Mark W. Hendrickson
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Editor’s note: A version of this article first appeared at Forbes.com.

What do Dr. Victor Frankenstein and the architects of the euro currency have in common? Answer: They both created monsters.

The euro is not “money” any more than the monster created by Dr. Frankenstein was a man. Whatever resemblances there may be to the genuine article are merely superficial. Nor is government needed to create money, any more than government is needed to create another human being. These things happen naturally.

In the case of money, it develops in the marketplace in response to the need for a medium of exchange for economic goods. Prices are ratios that communicate the degree to which individuals value the marginal (next) unit of the finite supply of economic goods.

Historically, societies around the world frequently found gold and silver to be the most suitable commodities to serve as money. Why? First, people value gold and silver whether they are used as a medium of exchange or not. Second, those metals have the natural advantages of being durable, divisible and portable. Third, it is easy to standardize the quality of each unit.

A government’s perpetual tendency to amass more power impels government leaders to establish a monopoly over money. To facilitate increases in government spending, sovereign powers replace genuine money with fiat money—that is, paper money or, in the digital age, unseen binary data bytes. In doing so, governments and their central banks divorce money from its organic origin as the most marketable commodity in a society.

Commodity money is like a giant oak tree, firmly rooted in the soil of everyday voluntary economic choices. It is an organic, natural part of the economic ecosystem. When governments remove the commodity backing from money, people may continue to use it as a medium of exchange out of habit. Usually, though, legal tender laws compel them to keep using the fiat currency as their “money.” On the surface, everything initially appears as it did before. Beneath the surface, however, the metaphorical oak tree that symbolized money has been separated from its roots. From the time real money is replaced by its fiat counterfeit, it starts to die from within. Eventually it collapses under the stress of some financial or political storm.

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Mark W. Hendrickson

Dr. Mark W. Hendrickson is an adjunct faculty member, economist, and fellow for economic and social policy with The Center for Vision & Values at Grove City College.