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> If money is the problem, then the solution is not to engage in petty social democratic welfare reforms, but to end the monopoly on currency and allow for comm

> If money is the problem, then the solution is not to engage in petty social democratic welfare reforms, but to end the monopoly on currency and allow for communities and individuals to coordinate savings-investment decisions and account for their local capital using the denomination of currency that they have decided to create. You might be interested in Hayek's 1974 paper on the subject [1]. It's an excellent read in which he briefly outlines the evolution of money, outlines how central banking practices such as inflation targeting can be dangerous, and makes the argument for decentralized money - akin to Mundell's "currency areas" [2], although he never uses the term. The ultimate aim in decentralizing currency is the "control of value by competition" so that central banks would be unable to harm their representatives and constituents through poor monetary policy, as Hayek outlines in section 9 of the paper. This would also help curb the "beggar thy neighbor" QE "attacks" we currently observe from major US, European, Chinese, and Japanese central banks. He notes the same point about employment that you make, with which I agree: My impression is that economists have become somewhat over-ambitious concerning the degree of stability that is either achievable or even desirable under any conceivable economic order, and that they have unfortunately encouraged political demands concerning the certainty of employment at a hoped for wage which in the long run no government can satisfy. The problem is that decentralization simply transfers the power of the mint from central banks, who are generally supposed to be "public" entities that act in the best interests of the overall nation, to a natural oligopoly of private institutions that will still need government oversight, and who will have short-sighted incentives that are generally aligned against the best interests of the nation as a whole. Not to mention that this oligopoly of new, money-issuing private banks will still need government regulation and oversight to function together smoothly and provide some basic level of welfare to the low-wage, low-skill, menial laborers that will still be required to pick the food and work the registers in this capitalism, free-market skewed society. Hayek uses a shaky argument here: The real danger is thus that, while today the people submissively put up with almost any abuse of the money prerogative by government, as soon as it will be possible to say that money is issued by 'rich financial institutions', the complaint about their abuse of the alleged monopoly will become incessant. To wring from the money power their alleged privilege will become the constant demand of demagogues. I trust the banks would be wise enough not to desire even a distant approach to a monopoly position, but to limit the volume of their business may become one of their most delicate problems. He argues that banks will limit their power because they will be wary of the helpless, powerless complaints of the demagogues? That is the position we find ourselves in today, with many people upset and complaining about the power of the TBTF banks and corporate entities in the US, but with vocal demagogues unable to do anything about it but complain on internet forums. Banks will take as much power as they can get as it is the nature of the private corporation to achieve a monopoly at all costs, especially when dealing with a product like printing money that has huge barriers to entry and massive network effects that will inevitably lead to an oligopoly (think Visa, Chase, Mastercard in the credit market). I don't know what the best way forward is, but I do not believe it to be increased privatization and more power for the corporation over the individual and the society. [1] https://mises.org/library/denationalisation-money-argument-refined https://mises.org/library/denationalisation-money-argument-r... [2] https://www.aeaweb.org/aer/top20/51.4.657-665.pdf https://www.aeaweb.org/aer/top20/51.4.657-665.pdf

