A monetary system is established when it is recognized by law. That is why money is termed numisma (from which we get numismatics), meaning law; it is a creation of law. Currency becomes money by the authority of the State or ruler, who enforces its acceptance, and takes it as payment for taxes. By law, currency can be issued or changed; old currency and coinage can be made useless and demonetized.1
Like a stable legal system, a stable monetary framework is an extremely important component in a market economy. Hence, it falls upon responsible government, which exists for the common good, to limit money and currency supply, prevent counterfeiting, and keep money’s value stable. This responsibility of government in monetary systems has been universally recognized throughout history. Our own American Constitution explicitly grants Congress the power to “coin money, regulate the value thereof, and of foreign coin.”2
1. Saint Thomas holds this view when he states: “But if the situation of the human beings who use wealth is altered (e.g., if it should please a king or community that coins have no value), money is of no value and offers nothing for the necessities of life.” Aquinas, Commentary on Aristotle’s Politics, trans. Richard J. Regan (Indianapolis: Hackett Publishing, 2007), 53.
2. U.S. Constitution, Article I, Section 8. In quoting the American Constitution, Milton Friedman notes: “There is probably no other area of economic activity with respect to which government intervention has been so uniformly accepted.” Milton Friedman, A Program for Monetary Stability (New York: Fordham University Press, 1980), 8.