facilitated by “the money monopoly” — that is, the state’s monopoly on the issuance of currency.

Warren’s solution was a unique type of private currency based on time. He tested the practicality of his solution. On May 18, 1827, in Cincinnati, Ohio, Warren opened what he called a “Time Store” and stocked it with staples, such as flour. Warren posted a bill for public view, stating what each good had cost him and adding a 7 percent fee for overhead expenses such as shipping. This posted bill constituted the cost of the goods. Where Warren made his profit was in requiring customers to pay him for the time it took him to effect the transfer of goods — that time consisted of the initial purchasing of the good and then its sale.

This was before groceries were prepackaged or preweighed and at a time when it was customary to bargain with the shopkeeper. In fact, one of Warren’s innovations was simply the act of posting prices for goods. One of the advantages of the system was that people were far less inclined to bargain at length over prices, because they were paying for the shopkeeper’s time.

Warren explained the process:

A clock was in plain sight to measure the time of the tender in delivering the goods which was considered one-half of the labor, and purchasing, etc. the other half.

The customer would pay the retail price of the goods in traditional money and then compensate Warren for the price of his time with a labor note that promised to give back an equivalent amount of time in the buyer’s occupation. Thus, the system was a monetized form of barter. A plumber would give a labor note that committed him to “x” hours of plumbing work. If Warren did not need plumbing, he could trade that note for another one representing labor he did need. The historian James J. Martin dubbed the Time Store, “the first scientific experiment in cooperative economy in modern history.”

A thriving barter community arose, with people coming from a hundred miles away to avail themselves of Warren’s low prices. Having proven his theory, however, Warren closed the store.


The foregoing merely scratches the surface of the deep commitment 19th-century libertarians had to private currency. Many more important theorists deserve mention, from Stephen Pearl Andrews (The Labor Dollar) to Alfred B. Westrup (Citizen’s Money), from Charles A. Dana (Proudhon and His Bank of the People) to A.H. Stephenson and G.F. Stephens (Money and Currency).

It is a mistake to dismiss the currency theories of 19th-century libertarians, even though they did include a labor theory of value. As long as the default position of individualists was the primacy of free contracts — and it always was — then the free market would have inexorably established interest and hard currency.

It is equally mistaken to dismiss them because they sound antiquated or impractical to modern ears. No one knows which forms of private currency will work in our society; experimentation and some failures are guaranteed. As long as the currencies are free market, however, only those who issue and accept them will bear the brunt of a failed experiment.

End the Fed activists would do well to offer a positive alternative to government money that is based in both history and theory: private currencies. On this subject, 21st-century libertarians would do well to learn from our 19th-century heritage.

28 Responses to “Libertarian Experiments In Private Money — Part 2 Of “This Article Will Cost You Five ‘McElroys'””

  1. HReardenNo Gravatar says:

    That was some interesting history. There was an act issued by the US congress in 1849 that authorized the treasury to mint gold coins and that was the start of the US government issued double eagle gold coin.

    $ ideshow

  2. ShawnNo Gravatar says:

    Bart Simpson (gets $3 from Homer): “Hey, this isn’t real money! It’s printed by the Montana Militia!”

    Homer (angrily): “It’ll be real soon enough!”

  3. JoeNo Gravatar says:

    “then the free market would have inexorably established interest and hard currency.”

    Why is it inexorable that truly free markets will lead to hard currency?

  4. MattiNo Gravatar says:

    Free markets with their great amount of competition, will lead to harder currencies than monopoly currencies. Competition allows the customers to bargain for harder currencies.

  5. Hello Joe: There are two reasons I use the word “inexorably.” First, this has been the case through history, across cultures and, so, I project that it will be true in the future. That’s an empirical reason and open to easy falsification. Second, metal-based currency is an option. What I know of human beings is that their diversity in demand will lead to some people availing themselves of every single option there is. Given that metal-based currency is a fairly mainstream, popular option, I cannot imagine a free society in which a large number of people did not opt for it. Thus, inexorably, it would exist in freedom. Would it prevail? I don’t know.

