Currency Competition

At Townhall is a John Stossel piece on what he calls "currency competition", which does a very good job of summarizing the history of the government's monopoly on issuing currency, introducing to readers the history of fuller competition in banking, and noting how and why the current government monopoly is bad.

There used to be private currencies. A businessman who sold iron and tin made coins that advertised his business. The Georgia Railroad Co. also produced its own currency.

...

When government monetary policy is too loose, you get hyperinflation, like in Germany in the 1920s. A more recent example is Zimbabwe, where prices rose so fast that the government printed bills with a face value of 100 trillion (Zimbabwean) dollars.

"That has never happened in the case of private competing currencies," said [former Federal Reserve economist David] Barker, who wants to abolish the Fed. "In all of those instances in world history where we've had (competition), we have not had rampant runaway inflation."

Read the whole thing. If you have time, Wendy Milling wrote a longer piece, "Forget Gold, Let's Denationalize Money", in a similar vein some time back. And whether you have time or not, you should (re)visit Francisco's "money speech" from Ayn Rand's Atlas Shrugged, part of which speaks directly to this point:

Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, "Account overdrawn."

Regarding "arbitrary setter[s] of values", Stossel gave a great example: "One day, Roosevelt was asked how he picked the change in the price of gold, and he said he increased it 21 cents because 7 was a lucky number (3 times 7)."

Something occurred to me while reading the article: The legal meaning of the term "counterfeiting" becomes itself counterfeit in the context of the government's being able to arbitrarily change the value of monetary units while forbidding alternatives. In the context of a free banking system, with currency directly convertible to some valuable commodity, counterfeiting is a form of fraud enabling the counterfeiter to commit a form of theft by spending fake money. In today's context, that meaning still rightly applies -- except to what is effectively the biggest criminal cartel of all -- and it wrongly applies to anyone who would offer an alternative currency with actual backing.

-- CAV