Barter indicates humans prefer more to less.  Money began as a commodity.  It could not have begun any other way, regression theorem proves this.  I have explained this elsewhere, and other economists have explained it as well.  Some commodities are more marketable and serve as money better.  The precious metals outperform others due to their unique qualities.  There is a reason gold has been used and not artwork.

Over the years, states have replaced gold as money with paper.  Believe it or not, you used to be able to exchange your dollar for a real commodity, usually gold.  Try to exchange that note you have.  You can’t, it’s just paper.  Why would states want to make a central bank to print money?  Printing money is easier than mining for gold, and its an easy source of revenue.  Gold can’t be printed.  This is helpful to the early receivers, but does not confer any social benefit.  I repeat, there is no social benefit to printing money.

Of course, this isn’t good for the masses.  This was the same idea Karl Marx had, “Centralization of credit in the hands of the state, by means of a national bank.”  This was accomplished in 1913 with the establishment of the federal reserve.  Don’t confuse socialism, fascism, and communism.  Socialism is ownership by the state, fascism is control by the state, and communism is Marx’s utopia.  Why do the masses allow counterfeiting and accept statism?

Many may be thinking they disagree with this.  Centralizing credit puts the business cycle into motion, allows the state to counterfeit, and is full blown statism.  Few outside of the expropriating class would agree to this, if any.  However, passive resignation is consent, whether you think you agree or not.  Big states can form a compulsory cartel, that’s what the federal reserve system is, a banking cartel.  What if the states were small?

Issuance and acceptance are two different things.  A very small state can issue paper, but who would accept it?  A small state cannot get away with exchanging paper for a car, or any other good or service.  For example, if there are thousands of states, and five issue paper, the rest will not accept paper currency.  I’m not saying this won’t be tried, but there will be a tendency to use a commodity as money.   Historically, it has been the precious metals due to their unique quality, usually gold.

Banks can try to form a cartel as we have now, Marx is cheering in spirit.  Would that work in small states?  Banks in different states can try to form cartels, this can be tried.  One state cannot form legal tender laws in other states.  Let’s assume all states agree, in order to engage in counterfeiting.  These artificial notes may fall into the hands of non-clients, and they may demand redemption.  One bank may drop out of the cartel secretly, and point out the insolvency of their competitors, new entrances can do the same.

In large states, it’s easy to centralize credit and engage in counterfeiting.  The larger the state is, the easier it is to expropriate and wreck a society.  Note the tendency to use one paper currency.  With small states, there is a tendency to use a commodity as money, usually gold, and not to engage in counterfeiting.  Large states follow the advice of Karl Marx, small states oppose it.

References

Hans-Hermann Hoppe; Banking, Nation States, and International Politics: A Sociological Reconstruction of the Present Order

Karl Marx; The Communist Manifesto