"Oh, I am absolutely convinced that no government is capable of...politically or intellectually...of providing the exact amount of money that is needed for economic development. And, I should be all in favor...in fact, I'm convinced we shall never have decent money in name before we take from government the monopoly of issuing money and allow competing institutions...of course under different names...not issue the the same money, but competing monies...and let people decide which kind of money they prefer to use."
This may seem pretty radical. Many people think that if the government doesn't control the issue of money, poverty and anarchy will ensue. But, we already have competing monies on a global basis and it all works fine. The markets decide, based on many factors, what the exchange rate is between the Dollar and the Yen...or between the Yuan. In fact, when the European Union decided that they needed to consolidate their monies into a single currency, the Euro, it helped some countries and hurt others...so less currency competition is not necessarily best.
A century ago we had competing monies in this country. As Lawrence H. White writes on the Library of Economics and Liberty, "Much more competition in money has existed in the past. Under 'free banking' systems, private banks competitively issued their own paper currency notes, called 'bank notes,' that were redeemable for underlying 'real,' or 'basic,' monies like gold or silver. And competition among those basic monies pitted gold against silver and copper."
But, some will say, we had to get to a single currency to stop the cycle of bank panics and boom and bust. The way we attempted to do this is to give the Federal Reserve a government-granted monopoly on creating money. And how has that worked? Well, as Dr. Thomas E Woods Jr. points out in his book Rollback, "Since the Fed opened it's doors in 1914 following the passage of the Federal Reserve Act in December 1913, the dollar has lost more than 95 percent of its value, after having held its value in tact from the beginning of the republic until the creation of the Fed." That is not a very good track record of itself, but what about the Fed's stabilization of the economy? As you might guess, this also isn't necessarily the case. "Some recent research finds the two periods (pre- and post-Fed) to be approximately equal in volatility," says Woods, "and some finds the post-Fed period in fact to be more volatile, once faulty data are corrected for." So, taken as a whole, the Federal Reserve, and its monopoly on money creation, has been a over-all negative.
Many economists believe that we should return to "hard money" in the United States, and indeed across the world. Hard money is a currency that is based on something with an intrinsic value, such as gold or silver. What we have now is known as "fiat money." Investopia defines fiat money as, "Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves. Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith." Investopia further explains that, "Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation. If people lose faith in a nation's paper currency, the money will no longer hold any value." If the markets lose faith in the paper money you get what we have now, a greatly devalued dollar and lowered credit ratings.
So, government has had its monopoly for 97 years now and have done a terrible job at it. The only real solution for monopoly is...wait for it...COMPETITION! Imagine that. And the market and States are beginning to take matters into their own hands. Dan Armstrong of ConnectMidichigan.com reports that "New types of money are popping up across Mid-Michigan and supporters say, it's not counterfeit, but rather a competing currency." The International Business Times reports that "Utah just became the first US state to recognize gold as legal tender. Its Legal Tender Act of 2011 allows U.S. minted gold and silver coins to be recognized as legal tender in the value that reflects the market price for gold and silver." Minnesota, North Carolina South Carolina, Idaho and Georgia are also considering similar legislation. I believe this is a good sign that the States are willing to do what is necessary for the welfare of their own people. Competition is good.
Hayek said, "Abolishing the government monopoly on issuing money would deprive governments of persuing monetary policies...that's what I want to see." And, so do I.
