Why do governments hate money?

By J. Bradley Jansen
January 14, 2002

Why do governments hate money? What people want from their

money is a good store of value, medium of exchange, unit of
measurement and universal acceptance-without it tracking their
movements for Big Brother.

Private markets used to provide good commodity money before

governments got in the act. People traded goods for higher use
goods that better possessed the qualities of good money: easily
identifiable, easily divisible, durable, etc. Carl Menger, founder
of the "Austrian" school of economics, explained this
development well in his Principles of Economics.

Unfortunately, governments seem unable to resist the idea of

using money to track their citizens. Our anti-money laundering
laws for the past quarter century under the misnamed Bank
Secrecy Act have required banks and other financial institutions
to monitor our transactions and report large cash or other
suspicious activities to the government.

Congress passed quickly and with inadequate debate in the anti-

terrorism fervor new proposals to combat money laundering.
What is rarely reported is that the continuation of the current
approach will fail to prevent any terrorism. Our approach is not
designed to prevent anything-it only aims to make investigations
easier after the fact. We are no safer from terrorism by the
financial provisions of the USA PATRIOT Act.

Unfortunately, the Europeans show even less respect for financial

privacy. Many European nations have decided to give up their
national monies in place of a single Euro with the promise of
easier comparison shopping and lower transaction costs for
traders and travelers. Bureaucrats have now seized on the
opportunity to use the new currency notes as people tracking
devices. Reportedly, the European Central Bank is developing a
project to add radio frequency identification tags into the fibers
of the bank notes that will be introduced in the next few years.
Promising to thwart counterfeiters, the new tracking RFID chips
would be used to follow the money-and their owners. It wasn't
daring enough that euro is the first money in the world to begin as
fiat money not backed by anything of intrinsic value-now the
bureaucrats want to use money against their own people. Why
do governments hate money so?

The technology would enable the carry tax on cash idea

proposed most recently by Marvin Goodfriend, a senior vice
president of the Federal Reserve Bank of Richmond. Happily,
U.S. Representative Ron Paul spoke out clearly and early. By
shining a light on this idea in its infancy, it retreated back under its
rock. The carry tax would have tracked our currency holdings
and taxed the Federal Reserve Notes depending on how long
we held the cash.

As they say in the capital markets, money goes where it's

welcome and stays where it's well treated. Argentina seems a
good case in point. When the government there proposed a
currency board-like system that promised to hold U.S. dollar
reserves for each Argentine peso about ten years ago, money
flowed into the system. One strength of an orthodox currency
board is that is stops politicians from disguising the failure of their
irresponsible fiscal policies through monetary inflation. However,
the International Monetary Fund helped the local, corrupt
politicians subvert the otherwise honorable system. Now that
the government has been forced to admit it has broken its
promises, money is fleeing the country.

The multilateral organization born and allegedly designed to help

the functioning of the global capital markets is the International
Monetary Fund. In fact, the IMF's activities have been to
reward irresponsibility and corruption by national government
officials. This marginal disincentive to act fiscally responsible has
actually exacerbated the crisis: Argentina would be in a better
position now to deal with its problems if it had been forced to act
sooner and before the IMF added to its debt burden.

All the IMF's lending to Argentina may have produced is to pass

a greater burden on to the next administration. It is no secret
that former Treasury Secretary Larry Summers was deeply
involved in dictating IMF decision making. Mr. Summers should
stand up now and take responsibility for his actions. Before the
new excuse of fighting terrorism, official corruption was the
poster boy of the financial privacy haters. In reality, government
officials often say one thing and do another. Here is one more
example.

In a capitalist economy, there are always alternatives. Even with

our legal tender laws giving the government default monopoly
status, competitors have emerged. Some of these have harked
back to the atavistic desire for honest money and blended it with
new technologies. E-gold is the most successful of these so far,
but their decision to adopt Know Your Customer policies may
give the upstart GoldMoney.com room to maneuver.

If governments refuse to study history's lessons of irresponsible

monetary policies bringing down civilizations, perhaps it is time
for us to follow the advice of Nobel laureate F.A. Hayek and
denationalize money. Let people chose what money they want
best through the marketplace. Let the best money win!

J. Bradley Jansen is the Deputy Director for the Center of

Technology Policy at the Free Congress Foundation