Competing currencies is the idea that anyone can create and trade with any form of money. Sounds great does it not? You can mint your own coins in your basement. You can print your own money in your workspace on your new HP printer and digital editing software and spend it, and make your own dough in your kitchen (pun intended). You can back it with anything you want, or nothing. If this sounds crazy read on.
- The Federal Reserve Bank of the USA is the primary cause of economic business cycles in the USA. Their gross misjudgments regarding the supply, demand and elasticity of money, creates the boom and bust cycles. This is not conspiracy theory, mind you, but solid monetary theory supported by data and research; and the elimination of the central bank was advocated by Hayek and other noted economist from the Austrian school, the Swedish school and free market economists. The central bank unintentionally causes poverty and inequality.
No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; – Article 1 Section 10 of the US constitution.
This seems pretty clear to me. There is no mention to a central bank, but says that States do have a right to have their own non fiat currency backed by gold and silver. Then why is there a monopoly on currency that has harmed our economic stability from the Great Depression to the Great recession (speculative boom and bust cycles cause by the Fed’s excessive expansion and loose monetary policy). To me that is clear.
The primary cause of cyclical fluctuations are…the ‘elasticity’ of the volume of money at the disposal of the economic system. – F. A. Hayek - Monetary Theory and the Trade Cycle
Why competing currencies are good
- Slows government expansion – Imagine if the government monopoly on money were broken. If there is no Federal Reserve and no government monopoly on money than the government can not recklessly create money out of thin air to fund government expansion as easily. The government empire controls the money supply.
- No business cycle – The real benefit of free money or competing currencies is stable prices and the end of the boom and bust business cycle. Not all business cycles are monetary but I believe after studying Knut Wicksell from the Stockholm school of economics and economists from the Austrian school, and simply observing the boom and bust cycles created by the Federal reserve from its creation in 1913 we can safely say, the Federal reserve is why we have rescissions and speculative booms. The supply and demand for money should be controlled by market forces not centralized government.
- Increase freedom – Ideologically why should the government have that much control over you?
- The Federal reserves routinely bails out pigs – Greedy bankers who take exorbitant risk and do not pay the price. We need to legally eliminate the US Federal Reserve.
- Secret and undemocratic – No conspiracy theory here the US central bank is run by unelected officials and their operations are largely kept in secret.
- Mainstream and alternative – Great economics and free thinking politicians from Hayek on alternative currency to Ron Paul’s currency competition, free money ideas. Many alternative currencies in Michigan or community currencies in Philadelphia are arising and working to help the poor. Competing currencies are not counterfeit, but rather just another thing people accept for trade in the market, from a gold coin to voucher worth something to paper money printed and in the seller’s and buyer’s hand worth something in a transaction.
Historical examples of competing currencies
- Community currencies in the USA – This list of community currencies is a little dated, and more are in use, but it gives you an idea that money alternatives work, it has a nice map.
- Scottish Free Banking. This period from 1716 to 1845 was a complete success. The result was a cooperative equilibrium with banks accepting other banks money. Professor Lawrence White from George Madison University wrote a book – Free Banking in Britain: Theory, Experience and Debate 1800-1845.
- Free Banking era in the United States from 1837 to 1864 – This was not true free money, but state chartered banks issuing currency backed by specie. Free market economist have argue this was a tremendous period of growth for the USA as well as monetary stability. If you research American economic history you will find that this was a great time for America. The American civil war brought a stop to this and the start of the National banking era. liquidity panics in 2007 cause the USA to move to the creation of the central bank. The cause of the 2007 panic was speculation by large banks that caused depositors to withdraw and create a liquidity crisis. Could this type of financial crisis have been averted without the subsequent introduction of the Federal Reserve? Yes. With competing currencies which would allow for the elastic expansion and contraction of money supply that without wild speculation caused by the money center of New York city banks.
- No competing currencies – Lets be honest the great depression and great recession were both caused by the central bank as well as all the other business cycles in between. Disequilibrium in the monetary markets have on the real sector, and talk of ‘the US being the lender of last resort’ or calming the markets with bailouts is a road to long-term economic malaise as well as an economic injustice that rewards the reckless and penalizes the prudent.
- The Euro – Did this really prevent anything or make things worse for Europe, again let’s be honest. If I was England I would not want to join this scheme.
- Zimbabwe – had hyperinflation until they allowed other currencies to be accepted, then inflation stopped.
- Tourist areas – I travel a lot and in tourist shops they basically take any currency that is respected, what do they care.
- Local currencies or alternative currencies People in various states have tried to use their own currencies and it worked until the Feds shut them down. However, states and people are making gold and silver depository notes as well as gold coins and using them more and more. Community currencies work.
What is money? Money is anything that can be used as a medium of exchange. Keep your mind open.
Arguments against free competing currencies
- Endless complexities that would arise from exchange rate calculations and multi currencies. – My rebuttal is it would be no difference than different credit card from various banks being accepted, as long as there is a base value of measure like an ounce of gold, then there is not a problem. And this standard measure of value would evolve quickly as gold, used since the beginning of the market at the dawn of civilization. Legal tender has value because the market says so not the government, we know where this leads. Foreign exchange or FX markets worked with this for hundreds of years and with competing currencies as gold as the value of measure it would be easier.
- If it is not broken do not fix it argument. – It is actually a question I saw on an IQ test. That is, if something is not broken,it is good to try to fix it, as you can improve something. I do not think the economy is not broken. The US currency like the Japanese Yen, Ruble, or the Euro is just a currency because the law makes it so, but it is not necessarily the optimal solution and has nothing to do with being American. If you think the USA economy is not broken, let me know.
Modern rebuttal to critics of free money
- Poor suffer with the government monopoly on money – The US Currency has lost 97% of its value since 1913 and the establishment of the Federal Reserve and there has been no lack of business cycles. This is a major reason the poor get poorer. With less disposable income they are less equip to coup with economic instability, including price movements and business cycles. The poor are hurt by this monopoly, and the rich are not to the same extend as they have financial hedges and diversification.
- Technology is moving us to free money to some extent. Sweden is basically a cashless society, if you have ever been there you know what I mean, everything is electronic. As soon as you step off the plane, the Kiosk sells tram tickets via debit cards. You use different bank Visa and Master cards. They are universally accepted. I personally, rarely use ‘cash’ or pay for anything. We are moving to a cashless society. I was walking arround with literally one dollar in my wallet for weeks. When would I use cash? Hence giving up the US dollar as money is not a much a real event but rather, an abstract idea that would not affect your day-to-day life. You could still pay with your visa debit card but just the unit of value might be set against an ounce of gold. Come on, we evolved away from barter and we can evolve away from the government monopoly on money. Numismatics has been one of my personal interest as a subset of the history of economic thought.
My mantra for freedom and prosperity for the poor as well as the rich is let the markets work. This crucial ubiquitous commodity of money is governed by a monopoly, a Federal unelected bureaucracy, not free market forces.