Some of you will know I have long had an interest in money. Not in the sense that I have lots of it, though it would be nice if I did, but in how it works, what it is supposed to do, and how well it does it. I had long ago predicted a catastrophe in the current system, believing it to be systemically flawed, and have long hoped that when it came it would be terminal.

Banker Beetle
Copyright: dedmazay / 123RF Stock Photo

It was not a terribly learned or technically sophisticated analysis, and I have had to re-think lots of it – especially the idea that the system was flawed primarily because “banks create money out of nothing”. I now acknowledge that they do not create actual money – but maintain that the more or less unfettered ability, at least in most “normal” market circumstances, to create “purchasing power” in the form of pseudo money credit is just as much of a problem. And I understand that the problem is less one sided and is, as has been seen recently, shared by the banks just as much as the users of that inflated purchasing power since when the crunch comes the banks have to scramble to get their hands on some of the real stuff to cover their liabilities.

If my previous analysis of the problems was insufficient, I can at least say that I have not particularly plumped for one solution or another.

I have been wary of the “gold bugs” though feel I understand them at least a lot better having read Murray Rothbard’s “What Has the Government Done to Our Money?” (available as a downloadable PDF as well).

I have flirted with the idea that government can not only manage a fiat money system well enough but benefit from it in the form of Seignorage, following the work of people like James Robertson and Joseph Huber’s “Creating New Money” (also available as a downloadable PDF).

I have even tried, in vain I am afraid (but I have to say largely because of the acerbic and antagonistic attitude of its main contemporary proponents), to grasp the ideas of Major C H Douglas and the Social Credit movement – after all, it is probably the only “monetary system” to have held political power in its own right in various parts of the developed world.

And I have been attracted to less formal ideas of money such as documented by our own David Boyle in his various books on subjects such as time banking and local or complementary currencies.

But probably the main reason none of these ideas has me fully committed is that the most important thing you can learn about money from even a cursory study of it is that it is and has been through history, an incredibly flexible and simple concept. The very fact that there are so many theories about it and what it ought to be, how it ought to work, is testament to this. And in response to this, my instinct is that our monetary systems should be more flexible and simpler. We have created a vast and complex leviathan for something which essentially performs a few very simple tasks. And we have to ask “cui bono”?

And today I got an email from the Mises Institute advertising a little book with an essay by F A Hayek, whose ideas on competing private currencies I have long thought of as an obvious solution, called “A Free Market Monetary System”:

A Free-Market Monetary System and The Pretense of Knowledge

I urge you to read it right through – it’s only twenty or so short pages and does a far better job than I could ever do at explaining why the current system is utterly unfit for purpose, outrageously disadvantageous to the ordinary person or business and completely skewed towards those who seek power and ultimately complete power over others.

It was of course written during the last really major monetary crisis of the mid to late seventies, but I find this conclusion on the urgency of this sort of measure so prescient and apt it is almost chilling:

We have not got that much time. We are now facing the likelihood of the most unpleasant political development, largely as a result of an economic policy with which we have already gone very far.

My proposal is not, as I would wish, merely a sort of standby arrangement of which I could say we must work it out intellectually to have it ready when the present system completely collapses. It is not merely an emergency plan. I think it is very urgent that it become rapidly understood that there is no justification in history for the existing position of a government monopoly of issuing money. It has never been proposed on the ground that government will give us better money than anybody else could. It has always, since the privilege of issuing money was first explicitly represented as a Royal prerogative, been advocated because the power to issue money was essential for the finance of the government—not in order to give us good money, but in order to give to government access to the tap where it can draw the money it needs by manufacturing it. That, ladies and gentlemen, is not a method by which we can hope ever to get good money. To put it into the hands of an institution which is protected against competition, which can force us to accept the money, which is subject to incessant political pressure, such an authority will not ever again give us good money.

I think we ought to start fairly soon, andI think we must hope that some of the more enterprising and intelligent financiers will soon begin to experiment with such a thing. The great obstacle is that it involves such great changes in the whole financial structure that, and I am saying this from the experience of many discussions, no senior banker, who understands only the present banking system, can really conceive how such a new system would work, and he would not dare to risk and experiment with it. I think we will have to count on a few younger and more flexible brains to begin and show that such a thing can he done.

Thirty years on, not only is this more urgent than ever before – even if the remains of the current system can be rebuilt, it will be so hemmed in by people and institutions trying to ensure, against hope from my perspective, that the present messiness can never be repeated, that trade and growth will suffer disproportionately, but the currently proposed cures will harm far more than they benefit in any case.

Further, because of the huge changes in global communications I have written about previously that have happened even since Hayek wrote that, we are now in an era in which money can be even more flexible than ever – we can form communities of trust not based around nations for example but common interests in diverse geographic markets. This is not just a matter of urgency to get us out of present problems, but of great opportunity – to take an epochal leap into a new sort of a globalized economic system that favours ordinary people and their economic actions over the rich and powerful.

Of course for this reason alone it may never be allowed to happen, but if our collective governments, who answer of course, in theory at least, to us, the mass of us and not just the few, were not so fixated on some past fiction they want to save they could do it. If Obama really meant what he said about “government that works” he would recognize that the government monopoly of money creation does not work for the benefit of the mass of people government are supposed to serve and be really bold. But even if not, we can all begin closer to home.

Books referenced in this blog (if you want to buy them and do so through these links, I’ll get a little money from each!):

“Creating New Money” (Joseph Huber, James Robertson)


A new Financial Operating System – an Open Source alternative.