The Free Market 20, no. 9 (September 2002)
So long greenbacks; hello pinkbacks. So says the Bureau of Engraving and Printing, which promises to start changing the color of money next fall, beginning with the $20 bill.
This bill already received a makeover four years ago. By inflating Andrew Jackson’s head, giving him a vague postmodern look, and moving him to the side of the bill, the Bureau managed to turn a perfectly respectable looking currency into something odd indeed.
But adding colors? Spokesmen say the changes are needed to deter counterfeiting, the very same reason the Bureau gave for its last redesign. A more likely explanation is that the Treasury is trying to spook money launderers and the cash-based underground economy into coming up for air.
They don’t admit that, of course. But when government fiddles with the money, you can assume with confidence that it is trying to generate new revenue. In any case, that’s what the history of government involvement with money would seem to indicate.
No one has asked the American people whether they want pink and blue money. It’s not even clear that this change will succeed, which is why the Treasury keeps issuing these trial balloons. Look what happened to the Sacagewea ”gold” (actually scrap metal) dollar. The Treasury held marathon conferences about its beauties and wonders, put it in cereal boxes, and made Wal-Marts (not banks) the distribution headquarters.
In the end, however, the public didn’t like the darn things. They were lightweight and tarnished too easily. The “œgold dollar” was nothing of the sort. In fact, it was a joke, and the government’s propaganda on its behalf made it all the funnier. As excess coins gathered dust in the Bureau’s offices, the Treasury finally stopped making them.
To be sure, history is replete with odd items serving as money: tea, cowrie shells, even cigarettes in prison camps. Mostly, money has consisted of precious metals like silver but especially gold.
There is nothing intrinsic about gold that makes it money. It has certain properties that lend itself to monetary use, like portability, divisibility, scarcity, durability, and uniformity. But these are just descriptors of certain qualities of the metal, not explanations as to why it became money. Gold became money for only one reason: because that’s what the markets chose.
But as Rothbard chronicles in his forthcoming history of American money and banking, government has always despised hard money because it had the effect of chaining down the fiscal behavior of the state. It regards gold as too inflexible. To be sure, monetary inflexibility is the friend of free markets. Without the ability to create money out of nothing, governments tend to run tight financial ships. And banks are more careful about the lending when they can’t rely on a lender of last resort with access to a money-creation machine like the Fed.
A fixed money stock means that overall prices are generally more stable. The problems of inflation and business cycles disappear entirely. Under the gold standard, in fact, increased market productivity causes prices to generally decline over time as the purchasing power of money increases.
The gold standard was destroyed in stages for the last hundred years. But even under the fiat-dollar standard of today, the crucial issue is not what the government dictates but what the market is willing to accept. The recent decline in the dollar on international exchange markets shows that the dollar’s place as the international reserve currency is not guaranteed.
The Treasury may find that it needs to tread lightly when tinkering with the color of money. It may find itself overrun with mounds of pink and blue paper notes that no one but its artistic staff likes. Private counterfeiting may indeed pose a potential danger to the economy. An even greater danger is a government that recklessly fiddles with a nation’s money supply.
Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute (rockwell@mises.org).