vezzy-fnord 11y ago
I'm aware of Hayek's 1974 work on denationalization of currency. Actually Hayek himself was somewhat confused on the subject. He didn't favor free banking. Lawrence H. White later wrote a paper in 1999 entitled "Why Didn't Hayek Favor Laissez Faire in Banking?" that clears up some misconceptions. Your definition of "currency" is too narrow, though. It includes much more than monetary certificates for bank deposits. See the history of local currencies, Silvio Gesell's Freiwirtschaft, etc. Even within a free banking system, there would be inherent limitations in that banks would have to adjust their reserves so as to make full use of their lending capacity and profit on interest, because of the clearinghouse mechanism acting as a reflux. You're aware of the free banking theories of Selgin, White and Dowd, I presume. Once you extend "currency" to being much more than bank money, though, I think your concerns become severely diminished.
- roymurdock 11y ago
  > Your definition of "currency" is too narrow, though. It includes much more than monetary certificates for bank deposits. See the history of local currencies, Silvio Gesell's Freiwirtschaft, etc. A local currency is no different in practice than a national currency. Its use is just restricted to a particular area and thus its value is tied to a different basket of goods and backed by a different issuing authority. But all of the derivative instruments would scale up and down across both categories of currency - local bonds vs national bonds, local bank deposits vs national bank deposits, local equities vs national equities. > Even within a free banking system, there would be inherent limitations in that banks would have to adjust their reserves so as to make full use of their lending capacity and profit on interest, because of the clearinghouse mechanism acting as a reflux. You're aware of the free banking theories of Selgin, White and Dowd, I presume. This addresses the possible amount of risk in the system by using clearing house latency to set a cap on fractional reserve banking and ensuring that banks are marking their positions to market and not lending out too much without enough assets to back their loans. (Note that it does not eliminate risk in the system, but that banks would have to agree with one another on the latency or "reflux" as you call it that would keep the system somewhat safe from bank runs and the proliferation of unsecured loans.) It does not address the issue of the redistribution of wealth and the creation of social safety nets that would be minimized under a free banking system as they are inefficient in a pure profit sense. > Once you extend "currency" to being much more than bank money, though, I think your concerns become severely diminished. I use "currency" as Hayek does: a generally accepted media of exchange. This definition is already sufficiently broad, as it captures all money created by all central banks, as well as most forms of marketable equity and debt, which are simply first order derivatives of the money created by a central bank. I'm not sure what "bank money" refers to but I assume this definition covers that asset class as well. So it is almost impossible to broaden the definition I am working with, and it does not diminish the validity of my argument or concerns at all.

vezzy-fnord 11y ago

I'm aware of Hayek's 1974 work on denationalization of currency. Actually Hayek himself was somewhat confused on the subject. He didn't favor free banking. Lawrence H. White later wrote a paper in 1999 entitled "Why Didn't Hayek Favor Laissez Faire in Banking?" that clears up some misconceptions. Your definition of "currency" is too narrow, though. It includes much more than monetary certificates for bank deposits. See the history of local currencies, Silvio Gesell's Freiwirtschaft, etc. Even within a free banking system, there would be inherent limitations in that banks would have to adjust their reserves so as to make full use of their lending capacity and profit on interest, because of the clearinghouse mechanism acting as a reflux. You're aware of the free banking theories of Selgin, White and Dowd, I presume. Once you extend "currency" to being much more than bank money, though, I think your concerns become severely diminished.

roymurdock 11y ago
> Your definition of "currency" is too narrow, though. It includes much more than monetary certificates for bank deposits. See the history of local currencies, Silvio Gesell's Freiwirtschaft, etc. A local currency is no different in practice than a national currency. Its use is just restricted to a particular area and thus its value is tied to a different basket of goods and backed by a different issuing authority. But all of the derivative instruments would scale up and down across both categories of currency - local bonds vs national bonds, local bank deposits vs national bank deposits, local equities vs national equities. > Even within a free banking system, there would be inherent limitations in that banks would have to adjust their reserves so as to make full use of their lending capacity and profit on interest, because of the clearinghouse mechanism acting as a reflux. You're aware of the free banking theories of Selgin, White and Dowd, I presume. This addresses the possible amount of risk in the system by using clearing house latency to set a cap on fractional reserve banking and ensuring that banks are marking their positions to market and not lending out too much without enough assets to back their loans. (Note that it does not eliminate risk in the system, but that banks would have to agree with one another on the latency or "reflux" as you call it that would keep the system somewhat safe from bank runs and the proliferation of unsecured loans.) It does not address the issue of the redistribution of wealth and the creation of social safety nets that would be minimized under a free banking system as they are inefficient in a pure profit sense. > Once you extend "currency" to being much more than bank money, though, I think your concerns become severely diminished. I use "currency" as Hayek does: a generally accepted media of exchange. This definition is already sufficiently broad, as it captures all money created by all central banks, as well as most forms of marketable equity and debt, which are simply first order derivatives of the money created by a central bank. I'm not sure what "bank money" refers to but I assume this definition covers that asset class as well. So it is almost impossible to broaden the definition I am working with, and it does not diminish the validity of my argument or concerns at all.