  6. John ZubeNo Gravatar says:

    Spooner made the great mistake of not distinguishing between capital and currency. Thus he wanted to monetize all capital. Even the monetizing of all wanted and ready for consumer goods and services would already, if it were legal tender, with its compulsory acceptance and a forced value, flood the country with inflated currency, because we consume these goods and services only gradually, and still more gradually depreciates the value of capital. The main turnover means for capital are capital certificates. Currency is, primarily, an exchange medium for the daily turnovers of goods, services and labor. Freely issued and accepted in this sphere, in form of competing currencies, refusable and discountable, but accepted at par by the issuers, the providers of goods, services and labor, and issue associations, it does not require a gold or silver cover or reserve and redemption in such rare metals but merely the use of a sound value standard. Then it would, mostly, circulate at par with it. Being market-rated and refusable and competitively issued, it could neither be inflated nor deflated but would be freely supplied like tickets to performances or fares are. Have a look at my free banking bibliography and my free banking A to Z at and help to correct and supplement them.

  7. JdLNo Gravatar says:

    How ironic it is that Ms. McElroy is a rabid opponent of copyright. According to her philosophy, this article, and every other creation of hard-working men and women, will cost you nothing: you just rip it off and spout some sanctimonious nonsense rationalizing that what you have done is “not stealing”.

    • Seth KingNo Gravatar says:

      I don’t recall copyrights being mentioned in this article. Also, this article didn’t cost you anything to read nor is it copyrighted. Post it somewhere else if you’d like. I fail to see the irony.

  8. JdL…you misstate my position on copyright. I am pro-copyrights that are maintained by contract or by other free-market means. I am against copyright as a state-enforced ‘right’ and I cannot see how they fit into a natural rights framework even I am — to use your word — a “rabid” advocate of natural rights. Off the topic…it always puzzles me when intellectual differences spark such venom. Odd reaction.

    • Seth KingNo Gravatar says:

      As a matter of fact, to give a real world example of this: I pay authors to write for me. And as part of the agreement is that the author will not republish the article elsewhere. They may link to the article on my site but not republish it in its entirety. That would be an example of free-market copyrights.

      However, others may come along and republish the article on their own sites and I would neither have any recourse nor desire to stop them.

      • HReardenNo Gravatar says:

        I think it would perhaps be helpfull if you or Wendy or someone else would post an article about how copyrights might work without government enforcement or issueance. Perhaps sonmeone already has posted such an article to this site. If so perhaps a link to it would be a good idea.


  9. AndrewNo Gravatar says:

    Thank you, Seth and Wendy, for an interesting and informative review of the 19th century anarchist thinkers’ arguments regarding currency. For me the issue has to do fundamentally with the axioms of self-ownership and freedom of association. No party has a “right” to infringe by coercion, fiat, or fraud the ability of two or more individuals to use whatever medium of exchange they mutually agree upon in the conduct of their personal and business affairs.

    And though the topic interjected by JdL was separate, I must admit that I have always found the issue of “intellectual property rights” to be perplexing. Yet, as Wendy suggests, when we look at it from the anarchist’s standpoint of private contracts, voluntarily undertaken and absent intervention by an armed party with a monopoly on force, the problem seems more reducible.

    • HReardenNo Gravatar says:

      I disagree that two or more individuals have the right to use whatever mediam of exchange they agree upon. Nobody has the right to use stolen property as a medium of exchange. Nobody has the right to enslave another person and use such person as a medium of exchange.


      • AndrewNo Gravatar says:

        I agree of course. I should have been more careful to qualify my statement with a proviso to the effect that people may use whatever they want for this purpose as long as they do not violate the non-aggression principle or transgress the natural rights of others.


      • Jay MeezyNo Gravatar says:

        So you don’t believe in the typical non collectivist anarchist fashion that if you can’t defend your property you don’t deserve it? I mean that keeps things flowing nicely haha

        • HReardenNo Gravatar says:

          I don’t accept that nonsense. It sounds sorts of like National Socialism or any variety of tyranny. Under that idea those with the most weapons could take whatever property they wanted to. Those supporting tyranny would follow that line.


  10. Thank you Andrew. I’ve written quite a bit about intellectual property and you might want to do a search under the term along with my name or that of Stephan Kinsella. I am reluctant to put a link here because it may violate site etiquette.

    Jay…I do not find the idea that “if you can’t defend your property you don’t deserve it” to be typical of the libertarian anarchists I know…with the exception of those who have adopted Stirnerite egoism.

  11. HReardenNo Gravatar says:

    A recent interview: Ron Helwig of SS now has a twentieth gram unit of gold.

  12. Hermila SemmensNo Gravatar says:

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  13. CarlNo Gravatar says:

    Bust up the centralized monopolistic money empire and you get mini monopolistic money empires. The U.S. had dozens of them in the 1800’s, along with company towns and company issued scripts, which led to company owned employees.

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