How To Introduce Coins In A Country Where No Money Exists
Let us suppose a new government were formed in a country where no money existed. The new government wanted to coin money and put coins into circulation. Could it do so in the same manner the United States is doing in 1969? The answer is no. It could not sell the coins because the people would not have any money with which to buy the coins. How then should coins, made by the government, be put into circulation?
GOLD AND SILVER COINS
While it is not necessary to have coins made of gold and/or silver, they could be made and put into circulation as follows:
Let any person from anywhere bring any amount of gold or silver to the government mint. The mint will make the metal into coins of a certain weight and fineness that is appropriate. The weight and fineness of the coin would be guaranteed by the government. The government would not designate on the coin the value in dollars, marks, francs, etc. It merely would designate the weight and, of course, the country. The cost for the making of these gold or silver coins would be paid with a portion of his gold by the person who brought the metal to the mint and asked that it be made into the coins. After the coins were made they would be given to their owner. He could either save them or use them as a medium of exchange.
When such coins are used as a means of exchanging goods and services, such exchanges are direct barter. These gold and/or silver coins are not a claim for goods or services. They are valuable items being exchanged for other items of about equal value. [p. 69]
No injustice would be done to anyone by the making and using such coins. However, if the government sets a fixed monetary value on those coins or if the government says that the only medium of exchange which will be made or allowed must be those gold and/or silver coins, then an injustice will result because those who possess the gold and silver will have a monopoly on the medium of exchange. Also such coins might be hoarded and then no medium of exchange would be in circulation.
NICKEL AND COPPER COINS
Now let us see how the government can with justice, put nickel and/or copper coins into circulation. Remember, we are speaking about a country that has no money within the country. But for convenience of the explanation, let us say the government has a mint which is ready to operate.
The government has passed a law that says the government will levy taxes to cover all necessary governmental expenses. The officials who operate the mint for the government will hire men and buy the nickel and copper needed. They will pay the hired help and the supplier of nickel and copper with tax credit certificates. These tax credit certificates will be accepted for the payment of taxes. On the same day that those tax credit certificates are issued to pay for the necessary goods and services, the officials will levy a general tax of an equal amount. The government will accept those tax credit certificates for the payment of taxes. Therefore, the general public will also accept them as a bona fide medium of exchange.
(Note: Those tax credit certificates were earned by the government employees and also by the person who supplied the nickel and copper. Those certificates were not borrowed. They were not given out free. They were given as payment for work done and goods produced and delivered to the government (all the people in general). So when the people, as producers of goods and services, accept those tax credit certificates for the payment for their goods and services, they are paying with [p. 70] their goods and services for the work done by the government employees and for the supplies bought by the government.
When these tax credit certificates are used to pay the taxes (which were levied at the time the certificates were issued), those taxes are marked paid and the tax credit certificates are destroyed. The purpose for which they were issued was fulfilled. Such tax credit certificates are a bona fide medium of exchange; they fulfill the definition of a bona fide medium of exchange.)
The mint is now ready to make the coins. On these coins will be engraved the value they are to represent, such as 50 cents, 25 cents, 10 cents, 5 cents, and 1 cent. The coins could be made with a face value of $1, $5, $10, $20, $50, or $100 just as easily as they are made into only fractions of one dollar.
(Postage stamps and currency bills are usually all the same size but they are issued for different denominations. A $.50 postage stamp is no larger than a $.01 stamp. Also, a $50 bill is no larger than a $1 bill. Coins can be issued in the same manner. Such coins then would not be too heavy to carry or too inconvenient for use when paying large bills.
Note also: The reason why these copper and/or nickel coins have the value of the coin engraved on it, is that these coins are issued as documents. They are issued as tax credit certificates, whereas the gold and silver coins were not issued as tax credit certificates.)
After the mint has made a supply of these new nickel and/or copper coins, how will these coins be put into circulation? The government cannot sell them because the people have no money with which to buy them. The government cannot, with justice, give them away free. It cannot, with justice, loan them to the people. But the government can, with justice, pay them into circulation for the goods and services it needs, just as it did when it paid for the goods and services with the tax credit certificates. [p. 71] In other words, these coins are to be issued, used, and redeemed in the same manner as tax credit certificates are issued, used, and redeemed.
The government must also levy a tax on the general public at the same time it pays out these coins. The government will also accept these coins as payment for those taxes. When these coins are received as payment for taxes, the government will mark those taxes paid, and then in effect destroy these coins, just as it did with the tax credit certificates. The coins have fulfilled the primary purpose for which they were created.
However, the government need not really destroy these coins. They may be re-used over again and again as a medium of exchange in the payment for goods and services but each time they are re-used (after they were redeemed as payment for taxes), a new tax must be levied just as was done when they were issued the first time.
Note also: The government in this case does not make more coins than the amount necessary for the payment for the goods and services bought by the government. And a tax is levied for the same amount as the amount paid out in coins.
When coins are issued in this manner they are in effect tax credit certificates issued as coins. They serve as a bona fide medium of exchange. They will never cause inflation. The government will have all the money it needs, without borrowing.
The procedure used to introduce coins into a country without money, is the same procedure that should be followed when coins are issued in a country that already has money. When other money already exists, it is physically possible for the government to sell the coins in order to get them into circulation. But there is too much danger that it will not be done with justice. It also could be done without regard to the amount of goods and services being offered for sale, and without regard to the amount of taxes levied. Inflation could then occur. In contrast, if they are paid into circulation and an equal amount of taxes are levied and collected, no inflation and no injustice would result. [p. 72]