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The idea that the state needs to pull levers in order to manage things like inflation and interest rates isn't supported by all economists. It's definitely not

The idea that the state needs to pull levers in order to manage things like inflation and interest rates isn't supported by all economists. It's definitely not supported by the Austrian school.

pjc50 6y ago
The state or its bank largely has to set interest rates to something - it gets to choose central bank deposit rates and bond coupons. It doesn't get to set yield (that's set at auction) but it has to set the bond payout to something. The question then arises as to whether the state has a responsibility to manage inflation and unemployment.
- eru 6y ago
  > The state or its bank largely has to set interest rates to something - it gets to choose central bank deposit rates and bond coupons. It doesn't get to set yield (that's set at auction) but it has to set the bond payout to something. The Monetary Authority of Singapore doesn't do anything about interest rates. Neither does the equivalent institution in Hong Kong. The policy lever in Singapore is the foreign exchange rate. In Hong Kong, they more or less just fix the exchange rate to the USD. Singapore happens to have lots of government debt for weird reasons. Hong Kong has almost none. (And you could easily imagine a version Singapore without government debt.) So there wouldn't necessarily be deposit rates or bond coupons to set at all. In general, economies also don't need central banks. Many economies do just fine without them. Good examples today are lots of smaller economies that just don't bother with their own currencies, the process is commonly called 'dollarisation'. But historically we also had examples of successful large economies with privately issues means of payment and minimal government regulation. The free banking episodes in eg Canada, Scotland or Australia are well documented.
  - pjc50 6y ago
    > economies also don't need central banks. Many economies do just fine without them .. until you need a lender of last resort. > lots of smaller economies that just don't bother with their own currencies, the process is commonly called 'dollarisation' Also the Eurozone. And there we saw what the risk is under a real shock of having debt in externally-controlled currency. Describing dollarisation as being without a central bank is like "serverless"; there is a server/central bank, but it's in the US and occasionally goes down for reasons outside your control or understanding.
    - eru 6y ago
      You don't need a lender of last resort. Canada and Scotland did just fine without. (In fact, private Canadian banks usually played something like a lender of last resort to American banks in their recurring financial crises.) The Eurozone is a mess, that's true. Dollarisation in the strict sense of using the USD is useful when your domestic institutions crash more often than the US. But in the wider sense, currency substitution still makes sense. However, do keep in mind that these efforts really work best when the provision of currency is regulated just like making shoes or any other industry. Historically, many of these economies with privately issued currency ran on some sort of metal standard. Which is similar to dollarisation plus local banks issuing their own deposits and notes promising to pay the bearer in USD. (Also historically, no single bank ever developed a monopoly on issuing currency, but they quickly settled on a common standard of accounting. Also do keep in mind that the US experiments with private bank notes were bonkers, just like the rest of the regulation of their banking system. Look to eg Canada or Scotland for how to run a more proper system.)
eru 6y ago
You don't even have to go to the Austrian school. You can find slightly more mainstream economics about privately issues currencies as well. Look into the economic history of Canada or Scotland during their free banking era. (Ironically enough, fractional research banking is crucial to the stability of free market money and banking, but Internet Austrians seem to hate it.) See also https://www.alt-m.org/2015/07/29/there-was-no-place-like-canada/ https://www.alt-m.org/2015/07/29/there-was-no-place-like-can...

The idea that the state needs to pull levers in order to manage things like inflation and interest rates isn't supported by all economists. It's definitely not supported by the Austrian school.

pjc50 6y ago

The state or its bank largely has to set interest rates to something - it gets to choose central bank deposit rates and bond coupons. It doesn't get to set yield (that's set at auction) but it has to set the bond payout to something. The question then arises as to whether the state has a responsibility to manage inflation and unemployment.

eru 6y ago
> The state or its bank largely has to set interest rates to something - it gets to choose central bank deposit rates and bond coupons. It doesn't get to set yield (that's set at auction) but it has to set the bond payout to something. The Monetary Authority of Singapore doesn't do anything about interest rates. Neither does the equivalent institution in Hong Kong. The policy lever in Singapore is the foreign exchange rate. In Hong Kong, they more or less just fix the exchange rate to the USD. Singapore happens to have lots of government debt for weird reasons. Hong Kong has almost none. (And you could easily imagine a version Singapore without government debt.) So there wouldn't necessarily be deposit rates or bond coupons to set at all. In general, economies also don't need central banks. Many economies do just fine without them. Good examples today are lots of smaller economies that just don't bother with their own currencies, the process is commonly called 'dollarisation'. But historically we also had examples of successful large economies with privately issues means of payment and minimal government regulation. The free banking episodes in eg Canada, Scotland or Australia are well documented.
- pjc50 6y ago
  > economies also don't need central banks. Many economies do just fine without them .. until you need a lender of last resort. > lots of smaller economies that just don't bother with their own currencies, the process is commonly called 'dollarisation' Also the Eurozone. And there we saw what the risk is under a real shock of having debt in externally-controlled currency. Describing dollarisation as being without a central bank is like "serverless"; there is a server/central bank, but it's in the US and occasionally goes down for reasons outside your control or understanding.
  - eru 6y ago
    You don't need a lender of last resort. Canada and Scotland did just fine without. (In fact, private Canadian banks usually played something like a lender of last resort to American banks in their recurring financial crises.) The Eurozone is a mess, that's true. Dollarisation in the strict sense of using the USD is useful when your domestic institutions crash more often than the US. But in the wider sense, currency substitution still makes sense. However, do keep in mind that these efforts really work best when the provision of currency is regulated just like making shoes or any other industry. Historically, many of these economies with privately issued currency ran on some sort of metal standard. Which is similar to dollarisation plus local banks issuing their own deposits and notes promising to pay the bearer in USD. (Also historically, no single bank ever developed a monopoly on issuing currency, but they quickly settled on a common standard of accounting. Also do keep in mind that the US experiments with private bank notes were bonkers, just like the rest of the regulation of their banking system. Look to eg Canada or Scotland for how to run a more proper system.)

eru 6y ago

You don't even have to go to the Austrian school. You can find slightly more mainstream economics about privately issues currencies as well. Look into the economic history of Canada or Scotland during their free banking era. (Ironically enough, fractional research banking is crucial to the stability of free market money and banking, but Internet Austrians seem to hate it.) See also https://www.alt-m.org/2015/07/29/there-was-no-place-like-canada/ https://www.alt-m.org/2015/07/29/there-was-no-place-like-can...