Currency in Anarchy

In his book The Problem of Political Authority Michael Huemer presents a world that appears to provide the same goods and services as the one in which we currently live but does so without the use of a coercive paternalistic government. This, he argues, is a better system than the one we have now because it actually reflects the desires of all people living within the system. This society, he argues can only come about form liberal democracies neighbored by liberal democracies which have progressed to a certain point. Whether or not the United States of America has reached that point by 2022 is left up to the reader to decide. One thing that is not clearly addressed in his book is the role of currency in this Anarcho-Capitalist model. There are several theories of money that will provide unique perspectives on the role of money, currency, and banking. I will argue that the currency institutions required of an Anarcho-Capitalist system will exclude the conditions Huemer places on the societies that are eligible for the progression to anarcho-capitalism and further, that no reliable currency system could operate in Anarcho-Capitalism.

Throughout this paper I will reference a national bank and currency systems. These are placeholders for the much more complex relationships between the US national bank as a concept, US federal reserve bank, and US treasury, all of which are different. I hope to provide enough context that the use of the terms is clear.

The Economist Randal R. Wray in his book Modern Money Theory discusses the theory that demand for a currency is created by the necessity to pay debts in that currency. In this way, the demand that perpetuates the US Dollar is the requirement to pay taxes every April denoted in said US Dollars. Historically, banks printed their own bank notes that were accepted at the local businesses around that bank and perhaps in the surrounding metro area, but if a holder of banknotes were to travel to a neighboring city that did not have an affiliated bank, the holder of the bank notes would need to exchange them at some lower rate (enough to cover the banks cost to travel to the other bank and get a full exchange value for the bank notes). The force driving the demand for each individual bank note was debt. With the advent of the US central bank and eventually the US fiat currency (what we recognize today as the US Dollar) is there anything more than the requirement that taxes be paid in US dollars propping up the system, and if not, is this enough to justify taxation as a preservation of the financial system?

Based on the writings of Huemer, it is likely that crypto-currencies are the most likely medium of exchange in his anarcho-capitalist model. This is because they are demand-based currencies, as I will describe later, and are not implemented by governments, nor are they backed by state institutions. If government were to disappear overnight, cryptocurrencies would remain unchanged. Cryptocurrencies are reliant on the internet and other digital resources which we can also expect will remain unchanged with the introduction of and anarcho-capitalist system. Finally, cryptocurrencies meet the basic principle of providing a medium of exchange for transactions of goods and services, granted with a number of limitations at the moment, such as long transaction times. There is reason enough to believe that on the scale that Huemer presents the adoption of Anarcho-capitalism that these issues could be resolved and practically speaking it could serve our needs. Would it, however, allow a national system to run, and perhaps more importantly, to grow?

In the last 10 years the introduction and raid market growth of cryptocurrencies like Bitcoin and Ethereum have illuminated further thoughts about this topic. The high volatility in crypto-currencies relative to more stable “state monetary system backed” currencies, like the US dollar, has suggested that these cryptocurrencies might be lacking a fundamental element which is present in its alternatives. Value of cryptocurrencies is driven by demand like most normal goods. As demand for the good grows so too does its price, and because the quality of Bitcoin, Ethereum, and the others is fixed the share of the pie is divided without the pie growing. So, if the reason for the demand of cryptocurrencies is fundamentally different than that of State currencies is one better suited for an anarcho-capitalist model?

On first appearance, a pure demand-based currency like a cryptocurrency looks like it is a natural addition to an anarcho-capitalist system. The replacement of state institutions by privatized alternatives can be clearly recognized in these non-state-affiliated cryptocurrencies. However, consider the possibility that in order to function a market must operate on a neutral currency that is able to grow with population change and technological advancement. With cryptocurrencies you appear to develop a new version of mercantilism, where the fixed quantity of monetary resources (formerly gold) are pursued and horded by individuals crippling growth and development. Because monetary resources are seen as scarce and stagnate, systems to extract these resources without returning them will develop, and the natural cycle of the economy will cease. In its present iteration the cycle is represented by figure 1. So, if the implementation of cryptocurrencies as our primary medium of exchange is likely to bring about a new mercantilist system, what does this mean for our liberal democracy? Considering that one of the foundational elements of liberalism is the recognition that monetary resources are not finite, and by extension, states need not compete to the detriment of one another, this seems to be a regression.

So, if cryptocurrencies require would entail a mercantilist system, and a mercantilist system is not eligible for Huemer’s Anarcho-capitalist model, then what alternatives could be used? Another option would be a private national bank which takes the place of the current US national bank. In this example we see little change to the banking system we have now as one institution is backing all money circulating through the economy but is owned and operated privately. This is problematic for two reasons. One; it would, by nature, not allow for competition in the “national bank market” and two; it would cause the national bank to act in profit seeking ways which would be detrimental to the banking system and currency holders. These concerns make the privatized national bank much less appealing.

A private national bank would face little competition as, by nature, it is a single agency which issues and controls currency and money balances. If there were more than one, you would fall into the same trouble discusses before of competition and demand. Instead, a private national bank would charge all holders of currency a small fee to execute the office previously administered by the government. The profit seeking nature presents a more pressing issue for this option. The primary way that a monopoly firm can generate revenues is by charging more than the market rate for services which subscribers must pay. A central bank type-business would have an additional incentive. Through the economic concept of seigniorage, there is an incentive for a central bank to print and distribute currency. This created inflation and acts as a tax on currency holders to the benefit of the firm printing the money. A firm has in incentive to print as much as they can while also being paid by their subscribers. This is exploitive in nature, even beyond the typical outcomes of capitalism.

So, if no clear alternatives work in the Anarcho-capitalist system, what medium of exchange can be expected to underpin the system? Would one public institution (or perhaps a “private” firm that is not allowed to act in the typical profit seeking manner) be able to provide what is necessary? Whether or not an anarcho-capitalist system could in principle have a single shared public institution is not for me to say, but whether or not is would work seems clear. This firm seems to address all of the problems above including the mercantilist concerns, the profit seeking concerns, and the monopoly concerns. A firm that has no expectation or ability to turn a profit, but instead exists to serve the need has little incentive to cause harm to the national currency system. This is the best possible option, but it too raises some concerns.

It seems that Huemer has overlooked a critical element of the Anarcho-capitalist model, which needs to be addressed if a convincing and practical conception of an anarcho-capitalist system is to be developed and proselytized. The problem does pose an interesting question about Huemer’s belief that only certain societies are eligible for anarcho-capitalist and how important this is. Must all elements of a society resemble liberal institutions? Would an anti-trade nationalist party be able to do enough “damage” to a western democracy to leave the state ineligible? Again these questions are not for me to consider now, but they seem to be the natural progression of this line of questioning and respect further consideration.

Bibliography/Works Cited

  • Huemer, M. (2013). The problem of Political Authority: An examination of the right to coerce and the duty to obey. Palgrave Macmillan.
  • Wray, R. L. (2015). Modern money theory: A Primer on Macroeconomics for Sovereign Monetary. Palgrave Macmillan.


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Being one of the oldest cities in the country, over 2000 years old, Braga perfectly combines the traditional and the modern, providing a journey through the history and architecture of different times. In this city in the north of Portugal, the heart of the Minho region, it is possible to appreciate traces from the Roman era (when it was called Bracara Augusta, honoring Emperor Augustus). But also visit the first Cathedral in the country, built in the 12th century. 


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